The heart of professional services strategy

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Last week I chaired a conference on Strategic Law Firm Management organized by Ark Group. While there was disappointingly little on law firms’ high-level strategic positioning and how that may shift over coming years, there were a wealth of insights into more general management issues. Clearly, people and culture are at the heart of managing professional firms, while the competition for talent is growing ever more intense. Getting people and culture right is the single most important determinant of success. Other success factors will be driven by this.

Listening to the speakers reminded me of a framework I’ve been mulling over for a while, on how attracting, retaining, developing, and motivating great people is linked to attracting the most worthwhile work from the best clients. Clearly, these two highly desirable outcomes feed on each other, yet many firms do not explicitly link them in their strategies and activities. To my mind, building knowledge-based relationships is at the heart of being able to link client development and people development. In knowledge-based relationships you are able to learn most from clients, get the most interesting work, and attract the best clients. Providing “black-box” services to your clients disengages your ability to attract either great people or great client work. It is important to recognize that there is a very real difference between great clients and great client work. Many professional firms have outstanding clients, but often the work they do for them is mundane and unstimulating. It is getting great work that is more important for developing your people and capabilities than getting brand-name clients. Small clients can give you fantastic work.

The framework below shows the nature of great people and great client work, how these feed on each other, and what is required to link them. At the center of attracting both great people and great client work are a set of common values and behaviors. These are fundamental to both of these outcomes, and how they are linked. Leaders of professional firms need to consider what specific activities and initiatives will help to develop this cycle, which is at the heart of professional services strategy. Successfully engaging in this cycle will rapidly develop meaningful, recognized differentiation in highly competitive marketplaces.

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Moving on from email

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Investment bank Dresdner Kleinwort Wasserstein is using wikis, blogs, instant messaging, and other collaborative software tools to supplant email, according to an article in this week’s issue of BusinessWeek titled Email is So Five Minutes Ago. J.P. Rangaswami, Dresdner’s CIO, an ardent critic of email, says that in some cases use of these tools is resulting in project-related email being reduced by 75% and meeting times being halved. There is no question that email as a corporate communication tool is in fact more representative of communication breakdown. When a significant proportion of executives get literally hundreds of emails a day, it is hit-and-miss whether any one email will actually be read or answered, even with the best of will from the recipient. While email will not disappear for the foreseeable future, the problems with email overload and more are rapidly accelerating the uptake of collaborative software tools. For specific, focused applications, blogs and wikis are admirably suited. One of the most relevant applications, and where there is strong traction already, is in project management. There is defined scope, known yet diverse participants, and a need to make issues quickly and readily visible to all. These requirements are usually better addressed with collaborative software than with email. Expect to see email fairly rapidly shift out of favor as a core project management tool, now that there are simple, inexpensive, effective alternatives.

More on the future of PR and influence networks

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Ketchum PR, one of the top few public relations agencies in the world, has just posted on their company intranet an interview with me on major trends in PR. They’ve kindly allowed me also to post it here on my blog. The key themes they distilled from our original wide-ranging interview are on the role of knowledge-based relationships in PR, the importance of relationship leaders, the need for agencies to adjust to the rapidly changing media landscape, and why agencies should get their clients to participate in the marvellous world of blogging.

Ketchum PR is noteworthy on a number of fronts. I wrote about their client extranet initiatives in my second book Living Networks, and also referred to it in my Microsoft White Paper How to Lock-in Your Clients. As early as 2000 Ketchum was inviting clients to participate in project workspaces, giving them visibility of the work being done for them as it happened, and the ability provide their own input to the process. Paul McKeon, Ketchum’s CIO at the time, called it letting the client see how they “make sausage”, so they see the messy stuff that goes in along the way, not just the neatly packaged output. Ketchum has also recently released a very interesting service, Influencer Relationship Management (IRM), that identifies and targets key influencers in a particular market or key decision. This relates to some of the work I’m currently doing on applying social network analysis to the role of “influence networks” in decision-making. Decisions are primarily based on input from trusted individuals, so understanding the structure and functioning of these influence networks is critical both in making better decisions, and in effectively influencing decision-makers. More on this later!

