Professional Service Firms as Innovators

Tom Peters

This week, I conclude with a discussion of innovation, technology, organization, and leadership.

INNOVATION. As I see it, there are two, competing positions on innovation in professional service firms: (1) the professional service firm as conservative and professional to a fault in providing client service; or (2) the professional service firm as an agent provocateur, a challenger of cherished beliefs. Most professional service providers do useful work. But all too few manage to stir the pot. Worse yet, any number fail even to try to stir it.

Boston Consulting Group (BCG) got the drop on McKinsey & Co. in the 1970s by having a sharp point of view about successful and unsuccessful business strategy. McKinsey, by contrast, was “thorough.” BCG regularly took important sales from McKinsey for a time—and was considered by recruits to be far more interesting. McKinsey’s service fanaticism prevailed in the long haul, but only after it fought back by somewhat sharpening its research skills. (BCG, after stumbling in the early 1980s, is emphasizing a new, vital perspective on business strategy—and I expect it to once again give McKinsey fits.

Ogilvy & Mather of old was both ideologue and master of customer service excellence. But now, young ad agencies arguably are more creative and interesting, amid market conditions that cry out for more creativity. Even accountants can be provocateurs. Arthur Andersen was. But today, top software houses such as Lotus have shined in accounting innovation. Among other things, I repeatedly chide Big Eight firms for surrendering spreadsheet innovation to software nerds. Likewise, upstart Drexel Burnham, not Brown Brothers Harriman, for better or worse, created the junk-bond renaissance, igniting the most significant capital market revolution this century.

There is a trade-off between creative needling and emphasizing client service excellence at all costs. It’s analogous to the battle between Apple and IBM. At issue: to be mainly interesting or mainly meticulous. Obviously, a successful outfit in any industry must be quite a bit of both. Nonetheless, many of the big professional service firms have gotten as stodgy as their old, big clients.

Success may accrue for a while to those who side-step this trade-off. But irrelevance and decline await firms that overemphasize client service excellence at the expense of having something interesting to say.

TECHNOLOGY. Professional service firms are not just advisors. In our information-intense world, they are full-scale partners in information-collection and -manipulation networks that are coming to dominate both the service and manufacturing sectors.

The effective professional service firm, in law, accounting, or management consulting, must quickly become a sophisticated exploiter of information technology (IT). The wise consultant’s (or lawyer’s or accountant’s) product portfolio will be dramatically altered by the thoughtful use of IT. Those who don’t create major new IT-based services will rapidly fall behind. The professional services, like most all of business, are quickly becoming high tech, systems oriented.

ORGANIZATION. Organization structure, for professional service and other firms, is the driver of business strategy. The “client service excellence” versus the “be interesting” split is once again a central issue. I expect that successful professional service firms will increasingly emphasize research and development arms and information technology units.

I also expect little of value to accrue from the merging binge in advertising, accounting, and legal services. Mergers there will be as stultifying as they have been by and large in the industrial sphere.

LEADERSHIP. Professional service firms have had their share of blue-chip leaders—such as James 0. McKinsey and Marvin Bower at McKinsey, Bruce Henderson at BCG, Arthur Andersen at Arthur Andersen, David Ogilvy at Ogilvy & Mather, and Henry Bloch at H&R Block. These people coupled a fresh vision with an ability to create an institution.

There are two building blocks of effective leadership in turbulent times: vision and an ability to turn the vision into a sustained competitive advantage over time. These essential factors are absent in many giant professional service firms. A number of huge accountancies, in particular, have turned into dull, numbers-driven bureaucracies; imagination, in-touch leadership, and closeness to the client have atrophied.

BCG et al’s challenge to McKinsey in the 1970s, Chiat/Day et al’s challenge to Ogilvy & Mather, and Drexel Burnham et al’s challenge to established investment houses in the 1980s speak to the requirement for continuous revival.

Only perpetual freshness of vision will inspire the professionals who deliver the service. They will be excited by a spirited dream that’s in tune with the times, and by being in touch with leaders who create and demonstrate the potency of that dream. Inspired leadership is magical. But a lot of the magic is gone in big professional service firms today, as in their industrial counterparts—and at precisely the wrong time.

(c) 1988 TPG Communications.

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