Managing design consulting firms to survive in tough times

S T R AT E G Y
Managing design
consulting firms
to survive in
tough times
by RitaSue Siegel
In conversations with a spectrum ofdesign leaders,RitaSue
Siegel has distilled valuable wisdom about what consultants
have done to emerge from the current economic downturn with a
competitive edge that sustains them financially and enables them to better
serve clients. The recommendations she highlights include approaches to
improving productivity, marketing, staffing, and planning for the future.
In an economic downturn, can design
clients and doing unique, powerful
consulting firms become wiser, more
work. Their peers envy their reputation.
efficient, more effective, more success-
At the same time, these are busi-
ful, and more valuable to their clients,
nesses that must make an impact and
their employees, and themselves? I
a profit. Their core missions and val-
asked some of them.
ues have not changed since the down-
There are a few things that successful
turn; they provide creative, interesting,
consulting firms have in common, and
RitaSue Siegel, Founder,
and productive work for their employ-
these things are their sources of wealth.
RitaSue Siegel Resources
ees, deliver on the promises they make
First, knowledge: expertise and unique
to clients, and simply keep going. To
intellectual property. Second, process:
increase their competitive advantage,
how they apply this knowledge. Third, a
the relevance of their services, and the
core group of productive, talented,
premium price they charge for their
expert specialists and generalists led by
time, they continually add to their
experienced consultants and business
stores of special intelligence, update
managers. And fourth, their services,
their processes and technology, and
which they provide by creatively focus-
hire, train, evaluate, and retain prime
ing on developing innovations for
talent. Preparing for the future entails
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Managing design consulting firms to survive in tough times
balancing short- and long-term interests and
continued to be longer in 2003 than it was
conditions, anticipating the needs of current
before the end of 2000.
and future clients, and measuring the results of
Here are some strategies these firms have
their work.
been employing over the past couple of years.
By accident, most of the firms I chose to
benchmark are succeeding in this difficult econ-
Rules of success
omy.1 The reason is obvious to me: They offer
Improve your ability to
To increase their
strongly differentiated perspectives, capabilities,
predict revenues from
and proprietary knowledge that clients want to
the probability of clo-
competitive advantage,
buy. That said, they have all made some adjust-
sure for important pro-
ments in order to succeed, making their insights
posals and work under
the relevance of their
and strategies all the more important to those
contract. The revenue
services, and the pre-
who are truly suffering or have been devastated,
side of a project-based
and those who are getting started in consulting.
consultancy business is
mium price they charge
Before the downturn, these firms were using
unpredictable. The cost
an array of forecasting and financial manage-
side is more pre-
for their time, [these
ment tools and had a diversified portfolio of
dictable. Project prof-
firms] continually add
clients, most of who came from the “old” econo-
itability is the
my. These factors, in combination with their
backbone for manag-
to their stores of special
“sources of wealth,” as defined above, served to
ing cost and margin.
protect them from being critically wounded
Hold on to your
intelligence, update
when the expansion ended in early 2000. The
most talented, dedicat-
their processes and
pre-Depression-like convergence of the disap-
ed, and flexible staff—
pearance of $10 trillion in market value, scan-
people who have
technology, and hire,
dals on Wall Street, and plummeting investor
proven themselves able
confidence; the pall induced by 9/11; and the
to deal with the ebb
train, evaluate, and
Iraq war and other global issues have adversely
and flow of projects
affected every company.
and project types. Train
retain prime talent
Yet the principals of these firms are opti-
them, if necessary, to
mistic about the future. They approach it with a
better interact, com-
strategy of increasing their competitive advan-
municate with, and understand clients’ business-
tages, developing a flexible work force that
es, organizations, and personalities.
responds to changing situations, maintaining a
Focus on creating powerful partnerships with
passion for doing important work and, for most,
existing clients. Treat them better than ever.
sticking to their guns on pricing.
Assign them your “A” team. Existing clients are
Is the post-dot.com era a return to normal?