Microcredit gains momentum

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Microcredit (also known as microfinance) is the business of making very small loans, sometimes as low as $50 or less, to poor people who can invest the money to help them make a living. Recipients of loans may buy sewing machines or other simple tools that allow them to earn money, pay off the loan, and help to break the cycle of poverty. Muhammad Yunus acted as the grandfather of the industry by founding Grameen Bank in Bangladesh. One of its operations, Grameen Phone, exemplifies the spirit of microcredit by providing loans for villagers to buy mobile phones. If a single person in a village has the means to buy a phone, and then pay it off by renting the phone out to others, in one simple transaction an entire village can become connected. Long gone are the days when less than half the people on the planet had made a phone call. Today there are one third as many mobile phones as there are people alive, and many of the phones in the developing world service entire communities. Microcredit may be done as a not-for-profit venture, but is also frequently undertaken for financial return. One of the great strengths of microcredit is repayment rates that banks in developed countries would often drool over. Because loans are made within communities, there is a very strong understanding of the customer, and peer pressure to keep the funds in good standing.

Last week Pierre Omidyar, the founder of eBay, made a donation of $100 million to Tufts University, on the condition that it is used for microfinance in the developing world. The funds will be used to help develop economies and alleviate poverty, while the profits will go to Tufts, in a true win-win. This will play an important role in helping the industry grow and develop. The gift spurred a good article in BusinessWeek on the phenomenon, and an interview in Fortune, while coincidentally The Economist had almost simultaneously published an excellent story on microfinance. Other interesting blogs and references in the space include the blog of Unitus, one of the largest players in the field, and Nextbillion.net. The continuing rise of microcredit reflects the broader trend of greater granularity and flow in the economy. Business can easily be executed in smaller pieces, and has to be to access the next massive tier of the global middle class. The whole domain of “social entrepreneurship” also provides fine examples of knowledge-based relationships. Almost every microcredit institution is as focused on helping its clients invest funds effectively (and repay them!) as in providing those funds. I have long had a strong interest in microfinance, and hope to be more active in the domain at some stage.

Thanks to my friend Chris Turillo, who has recently arrived in India to work for the microfinance institute SKS after a few years working at my alliance partner Business Development Institute in New York, for pointing out some of these references to me, and keeping me posted on what’s happening in the exciting world of microfinance.

The new generation of social networking and expertise location

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Blogs, wikis, and other social software tools are rapidly gaining traction in the business sector. In particular, they are being applied to issues that were previously addressed with other tools and approaches. Last week executives from IBM Lotus, which arguably provided the first enterprise collaboration platform back in the early 1980s, stated that they see the future of collaboration in social networking tools. They are backing their view by embedding blogs and wikis into IBM’s systems and platforms. IBM, with 370,000 employeees, is a great case study in requiring effective collaboration tools. IBM is already one of the biggest users worldwide of instant messaging in its everyday business, and has allowed over 20,000 internal blogs to be set up by its workers. In organizations such as IBM, MIT, and many others, blogs are increasingly seen as the foundation for effective knowledge management. They provide defined spaces for immediate collaboration and information sharing on specific topics and projects, rather than intermediating people’s knowledge sharing through databases and documents.

Very interestingly, blogs and wikis are now being applied to “expertise location”, one of the lodestones of knowledge management in large organizations. In massive global firms (and even smaller ones), being able to identify who has the most relevant expertise in the organization to help on a particular issue is enormously valuable. Yet trying to populate corporate “yellow pages” with everyone’s resume is impossible to create and update in a way that truly reflects individual’s expertise. In the article, Morgan Stanley’s CIO is quoted as saying that its previous expertise location efforts “failed miserably”. The investment bank is now finding that blogs and wikis are far more effective than packaged systems at being able to find relevant expertise. What corporation are increasingly finding is that as blogs and other social software are implemented and become more linked together into a system, valuable business outcomes, some of them unpredicted, are emerging.

