Diversification or Specialisation

How much diversification or specialisation is a good thing? We live in an age where there is an unhealthy presumption that to attract buyers of professional services, financial services, insurance and so on, you must be a “niche” expert to succeed.  Where is the evidence that is true? Buyers largely want three things: “ESR” Expertise (breadth of intellect, knowledge and IP), Speed (rapid and permanent resolution of an issue) and Results (tremendous return on investment).

Pick any mid and large sized organisation and the following five priorities plus others you wish to add, will largely top their list:

  1. Top line revenue growth (enhanced success selling new products to existing clients, resulting in increased profit margins on repeat sales)
  2. Dramatic improvement in operating margins (reduction or elimination of unproductive resource and risks that eat away at profit margins)
  3. Rapid reduction in business acquisition overheads (closer proximity to the client and multiple channels to distribute your products and services)
  4. Increased emphasis on profitable growth and expansion (greater focus on innovation and reinvention, not problem-solving)
  5. Increased success attracting key talent (greater propensity to invest in and build up the key strategic area of the business e.g. sales and marketing or research and development)

Today, this is where the greatest amount of money and motivation is to buy advice and raise performance to new levels. To accomplish any of the above challenges there is a series of inter-connected issues that need to resolved.

For example, take a US$1 billion insurance company with aspirations to double its top line revenues, build a stronger and more powerful brand, leverage that brand’s equity to attract more impressive clients and talented employees. In so doing dramatically increase its’ EBITDA contribution and the value to its’ stockholders. Should top management decide they want external “help” to supplement or replace internal competencies to proceed rapidly towards their goals, they are going to pick up the phone to the person(s), who brings a high degree of “wisdom”. By wisdom, I am talking about ideas, not solutions. Proven success practices (new ways to compete or deploy capital productively), industry insights, innovative concepts (distribution, underwriting), examples, provocative thinking and persuasive language about “what”, “where”, “when”  and “why” they should take action. If your expertise is a US mutual professional liability reinsurance broker or an insurance data analyst, I am sorry you are unlikely to get the call. If your expertise is accelerating the profitable growth and expansion of financial services businesses, chances are if you have a strong brand and a trusting relationship with the management team, you are going to be on the shortlist.

Large and mid-sized advisory businesses are awash with people, who know a hell of a lot about a very little. Over the past 25 years the beliefs of the leadership in those firms have governed their career development and hiring practices. There is a huge misalignment between corporate clients (buyers), the complexity of their business challenges and the breadth and relevance of expertise they can call upon. Assuming you have or can acquire the competencies and passion to address a broad spectrum of client needs, why wouldn’t you do so? That of course, presumes  that you and your colleagues have the inclination and confidence to reinvest in your own firm (new intellectual property, provocative thought leadership) and the belief that only constant reinvention will allow the practice to thrive.

© James Berkeley 2014. All Rights Reserved.

 

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