One way of starting a strategic groups analysis of a marketplace for professional services that I have found useful in working with PSFs is to introduce a retailing analogy. These groupings, in the professional service context, may be seen to have the following profiles:
Upper market traders usually smaller, old established PSFs with something of an ‘exclusive’ image. Often they have limited office networks but very good informal networks of contacts and referral sources that have been built up and carefully cultivated over a long period. These firms compete openly upon quality, are often seen within the profession as arrogant and have high fee levels, e.g. Cazenoves in stockbroking.
Supermarkets these are usually the largest firms in the profession with the widest office network. They offer a huge range of services without being seen as specialist in any particular service area. These firms compete upon the ability to provide ‘one-stop shopping’ and also often upon their international arms or network links, e.g. Ove Arup in consulting engineering.
Small supermarkets these usually form the second and third tier of firms in a profession. These are medium-sized firms, who usually wish to emulate the larger firms and therefore offer a wide range of services although often with a smaller office network and weaker international links. The small supermarkets usually attempt to differentiate themselves by offering greater partner accessibility and often lower fees than the supermarkets.
Boutiques these are smaller firms who concentrate upon a specific segment of the marketplace as the main part of their business. They will initially specialize in either a type of service offering or in a specific industry and will be perceived as a leader in this segment by the marketplace. Such firms often have small office networks and tend to concentrate more on individual geographic locations, e.g. Stoy Haywood accountants specializing in franchising.
Discount stores these often make up the bulk of the number of firms in a profession. They are most often locally based small partnerships with relatively limited specialist expertise. These ‘general practices’ are usually the cheapest and most abundant suppliers in a professional service marketplace although few of them actively and explicitly compete on price, e.g. your local high street solicitor.
This type of strategic groups model can provide a very good starting point for developing a firm’s own model of competition in a given professional service marketplace. One of the best things about this model is that it is appealing to non-marketing partners and professionals in professional service firms who seem to grasp quickly the insight that such a strategic groups analysis can give into competitive positions in a marketplace and thus its impact upon the marketing strategies formulated by the firm.
This sort of analysis really lifts off when, having identified rough groups, we begin to ask questions such as: which of these groups are most profitable and have the highest fees; which groups are growing and which shrinking; what are the likely changes in group structure and size over the next three to five years; which groups can be perceived as the ‘winners’ and ‘losers’ in this marketplace; what seem to be the critical success factors that differentiate them?
Perhaps the question that has most impact in operationalizing the strategic groups concept and generating immediately recognizable strategic insights is the question ‘which group is your firm in?’. It can also be useful to make explicit, and even quantify in rough terms, the type and cost of barriers to mobility that exist, e.g. what are the barriers to leaving the ’boutique’ group and entering the ‘supermarket’ group? How much would it cost us in monetary and human terms to overcome these? How much time is it likely to take to complete such a movement?
This is an invaluable exercise in demonstrating the implications of various strategy options and is often an enlightening and sobering exercise of great value for partners in professional service firms. Sarah writes for business and sports sites and loves the Super Bowl.