Update: Sony withdraws its DRM

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Following on the previous story on Sony digital rights management, Sony has announced it will stop making CDs using this DRM technology, after the first virus that uses Sony’s copy-protection software to hide had been discovered. At a public event yesterday, Stewart Baker, the assistant secretary for policy at the Department for Homeland Security made pointed comments evidently aimed at Sony: “”It’s very important to remember that it’s your intellectual property — it’s not your computer,” as he discussed the implications for the security of technology infrastructure. Given the Bush administration’s tendency up until now to support sometimes even the heavier tactics of the entertainment industry , this is encouraging.

In 1421 the government of Florence gave the first patent to Filippo Brunelleschi for inventing a way of bring goods up the unnavigable river Arno to the city. He asked for and was given the right for three years to burn any competitor’s ship that used his innovation. I think we’re finally realizing that potentially destroying the computers of your customers is not valid, even less than burning ships of competitors. This event has been an important turning point in perception of how digital rights management is used and intellectual property enforced.

The Sony DRM debacle shows you can’t hide

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The big story this week has been how Sony BMG has way overstepped the mark by how they have used digital rights management (DRM) technology to prevent copying of its music CDs. This could shift the course of the debate and public perception of DRM. For those who haven’t read about this yet, Mark Russinovich, a specialist in the deep innards of PCs, stumbled across a “rootkit” installed in his computer. A rootkit is software that installs itself at the heart of the PC operating system and reconfigures files to hide its presence. Not surprisingly, this technology is usually only ever found in “malware” that is designed with nefarious intent. In this case, it turned out to have been installed when Mark had played a Sony CD on his PC. There are a couple of interesting implications of the installation of the rootkit. Anyone who tries to delete this uninvited presence on their PC risks irremediably damaging their computer. In addition, the presence of the rootkit makes it far easier for people less benevolent than Sony to hack into the PC and hide their activities, including from anti-virus software. This is potentially a massive security risk. While Sony states on the CD packaging that it has used copy protection software, it doesn’t indicate in any way what this software does. While consumers can ask Sony to uninstall the rootkit, they need to apply, provide personal details, and are then given another piece of software to uninstall it.

There is no question that Sony has gone too far here, certainly ethically, and potentially legally. While the protection software was extremely carefully hidden, it was naïve at best to imagine it would not be uncovered, and for this to become a public issue. Increased transparency is one of the most powerful trends today. The reality of transparency is not only that things get found out, but that if people are interested, word will spread very rapidly. While all the mainstream media reported this story after the case, this was first reported on a blog, and news spread through blogs. The very measure of people’s distaste for Sony BMG’s activities is how quickly this became a major story. In trying to hide what they are doing in their customers’ PCs, Sony BMG has created security risks for their customers, and created a major problem for itself. Openness is and will be rewarded in the market. Sony BMG doesn’t understand this, and undoubtedly will be punished in the market. Digital rights management has a role, but precisely how it works must be visible. Otherwise the backlash will be far bigger than the entertainment and content companies seem to comprehend.

Investor relations and blogging

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Investor relations is the art of managing relationships with your investors. It used to be easy: tell them whatever you felt like telling them. Shareholder activism, new regulations such as Sarbanes-Oxley, and the internet have dramatically changed the landscape, giving far more power to investors. A great example was the Save Disney campaign. Roy Disney was fighting to limit the powers of Michael Eisner, while the rest of the board was stonewalling. The SaveDisney.com website (now defunct) marshalled support and public opinion, while the Disney board and investor relations group ignored the issue and declined even to present their case. In this situation, pressure was significantly applied by individual investors to the managers of the mutual funds in which they had invested. Mutual funds can no longer ignore governance issues if they want to keep their customers on-side. So now companies are increasingly using the internet to present their side of the story. Chevron, which has been under attack from Amnesty International, among others, has set up a website called willyoujoinus.com, which gets people involved in thinking about the future of energy and environmental issues.

