How To Be The Go-To Source

Copyright, 1999, Lina Group Inc.

Exploding Market, Imploding Margins
Global IT services firms reaped $350 billion in revenue in 1998, a figure that will nearly double during the next five years, according to Dataquest Inc., a San Jose-based research firm. IT consulting and systems integration company annual growth rates are in the 19 to 26 percent range. International Data Corp. (IDC), Framingham, Mass., expects 60 percent annual growth in the Internet services sector, which should reach $78 billion by 2003. If the market is exploding, ripe with opportunity, why are some of the industry's biggest names talking about layoffs? Why would margins be anything less than 30 to 40 percent? Why are even the premier brands finding themselves reducing their prices to win business? In a word: Competition. Like you've never seen it before. And the bad news is that it's only going to get worse.

An excerpt from Agency.com's S-1 filing Risk section reads like an industry trends white paper; you could substitute just about any company's name and the issues still apply: "The market for Internet professional services is intensely competitive, highly fragmented and subject to rapid technological change. Many of our competitors have advantages over us. There are no substantial barriers to entry into our business. We expect that competition will intensify and increase over time..." And their list of competitors includes, well, everyone.

Web integrators are doing strategy work. Strategy firms are doing IT consulting. Software companies are beefing up their services arms. PR firms are developing Web sites and offering change management services. Upstarts like Guru.com and ExpertMarketplace are creating powerful communities of freelancers and enabling efficient access to them by prospective clients. The Internet has made location irrelevant. Anyone, anywhere can play. And most of all, the term "scope of services" has become meaningless. In a market full of Me-Too lookalikes, the question of the day is, "What don't you do?"

Me-Too status is a disaster for a professional services firm. What is unique about this industry is that you are not just competing for demand (clients), you are also competing for supply (people). Once you become a commodity, the only thing that sets you apart is price (billing rates, payroll). Price-based competition is fine when you are in a position to shave costs, but in today's tight labor market, when people with serious brain power are your "cost of goods sold" and primary expense item, there is only so much you can cut. Salaries go up, not down. According to Dataquest, margins and headcount shortages are the two most important issues facing IT service providers.

Differentiate To Dominate
In contrast to commodity players fighting to preserve their margins, why is it that certain firms seem to command more margin, more attention, and more respect than others? And why is it that they rarely find themselves in competitive situations, clients usually seek them out, and clients will pay almost any price for the privilege of working with them?

It's because they own their markets. They dominate their spaces. McKinsey & Co. is not the largest in its category, but it owns boardroom strategy. Andersen Consulting owns large-scale, high-risk implementation projects. Gartner Group Inc. owns IT industry analysis. Heidrick & Struggles owns CEO executive search. Kleiner Perkins owns high-tech venture capital. Those firms have defined and committed to a unique market position, and anyone else in that space becomes an also-ran. Each is the first name to come to mind in its category. Each is regarded as the de facto standard in its respective markets. And each is a premium provider who frequently finds itself in the luxurious position of being sought out by prospects, as opposed to having to fight its way through a crowded, time-consuming and expensive RFP process. They often turn work away. They name their terms. Prospects compete for them.

Start With a Market Problem
The essence of the approach to market dominance is this: A Go-To Source targets a specific market and identifies a problem that no one else is adequately addressing; it develops a unique approach to this problem; and then it leads a movement in the market place around its approach, establishing itself as the top-of-mind Go-To Source. While other firms shine a broad spotlight on the market place with a hodge-podge of activities, a Go-To Source uses a laser beam; it proactively focuses its energy on a small number of high-impact, interdependent initiatives powered by a clear, focused strategy and burns its brand right into the minds of the target buyers. And what if there is already a Go-To Source in your chosen field? Subdivide and carve out your own territory. The industry analyst arena is a good example. Gartner owns the overall IT space, so Jupiter Communications carved out consumer Internet industry analysis and Forrester Research is fast-becoming the authority on business-business e-commerce.

To accomplish Go-To status, it is imperative that you focus on a narrow subsegment of the market place. And remember, "focused" does not mean small, it means specific. Therefore, the starting point for any market dominance strategy is careful market selection. You want to pick a large, dynamic, high-growth market that suits your strengths. Market selection is both an art and a science. I'll tackle that topic in Part 2 of this series and recommend some Go-To sources who can help you assess your broader market and determine where you should focus your efforts.

For more elaborate arguments on the wisdom of this positioning strategy, try these books:

Are you a candidate for market dominance? Go to our Web site and take the simple "go-to" test to find out.

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