1. I am indebted to Ken Roberts, chairman and CEO,
The boom of the ’90s was an aberration. The
Lippincott & Mercer, New York; Shari Grossman, man-
financial scene in 2003 can be compared to that
aging partner, Planet Sur, New York; Daniel C. Buchner,
of the pre-boom in the early ’90s, which was
director of industrial design, Design Continuum,
preceded by a recession. However, there is no
Boston; Lee Carpenter, chairman and CEO, Design
such thing as “normal” when it comes to the
Forum, Dayton; Mark Dziersk, senior vice president,
economy over any prolonged period of time.
industrial design, Herbst Lazar Bell, Chicago; Randy Ng,
All but one of my benchmarked firms saw
CEO, Walker Group/CNI, New York; Brian Collins, sen-
their gross revenues increase by 5 percent to 40
ior partner and executive creative director, Brand
percent from December 2000 to December 2002.
Integration Group, Ogilvy, New York; Lou Carbone,
Firm size ranged from 25 employees (one firm)
president and chief experience officer, Experience
to more than 150 (the majority). Most have been
Engineering, Minneapolis; James Cerruti, president and
in business from 20 to 40 years.
COO, Vivaldi Brand Leadership, New York; John
Although the outlook for all firms had
Diefenbach, CEO, Truebrand, San Francisco; Marco
improved by the end of 2002, the time span
Amaral Rezende, partner, Cauduro Martino, Sao Paulo;
between proposal presentation and signature
and Arnold Saul Wasserman, consultant.
Design Management Journal Summer 2003 49

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The New Profile of Design and Design Management Consulting
the best source of new work, at the least cost. At
customizing part of it. Before the meeting, invest
the same time, focus on creating powerful part-
time to develop new insights: What are the
nerships with new clients. Endeavor to build
broader needs beyond those you have been
preferred-provider relationships that guarantee a
called in to look at?
level of work you can count on.
Consider hiring senior business management
What’s selling? What are clients buying?
professionals to become firm principals—col-
Clients are buying either the firms’ total offering
leagues for whom profit and quality are equally
or the strategy and concept phases, opting to do
important.
development and execution with internal teams.
Since the first quarter of 2003, active business
Rules of competitive advantage
sectors have varied for each type of consultancy.
Demonstrate without a doubt your firm’s
Some mentioned large, well-established house-
unique position in the marketplace, and your
hold brands buying research-intensive design
intrinsic difference from the competition. Some
projects, engineering and prototyping; others
clients perceive design (and all) consultancies as
noted medical start-ups buying large, complex
commodity offerings
projects involving a high degree of integration of
and tell tales of poor
design and engineering; and identity and brand
work done by them.
strategy programs were also selling, including
You can concentrate
Emphasize your firm’s
name and design systems. Active sectors includ-
point of view, its intel-
ed telecommunications, healthcare, financial
your “A” team on a few
lectual property, its
services, and education, as well as high-end resi-
key clients generating
process, its design and
dential design, loft conversions and condomini-
technical capabilities,
um developments, and interior and architecture
the biggest revenue
and its proprietary
services. A few firms have experienced demand
tools and services.
for fast, “high-burn” projects requiring strong
streams, but in this
Tell your success
project management skills.
stories and document
economy, with its
the distinctive results
Rules of profitability
unpredictable and
your company has cre-
Know the competitive situation, your hit ratio of
ated for clients.
proposals, and the probabilities of closure. Since
negative influence on
Emphasize strategies,
December 2000, demand has slackened; there
projects, programs, and
are more competitors, there is less money being
client expenditures, a
other deliverables, such
spent, and there is more uncertainty. Will they
more diversified
as patents that have
really do the project? Are they sincere? Are they
enabled clients to out-
really looking for help, or are they using their
revenue stream is
pace or deter their
RFP to gather information? Predicting is a diffi-
competitors.
cult art that gets better with experience, and it is
preferred
Offer references.
vital to your business.