The next phase is blogging by corporate boards. IRWebReport, a company specializing in online investor relations issues, has written a couple of great pieces on Why Corporate Boards Should Blog and 10 Excuses for Boards NOT to Blog. Governance is all about transparency. Blogging is a fabulous tool for giving greater visibility to the governance process, and providing investors with a chance to provide their input and perspectives. Certainly the traditional annual meeting is completely ineffective as a system for getting investor participation and involvement. One of the initial objections you often get on implementing blogging on investor relations issues concerns regulations on corporate disclosure, such as Regulation FD (meaning Fair Disclosure. Regulation FD was established largely to stop large investors getting preferential access to information). Given that RSS feeds allow everyone to get immediate notification of anything released on a blog, blogging in fact provides far more egalitarian information flows than other forms of release. Significant disclosures can be tagged for concurrent release to stock exchanges. IBM is getting on board, offering investor relations information through RSS feeds and podcasting (also available on Odeo). General Motors vice-chairman Bob Lutz has his own blog, as does Carole Brown, chair of Chicago Transit Authority, and over 100 CEOs of primarily technology companies. I believe that in just the next twelve months, blogging for investor relations purposes will become commonplace. The difference between those boards that really do believe in communicating with their investors, and those that prefer to avoid any interference by pesky shareholders, will swiftly become evident.

Sell-side banks become consultants

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One of the issues I’ve spent much time on over the last decade is how financial markets buy-side/ sell-side relationships (usually those between investment banks and fund managers) are changing, and what the implications are for investment banking sales and research. My case has largely been that financial markets salespeople need to build “knowledge-based” relationships with their clients, which requires salespeople to add explicit value to the decision-making processes of the fund managers they deal with. Particularly now that so much trade execution and research distribution is automated, there is simply no reason for clients to pick up the phone when salespeople call, unless they can do something more than peddle the latest trade idea. An example of this in practice is CSFB’s Locus product, which enables fixed income derivatives salespeople to create sophisticated analyses of complex trades. The interesting part is that they can show these analyses to their clients online, and both the salesperson and the fund manager can change the assumptions or characteristics of the trade, and see the implications, real-time while they speak on the phone. This enables the salesperson to go far beyond sending pdf research documents to their clients, and to actively engage with clients in exploring possible trades, variations on these, and how these fit with their clients portfolios.

Now one of the most important trends in financial markets is that of algorithmic trading. In order to execute large orders, equity fund managers increasingly use automated systems that break up trades into smaller blocks, and execute these at different times and on different marekts. This allows anonymity and minimizes market impact. However implementing these algorithms effectively is an extremely complex task that fund managers do not have experience with. As such, an increasing part of the value that can be offered by salespeople is in consulting to clients on implementing effective trade execution strategies. Wall Street & Technology magazine recently had two very interesting articles on how sell-side salespeople are becoming consultants, and how this is contributing to fund managers reassessing their broker relationships. As such, the emerging domain of algorithmic trading – which largely automates trade execution – is in fact providing new ways for investment banks to create high-value relationships with the clients. However even greater value can be created by adding explicit value to clients’ decision-making processes. One example of this is how Morgan Stanley uses long-term scenario planning as a tool to help clients think through extremely broad issues such as the future of China or possible directions for government bond market structure. Another key issue is in changing the roles of sales and research so salespeople are more able to actively discuss the portfolio implications of trade ideas with their clients. Buy-side/ sell-side relationships have come a long way in just the last five years, and the pace of change certainly isn’t slowing.

Your printer is telling on you

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The Electronic Frontier Foundation (EFF), the most active and powerful organization aiming to protect civil liberties in the digital world, has just announced that it has cracked the secret codes printed by the Xerox DocuColor color laser printer, as a first step to bring color printer secret codes into the open. The U.S. Secret Service has made agreements with Xerox, Canon, Brother, Dell, Epson, HP and other printer manufacturers so that their color laser printers print almost-invisible codes on every page they produce, marking the date, time, and serial number of the printer. This is ostensibly to track down printers used to produce counterfeit money, however the information could be used by government in any way. Now the code has been cracked, it is a far broader privacy issue, as now anyone can discover by which printer a document was produced. However this had to be understood as a possibility when the initiative was created. What can be created and used (or abused) by government can equally be abused by others, and the only resort is to make it completely open. As the EFF note, if we find the US government is making behind-the-scenes deals with private corporations to compromise our privacy through our printers, who’s to know what other of our personal technology is being compromised in this way? The potential for abuse comes not just from government, but from anyone else that has access to or uncovers this information. That’s one of the reasons why I have problems with the “people who have nothing to hide shouldn’t be worried” argument about privacy loss.