Things to think about for 2013: (5) Niche firms

This is the fifth in my series of blogs looking at the prospects for different segments within the consulting industry.

“To generalise is to be an idiot,” wrote the 18^th century poet and visionary, William Blake.  “To particularlise is the alone distinction of merit.  General knowledges are those knowledges that idiots possess.”

Leaving aside Blake’s somewhat challenging grammar, it’s hard to find a more apposite observation when you come to think about the fortunes of niche consulting firms.  In the first place, you have to be wary about generalisations (not least to avoid accusations of idiocy): niche firms account, we estimate, for around 16% of all consulting across Europe, the Middle East and India, and cover the most extraordinary range of different sectors and services.  This drives huge variation in performance: a firm specialising in public sector strategy in the UK is probably having a pretty torrid time at the moment, but one focused on emerging-market growth in the German manufacturing sector will be worked off its feet.

But beyond strategic choice (the market you’re in and the services you deliver), focus – particularlisation, as Blake call it – is the major determinant of performance.   Clients, we know, want to work with specialists, so it should follow that the more specialised you are, the more you’ll grow.  But inertia (staying with the more generic consulting firms they already know well), worries over quality and niche firms’ lack of international coverage all make that shift from generalists to specialists harder to do in practice.  Seen from this perspective, the quality which enables niche firms to grow (specialist expertise) also prevents them from doing so: clients are less likely to have heard about them, and their smaller scale counts against them on international projects.  The more a firm specialises, the more it should grow, but the harder growth becomes.

There are two ways niche firms will be able to avoid this vicious circle – and these will also hold the key to growth in 2013.  The first is thought leadership: niche firms often treat thought leadership as a nice-to-have, something they’ll squeeze in, in their spare time – and it shows.  The vast majority produce poor thought-out, badly presented material which only scratches the surface of what they are (or should be) capable.  Yet thought leadership is important because it can be passed on from client to client, giving even the smallest firm a disproportionate reach.  The second is alliances, partnerships and even acquisition.  Specialists need other firms who can join the dots, seeing connections and recognising expertise that clients don’t.  I’ve long thought – and written – that one of the ways the consulting industry may reshape itself in the future is for firms to fall into two camps: branded, front-end firms who own client relationships and orchestrate projects; and back-office, white-label consultants who deliver.  We tend to think this scenario would benefit big firms because it would give them access to skills they don’t have internally, but it would be good for niche firms, too, introducing them to a wider audience, providing cross-border support and effectively vouching for their quality.

Both of those strategies – thought leadership and finding bigger firms to work with – depend on one thing and here again Blake has hit the nail on the head: “General knowledges are those knowledges that idiots possess.”  Niche firms need to have and articulate knowledge that no one else has: that’s the challenge for 2013.