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.
Defensible turf means that the new practice creators are able to persuade others of the relevance of the new practice to client markets. It is a matter of convincing other power holders that no one is encroaching on their territory, but also that clients will be interested in the new practice.
Organizational support is vital as resources, personnel and sponsorship are needed to nourish the new practice areas.
In all the cases we studied, socialized agency was the catalyst that set the process in motion. Individuals’ ambitions to progress in their careers activate the process of new practice area creation, although it is important to recognize that professional firms socialize and bind such agency through expectations embodied in a career path. Even when a new practice area is initiated by a top-down process (for example, a suggestion made by the partner committee), it still requires an individual to begin the actual process of building the new area.
Socialized agency may combine with any of the other three generative processes to form the emergence step. For example, it may combine with the consolidation of distinctive expertise, when an individual or a group has developed expertise that, although related to the practice area in which it originated, is distinct from that area.
Or it may combine with defensible turf, for example, when a partner wants to deepen a relationship with a client by offering a new consulting service.
The emergence step gives shape to a new practice area, but it does not become substance until the two remaining, and necessary, generative elements are added. Whichever two elements have combined to form the emergence step, the other two elements then combine to form an embedding step.
Given that the socialized agency element is always the catalyst that combines with one of the three other elements to form the emergence step, there are three possible pathways towards the creation of a new practice area. All three pathways can result in the successful creation of a new practice area, providing that all three generative elements are in place.
Our findings, we hope, will not only provide a solid foundation for further research into the innovation of knowledge-based structures, but will also have some practical relevance in helping managers understand why certain types of knowledge-innovation efforts fail where others succeed. In particular, our work emphasizes how innovation via the building of new practices has a political dynamic. No matter how good an idea, power relations inside the firm will influence the outcome of innovation via practice area building.
Emerging practices need to be legitimized by turf-creating activities that build alliances or neutralize opposition internally and by ties to important actors, such as clients, externally. Our current work continues to explore how the politics of innovation plays out in successful, and unsuccessful, efforts to build new practices and we believe that this research has implications for a wide range of service sectors.
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Tim Morris is professor of management studies at the Saïd Business School and academic director of the Clifford Chance Centre for the Management of Professional Service Firms, University of Oxford.