by Tim Williams
What is the strongest predictor of success in business? According to one of the most comprehensive studies of business management ever conducted, the answer is a clearly stated, focused business strategy.
Human logic argues for the opposite: offering a “wide range” of products and services, marketed to a broad spectrum of customers. Common sense imagines some kind of “general market,” but marketing is not common sense, and never has been.
Professional service firms are among the worst offenders, promising “full service” (a meaningless term if there ever was one) to all comers. This misguided pretension creates a global oversupply of derivative competitors who offer no meaningful way for prospective clients to compare and contrast their core competencies. They under-appreciate the truism that clients of professional firms buy expertise, and by definition one can be expert in something, but not everything.
The second of Google’s principles of value creation is “It’s best to do one thing really, really well.” When a firm claims proficiency in 27 diverse areas, they’re putting their misunderstanding of business strategy on full display.
The claim of full service is not a strategy, but rather the absence of a strategy, because it fails to make the choices that lie at the very foundation of strategy making. “To have a strategy, rather than vague aspirations,” says Richard Rumelt, “is to choose one path and eschew others. Strategy is scarcity’s child.”
Digging shallow holes
Artist Julian Schnabel challenges us with the question, “Do you know the territory, or are you just a tourist?” Tourists in a given area may have some practical capabilities, but they don’t really know the territory. They understand how to get some things done, but they don’t have serious, focused expertise.
The tourist digs many shallow holes, while the expert digs one deep one and mines rich veins of knowledge and understanding. They know that the interesting stuff happens when you go deep, not wide.Deep expertise creates what author Umair Haque calls “thick value.” Writing in The New Capitalist Manifesto, Haque says organizations that deploy their intellectual capital in effective and responsible ways “are able to turn thin value on its head and create thick value instead — value that matters, value that lasts, and value that multiplies.”
Consider that the breakthrough work being done in any field – science, medicine, architecture, art — is being done by the specialists, not the generalists. That’s because when you’re immersed in a particular area, you have the framework and insights that provoke exploration past the obvious. Otherwise, you’ll just be scratching a very superficial surface. As Seth Godin writes, “Expertise gives you enough insight to reinvent what everyone else assumes is the truth.”
Not what you do, but what you know
Advertising agency professionals in particular resist this idea, thinking back to examples they remember of clients presumably hiring the firm expressly because it wasn’t “steeped in the conventions of the category” and could therefore provide “fresh, unfettered thinking.” While a generalist firm can sometimes provoke reactions of “that’s interesting” from an agency selection committee, they rarely are able to provide the kind of deep, relevant insights that actually win the business.
An agency arguing to a manufacturer of jet engines that “We’re not tainted by prior experience in the aviation category” is like a law firm arguing that they’re not tainted by an understanding of divorce law to a client seeking an end to her marriage. Agency professionals lose sight of the fact that clients hire them not for what they do, but mostly for what they know about the client’s specific category, market, and audience.
The right way to think about diversification
This isn’t to say that your firm can’t offer multiple products and services. It can, as long as the offerings revolve around a limited number of core competencies. For example, Apple, BMW, and Nike produce a number of different products, but they all revolve around a common functionality. In their book Connected by Design, Barry Wacksman and Chris Stutzman call this “functional integration.” In the case of Apple, the company’s line-up of smartphones, laptops, online music services and digital watches represent products that aren't inherently similar, but are all connected by a common ecosystem; they are functionally integrated.
This is not the same concept as diversification into adjacent markets or service lines, but rather a limited portfolio of carefully-selected products and services that complement one another in synergistic ways.
With some original thinking, similar synergies can be created in the business models of advertising agencies, law firms, research firms, consultancies, and professional service businesses of all kinds. In effect, a strategy of functional integration can make your firm greater than the sum of its parts.