Describe long-term
Create expectations with clients and staff that
relationships and
can be fulfilled. View the development of prof-
repeat assignments with clients. Introduce staff
itability norms over time; balance pre-boom
or teams critical to project success.
norms with the realities of today’s environment.
Define for your clients the pre- and post-pro-
Billing rates for all but two of the firms bench-
posal process, how you will set up a definitive
marked have remained constant or were raised
written plan with them, get buy-in from their
in the last two years; fee structures are
employees, map out an ROI model with them,
unchanged.
communicate from beginning to end with their
Remember: You can do more with fewer peo-
top management, and provide a follow-up phase
ple, if they are the right people.
to ensure successful implementation of the proj-
Few firms admit to responding to pricing
ect or program.
pressure, but the ones that do suggest offering a
Clients recognize template presentations.
discount on the first phase “for the client to get
Show your motivation and level of interest by
to know you.” Be very explicit that this is for one
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Managing design consulting firms to survive in tough times
phase only, that it represents your willingness to
of your service. Send timely, appropriate promo-
invest in the relationship, and that you are
tional material, reprints, press releases, speeches,
reducing the scope of service for that phase pro-
and holiday cards by mail or Internet.
portionate to the discount. Be clear that there
Use the information in the database to track the
will be no discounts for subsequent phases or
care of current, poten-
first phases for additional projects.
tial, and repeat clients,
Consider offering to reduce the scope of
to evaluate and help
To retain top
work or alter the process. Eliminate elaborate
you build core client
presentations, reduce the distance between
relationships and, if
performers, keep your
process steps, eliminate nonessential steps, and
appropriate, to target
do some steps in parallel without reducing the
them with new offer-
word to them.
quality of service or the results.
ings you develop.
Understand who they
Consider offering a fixed price for a fixed set
Record each client con-
of deliverables, rather than fees based on time.
tact, what transpired,
are, what they want,
Refer clients with projects too small or outside
and next steps. Capture
your area of expertise to smaller consultancies
and respond to infor-
and what drives them
without further involvement. All firms bench-
mation about them in
marked agree to the idea of walking away gra-
the press.
ciously rather than compromising the integrity
Develop a “killer Web site,” one that will
of a project’s potential results.
excite potential candidates and attract potential
Insist on strict compliance with agreed-upon
employees. It must be easy to navigate—no
payment schedules, which is critical to a firm’s
tricks or lengthy introductions—quick to down-
long-term financial health and morale. Suspend
load, with richly detailed images, and clearly
work when payments are not met. Carefully
presented contact names, telephone numbers,
examine your motivation for keeping unprof-
and email addresses for principals. Keep it up-
itable clients.
to-date.
Take whatever steps are necessary to make it
Don’t wait for busi-
easy to do business with your company.
ness to walk through
the door or for people
Don’t wait for business
Marketing creatively
to respond to mailings
With whom do you have to build name aware-
or calls. Everyone in
to walk through the
ness? For some, the marketing challenge is nar-
the firm should search
door or for people to
row-cast. For a corporate identity, image, and
for products, brands,
brand-management-strategy company, there
and situations that
respond to mailings or
may be only 5,000 people they need to be in
could benefit from the
front of. Since the consulting business is project-
firm’s services. Invest in
calls. Everyone in the
led, it needs its name to be known by the top
developing custom pre-
firm should search for
people in certain target sectors (financial servic-
sentations for these
es and telecommunications, for instance), so that
organizations.
products, brands,
it is asked to present when projects are con-
Some consultants
ceived. A database of the top 50 companies in
want broad name
and situations that
these sectors gets built by starting with the
recognition. Public
could benefit from the
names of the current CEO, CFO, and heads of
relations is one tool.
strategy and corporate communications. The
Hire internal or exter-
firm’s services
CFOs get mailings and follow-up calls to sell
nal specialists to posi-
them brand evaluation, for example. This com-
tion the firm as an
monsense model is easy to replicate.
