Knowledge and innovation are today’s management buzzwords. All organizations worldwide are becoming more knowledge-intensive and are increasingly dependent on innovative knowledge to create value.
Management consultancies are in many ways the epitome of knowledge-based organizations. Over time, management knowledge “commodifies”. Consulting firms must continually create new knowledge-based structures to remain innovative and to be able to grow: by differentiating themselves from their competitors and by continuing to win business from their existing clients. They accomplish this by developing new practice areas.
Consulting firms are also intriguing because of their internal power relations. Many of them use the partnership form of ownership, sometimes in addition to formal incorporation. The partners are not only the producer-owners but usually also the gatekeepers to the firm’s clients. Unlike in a corporation, where a small group of very senior managers can decide on and control strategic initiatives, in a partnership, power is dispersed. This means that innovation, such as in the creation of a new practice area, is often a matter of negotiation and political manoeuvring.
But how do they go about doing this? Who decides what a new practice area should be? Who runs it? And how do they go about resourcing it?
By looking at case histories of new practice development, some of which were successful and some not, my colleagues and I have identified four “generative elements” that have to be in place for new practice development. These combine in various different ways to form a two-step process, which we have described as emergence followed by embedding.
Successful new practice creation goes hand in hand with all four generative elements combining to complete both an emergence step and an embedding step. Where there are failures, they are because the pathway is incomplete: One or more of the generative elements has been neglected.
The four generative elements that are integral to a practice area are socialized agency, differentiated expertise, defensible turf and organizational support.
Socialized agency impels individual consultants to take actions that align their career moves with their firms’ growth objectives. The typical career ladder within a consultancy means that as a member becomes more senior, he or she is increasingly expected to be entrepreneurial on behalf of the firm. New practice-building is a means of demonstrating readiness to become a partner, or of creating or cementing an existing partner’s professional reputation.
Differentiated expertise is the new and distinctive knowledge that leads firms into domains of activity distinct from their existing practices and clients. This might be created by building on current practice, or by developing and applying entirely new knowledge.