Tuesday, December 1, 2009

Is Differentiation Really Worth Pursuing?

Mired in a recession, A/E firm leaders have renewed their interest in the topic of differentiation. Two years ago, the industry was on a roll. Most firms were doing quite well without being distinct from their competitors in any meaningful way. Now facing the prospect of a long, slow recovery, the need to be different seems more compelling.

But is differentiation a reasonable goal? There are certainly skeptics. For example, in his article "The Myth of Differentiation," consultant Mike Schultz writes, "Much as firms might hear otherwise, being different isn't much of a factor in winning or keeping clients. Often, the 'we're different' message affects them negatively." He mentions performing a quick Google search on the phrase "unique consulting firm." It yielded almost 4,000 web pages. For this reason, claims of distinction are understandably dismissed by most clients.

Bruce Marcus is another skeptic. He writes, "Professional service marketers talk of differentiation, which, frankly, is baying at the moon...differentiation is overrated, and is perhaps, like branding, a myth." He questions the ability of professional service firms to claim distinctives given the nature of their business. "You can't say, 'Our firm gets better mileage' [an objective differentiator]. But neither can you say, 'We do better audits.' Or, 'We write better briefs' [meaningless subjective claims]." Few professional firms can offer evidence to support their differentiating messages.

On at least one point, I must agree with the skeptics: Saying you're different doesn't accomplish anything. And this is the extent to which most A/E firms have pursued differentiation. They make unsubstantiated claims of being different. Almost everyone does. So why should we think that clients take such marketing messages seriously?

According to a study by Suzanne Lowe, 81% of professional service firms reported that they sought differentiation as part of their marketing strategy. But she found that "a majority thought of differentiation as simply an exercise in image enhancement." The differentiation tactics most commonly used also tended to be among the least effective. (I refer to a few of these in an earlier post entitled "The Deceptive Distinctives.") Generally, the most common "differentiators" are also the easiest to implement.

By contrast, Lowe found, "The reality is that when it comes to differentiation, the more complex and organizationally deep the differentiation strategy is, the more competitively potent it is." That reminds me of an interview with Dell Computers CEO Michael Dell that I read years ago. He was talking openly about the manufacturing and distribution strategies that had given his company the edge on its competitors. The interviewer asked if he was concerned that the competition might steal their business model. "They can't do it," he replied, noting that the real difference was rooted deep in Dell's organizational culture.

"The strongest competitive advantage," writes Dena Waggoner in the Encyclopedia of Management, "is a strategy that cannot be imitated by other companies." That's real differentiation! So what does this mean for your firm? Is differentiation worth pursuing? Is it even achievable?

Probably not for the average A/E firm. Few firms have the management fortitude to create a truly distinctive company. It's hard work. It has to be. If differentiation was easy, then everyone would be doing it--successfully. Which means, of course, they wouldn't ultimately be successful at it because all their competitors were doing it too.

Does this mean that differentiation is beyond your firm's reach? Not necessarily. Differentiation in our business is largely relational rather than positional. Developing a reputation in the marketplace as a notable firm can be very useful. But success in our business is really forged at the relationship level. If you want to be distinctive, excel at building lasting, profitable relationships. Out-serve the competition, client by client by client. Then leverage those strong relationships to create new ones.

Real differentiation isn't about what you say, it's what you do and who you are. It's how you deliver distinct value to your clients. It's not easy to achieve. But it's even harder for others to replicate.

1 comment:

Suzanne Lowe said...

Your last paragraph says it all! Thanks for offering a thoughtful look at this issue.