industry leader. Involve
staff, as well as principals, in media coverage—
Rules of marketing creatively
TV and print—in pro bono work, in speaking at
Build a sales-focused database around your
conferences, in leading panels, in writing articles
defined target client archetypes and markets,
for trade and technical journals and magazines.
and use it to make their decision makers aware
Firms can participate in trade shows, sponsor
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The New Profile of Design and Design Management Consulting
events, or develop proprietary conferences and
clients won’t. Avoid clients that ask for a free cre-
panels. Get attention by publishing books and
ative concept phase during the selection process.
winning awards and competitions. A good PR
Clearly and fairly describe the scope of work,
person will drive the process—not you. You
and charge accordingly. “Tying up resources
need to show up to sign the book.
doing work on spec is unfair to paying clients,”
Consider advertising in trade publications
said one principal, and another added, “Lose the
read by potential clients.
opportunity rather than diminish the value
Invest in developing the firm’s knowledge of
proposition.”
clients’ niche areas of expertise.
Existing clients are always the best source of
Understand the 80/20 rule. It means that 20
new assignments. Train project/relationship
percent of a firm’s client base represents 80 per-
managers and staff to look for opportunities as
cent of total revenue. (Some firms report 70/30
contracted projects progress.
and 75/25.) In consulting, it is a high-risk posi-
Consider increasing sales and marketing
tion in which to be. You can concentrate your
headcount in a climate of diminished new busi-
“A” team on a few key clients generating the
ness prospects. And organize for the future.
biggest revenue streams, but in this economy,
with its unpredictable and negative influence on
Rules of organizing for the future
client expenditures, a more diversified revenue
Eliminate dead weight, including principals.
stream is preferred.
Invest the majority of principals’ efforts in
looking for revenues. If they are unable or
Selling has changed
unwilling to do business development, deter-
The priority now is for
mine the consequences. The cost side of the
all the senior people to
business is predicable and controllable.
sell engagements, and
Continually interview and hire star perform-
Evaluate completed
those in on the action
ers who come on the market as replacements for
projects for meeting or
are in the best position
under-performing or laid-off staff, and/or use
to discover new oppor-
them as contractors. Construct a network of
exceeding client
tunities.
contractors to bring in with the peaks and dis-
Clients have
pense of in the downturns.
expectations,
increased their scrutiny
Evaluate completed projects for meeting or
profitability, quality of
of expenditures on
exceeding client expectations, profitability, quali-
outside resources and
ty of customer experience, and increasing the
customer experience,
are taking longer than
intellectual capital of the firm.
ever to close deals.
Adjust the firm as appropriate. Try to keep
and increasing the
Many are hesitant to
headcount consistent. Cut discretionary spend-
sign up for full service,
ing, overhead, and salaries. Lay off according to
intellectual capital
and now, more agree-
management/financial control information.
of the firm
ments are made for
Consider alternatives to layoffs: voluntary days
strategy, concept, and
off without pay (especially in summer), salary
schematic design phas-
reduction starting at the top (and trickling-
es only.
down as necessary), and four-day weeks.
Adjust space requirements as appropriate.
Rules of selling
Instill thrifty behavior. Stay lean. Fly coach,
Consider hiring senior sales and marketing spe-
use the Web and teleconferencing, plan one-day
cialists who can become principals or owners
trips to avoid hotel costs, and use cheaper hotels
once they prove themselves.
and rental cars, regardless of who is paying the
Evaluate and manage the pipeline and back-
bill. Take advantage of client-paid trips to see
log. Use historic data to predict future closing
prospective clients.
levels, adjusted for the times. For some consult-
Consider the pros and cons of integrating
ants, projects used to average six to nine months.
services with client in-house teams. For some:
Now they are finished in three to six months.
• It is standard practice—teams are stationed in
Do not lower prices. Value your work, or
the consultant’s environment, or vice versa.
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Managing design consulting firms to survive in tough times
• It increases profit, but the downstream serv-
firm. When the firm’s financial health improves,
ices and revenue backlog is lost.
so should theirs. Compensate fairly. Give raises
• The consultant’s staff becomes hostage to
and bonuses, however small, and dramatically
client’s resources, which often can’t move as
adjust compensation when the firm succeeds.
fast as consultants can.
To keep up morale, provide unique, inspiring
work experiences or nonbillable interesting and
Rules of human capital
meaningful work. Celebrate firm wins, holidays,
Invest in an HR professional to facilitate recruit-
staff birthdays, and babies. Enter and win com-
ing, immigration, and government compliance
petitions. Take field trips. Host Friday “happy
issues, to benchmark compensation and benefit
hours” and provide free breakfasts and snacks
schemes, to coordinate performance reviews
(considering teetotalers and vegetarians).
and, where appropriate, to participate in the
Provide family leave.
management of the company. Principals and
Reduce the number of organization layers.
discipline leaders must remain active in inter-
Leverage juniors in project management and
viewing and hiring decisions. Build close rela-
building client relationships. Provide training
tionships with headhunters to ensure that you
and learning opportunities to create a more
meet the best candidates. So that all employees
multidisciplinary and flexible staff and improve
know what is expected of them, provide detailed
internal communications. Encourage senior
position descriptions that include firm goals and
people who best leverage staff, or let them go.
expectations. Provide relevant training and edu-
cation opportunities.
Rules for managing
In the main, hire people who are capable in
for the long term
more than one way, and above all, who work
Create an annual busi-
Create an annual
well with others.
ness plan to provide
business plan to pro-
Build an intranet to inculcate staff with the
benchmarks for deci-
firm’s mission and values, as well as its history,
sion making. Focus on
vide benchmarks for
stories, vocabulary, propriety knowledge,
the top line to enhance
process, and results.
revenues, and the bot-
decision making. Focus
Conduct annual reviews to establish per-
tom line with an eye to
formance and developmental goals for every
profitability. Make pro-
on the top line to
employee. Consider subjective criteria unique to
jections on secured
enhance revenues, and
individuals. Predicate salary increases and pro-
work, spread over the
motion upon meeting goals. Discuss and resolve
project schedule, based
the bottom line with
issues or problems with clients, projects, or
on the percentage of
employees at weekly meetings of studio or disci-
completion by month.
an eye to profitability
pline leaders. Counsel out individuals not
Manage from an array
focused on the health of the organization.
of financial indicators:
To retain top performers, keep your word to
overhead ratio, net effective multiplier, project
them. Understand who they are, what they want,
profitability, and billability. (Focus on any one
and what drives them. Challenge them; keep
indicator can cause distorted decision making.)
them interested with the type of work they
There are no perfect financial management
prefer.
tools—either formulas or software. Manage for
To manage expectations, share financial
universal best practice or, when necessary, for
information weekly or monthly at meetings so
best practice for the client, project, and staff at
that staff members know when things are rough
hand.
and when they are great. After the first round of
Benchmarked firms report that maintaining
layoffs, the state of the business becomes clear.
work quality with fewer people is not a problem.
They can’t expect much when they know the
Working smarter involves using databases to
true situation, and they don’t have to stay.
target efforts and expenditures better in new-
Provide an incentive system with a really big
client acquisition. The project plan starts before
upside potential with which you can reward
the proposal and provides the content. Use proj-
them if they choose to stay and help build the
ect-planning software. It forces engagement
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The New Profile of Design and Design Management Consulting
managers to take responsibility for allocation of
Develop strategic partnerships/alliances to
time and resources, and for management and
expand/increase the breadth or depth of your
delivery of a set of costs against revenue. Finitely
total offer only if they yield work, an opportuni-
determine and tailor deliverables to clients’
ty to go to market together, or access to a net-
experience and ability to implement. Clearly
work of potential clients. If they are just notions,
communicate and agree upon deliverables with
talking about them eats up too much senior
the client and your project team.
time.
Start no project
Expand intelligently. Do not risk the quality
without a retainer and
of your work for the sake of growth.
an executed proposal
Consider growth by acquisition. There are
Develop strategic
or agreement. Closely
dangers here: combining conflicting cultures,
partnerships/alliances
monitor accounts
and difficulty in knowing what you are buying.
receivable, and bill on
Due diligence is not only about the books.
to expand/increase the
time.
Consider that exploring acquisitions that do
Capture the firm’s
not happen is a wasteful distraction of senior
breadth or depth of
intellectual capital.
people’s time. Also, people in the acquired com-
your total offer only if
Manage proprietary
pany may not stay, and its clients or customers
knowledge. Gather and
may desert you. There are, however, advantages:
they yield work, an
store project stories to
acquiring expertise in new market areas, com-
use in sales, marketing,
plementary skills, a broadened geographic reach
opportunity to go to
training, development,
and resources, synergy between combined staffs.
and execution of new
Consider being acquired. The downside
market together, or
projects.
could be loss of control and agility, or even dis-
access to a network of
Make the firm’s
aster if the acquirer does not understand the
branding protocol
consulting business or what drives your staff.
potential clients
available on the com-
“Everything becomes about money,” said one
pany intranet to
principal of a firm that has not been acquired.
achieve consistency in
Another problem can be pressure from the par-
all internal and external communications.
ent company to meet aggressive year-to-year
Invest in technology for production. Some of
operating profit targets and to increase revenue
the benchmarked firms increased technology
growth.
significantly to be at least equal to, if not more
The upside of acquisition can be a handsome
advanced, than their clients’ technology: “It’s not
return for a lifetime of hard work for owners,
just expected, it’s demanded,” one principal
pressure that beneficially stretches thinking on
explained. Other firms maintained their invest-
the staff, and challenges to assumptions that can
ment rate or decreased it.
result in interesting new opportunities.
Use technology to manage more efficiently,
Moreover, if the parent company has deep pock-
for resource planning/tracking, for project
ets, it may be able to fund the R&D necessary to
management, and for project/client profitabili-
stay ahead of the pack. Indeed, the parent may
ty/analysis. Use spreadsheets for estimating and
have useful and complementary knowledge, and
forecasting. Use video conferencing to replace
your firm will gain access to the parent’s net-
nonessential travel, and provide secure Web sites
work. And, of course, in some cases, an intact,
for sharing information with clients.
independent operation can be maintained.
Rules for future growth
Where do we go from here?
Focus on your core business. Do not try to be all
I beseech you in a parody of an American TV
things to everyone. Extend services opportunisti-
commercial: “Don’t hate me because my bench-
cally if they are related to existing core compe-
marked firms are weathering the storm.”
tencies. However, do develop new proprietary
Instead, ask some of these questions about con-
tools and service, measurement tools, and
sultancies in trouble.
research methodologies, if there is evidence that
Have the words branding, strategy, and
your clients will buy them.
interaction lost their meaning with overuse?
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Managing design consulting firms to survive in tough times
Is bigger better? What are the real costs of
work created by people now pitching for Y
maintaining a far-flung empire of offices
company? Or that creators of a firm’s portfolio
charging local fees and paying local costs? Has
no longer work at that firm? What are clients to
what’s “good” for a design business’s agenda
make of the ease with which one transfers
become more important than what clients need?
one’s loyalty?
Is acquisition the best growth strategy for
Has leadership of a firm’s value-providing
individual consultancies in the business of
side been ceded to the sales and
developing important big ideas that matter,
marketing side?
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teams of designers and other smart people and
Find related articles on www.dmi.org with
their impassioned leaders? What value-creating
these keywords:
advantages for clients do alliances of large
firms offer over strong consulting and creative
points of view? Doesn’t each office operate
independently? Isn’t it the team on the project
that counts?
Does homogenization lead to commodifica-
tion? If “musical chairs” is a game that key peo-
ple in many consulting firms play, what happens
to the distinction between the firms? Do clients
know that the pitch X company is making shows
Design Management Journal Summer 2003 55

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