Transcript

Jason Mlicki: The optimal marketing organization, you just spoke about this, you said?

Jeff McKay: I did. I spoke to some talented marketers at the Association of Accounting Marketing.

Jason Mlicki: Nice. So, this is a big and broad topic and I think we’ve actually talked … We planned to do a couple of podcasts around it, and I think what I want to first explore is just this notion of two schools of thought. This idea that there are two different schools, I guess two schools of marketing in a professional services firm. Let’s just spend some time on that. Maybe we talk about each school individually, or both of them together, I don’t know. You tell me. How do we start that?

Jeff McKay: I think it probably makes sense to talk about them together, and juxtapose certain attributes of each. Every time I talk about this, and you’ve heard me say this before, Jason, is I give the caveat that life is not pure black and white. These are simplified for emphasis, but they are archetypal if you will, in describing marketing organizations that I have seen over my 20+ years in firms of all sizes, all disciplines, all industries, and organizational structures and cultures.

Jason Mlicki: Yeah. No, I always like to say it’s not binary, right? It’s not a 0 or a 1, but there’s something in between. A question just popped into my head, but before we actually get into the two schools of thought, I’m curious, do you think that a firm identifying, building its marketing structure towards one school or the other, regardless of what the schools are, is it purposeful? Do you think firms are purposeful about this, or do they fall into a marketing model almost circumstantially or by accident?

Jeff McKay: Wow, what a great setup.

Jason Mlicki: Yeah, I don’t know why I started with that, but I’m just curious.

Jeff McKay: It is a great question. I think the answer is they default into one of the two schools. To me, it’s similar to the purpose of leadership that I’ve talked about, and that we create a world around us as we see the world. I think partners create a marketing organization around them as they interpret or perceive what marketing is and what it is should or should not do.

That comes from any number of places, but if you look at a history of a firm, whether it’s a startup of one individual or a couple individuals or a small team, they begin specializing in doing work and they can’t afford a lot of the overhead functions, and the partners, the founders are just doing everything, and then they incrementally add capacity, and it just builds out from there.

I think very seldom do firms purposefully add almost any function to their firm other than, “We’ve just got to get this work done today.”

Jason Mlicki: All right, so that’s a good segue then. Let’s talk about the two schools as you’ve defined them. Maybe just a quick overview of each school and then let’s talk about maybe the similarities and differences between each.

Jeff McKay: Sure. The first school is a what I would call a more common and traditional school. I call it the productivity school. It’s called productivity, because its main focus is on keeping utilization of highly paid partners high in its basic economics. It’s much more cost effective to have a junior marketing person making $50-$60 an hour do this work, versus a partner billing out for $300, $400, $500 an hour.

Its whole purpose is just to keep utilization high so that the partners and the line can be serving clients and doing business development.

Jason Mlicki: Yeah, it’s funny. I may have this threaded for a whole different podcast, so I don’t necessarily want you to comment on this at great length right now, but is the objective of high utilization for a senior partner even healthy? I would even argue that utilization for a senior partner should be extremely low. That’s a poor use of them at all. But again, I guess that makes sense that if the school of marketing is productivity, then this cultural expectation of the firm is productivity.

I remember years ago, I’ll take a quick tangent and then pull us back. I was talking to this firm, it was a small engineering practice, a little bit more specialized than that. I asked the owner, I said, “Well, what’s your utilization goal for your people?” He said, “100%.” I said, “Wait a minute. The expectation is 100%?” “Yes.” “Like, they don’t go to the bathroom?”

Jeff McKay: On their own time.

Jason Mlicki: “They don’t ever take a vacation? What are you talking about?” He’s like, “No, no. It’s 100%.” I remember I just shook my head and I went, “I don’t see how that’s even humanly possible. It’s an impossible goal.” Back on track. First school is the productivity school. Keep going. I’m sorry, Jeff.

Jeff McKay: So, it’s focused on utilization and I understand that mindset, and it is a deep-seated mindset in the professional services space. It is the first or second primary performance measure in every firm. In my mind, it’s archaic, and the time for the billable hour is long past. That brings us to the second school. The second school is what I call the growth school, and the purpose of this school is to maximize profitable growth.

What is it going to take for us to get from point A to point B? And that assumes that we’ve got point B correct about where we want to go. But it looks to marketing for strategic impact in achieving the maximized profitable growth and there are many elements that go into what it takes to maximize profitable growth. Not just profit, profitable growth.

Jason Mlicki: One clarifying question would be, okay so I’ve always felt that, I like to use the phrase that marketing is upside down in these firms. It was because of most firms being designed around the productivity school, and my inclination that they should really be designed around a growth school.

I’ve always felt that marketing should be defining what point B looks like, where point B is, and that marketing should be taking a leadership role in defining that for the firm, versus productivity school, logically, the senior partners are going to find point B and just push it down into the marketing team to execute on. Do you agree with that, or no?

Jeff McKay: I agree wholeheartedly with that. The reason that happens, and we talked about this in one of our early podcasts, why your marketer doesn’t understand your firm’s business. There’s a bifurcation between understanding the technical dimension of the business and the business of the business. I think that’s where the divide really takes place. Partners think because they have their arms around the technical dimension, whatever that is, architecture, accounting, tax, strategy, IT, they should be the people setting that direction.

Sometimes that’s true, but most times it’s not, because they take a technical view of it, not a business growth view of it.

Jason Mlicki: Yes, totally agree. So now let me ask a follow on question then. I have been I guess of the opinion for some time that the growth school is just inherently better than say the productivity school. It just seems to me like it’s more what marketing is supposed to be in a company, and the productivity school is more like a sales support function. Is one of these models inherently better or worse?

Jeff McKay: I have my bias, I have my preference, but no. One is not better than the other, because it really is dictated by a number of attributes. Probably most importantly is culture, and how the group of partners perceive marketing and where they’re starting from in terms of reputation, the maturity of the market they’re going after, their brand relevance, how dynamic that market is in terms of its services and solutions.

If it’s a pretty stayed industry, limited growth, the brands are well established, very easy to just maintain productivity perspective. But I think, and we’ve talked about this multiple times, around the threat of SaaS to professional services, disintermediation professional services, that I just don’t think that’s going to hold true for very long.

Jason Mlicki: Meaning that there’s not that many spaces left in the marketplace where steady is going to be a reality? There’s going to be enough disruption coming from enough places that firms are going to have to be a lot more strategic about their growth goals and marketing driven.

Jeff McKay: Yeah, and the sooner they get going, the better, because it’s not even over the horizon. AI and blockchain in particular are going to decimate whole portions of the accounting and legal spaces. We’ve already seen what’s happening in IT, just from cloud. I think most firms should be moving towards a growth school quickly.

Jason Mlicki: Okay. I mean, one of the assumptions I’ve made, and tell me if this is an incorrect assumption, is that anproductivity oriented firm actually structures and places marketing in a different place within the organization than a growth oriented firm, meaning that one of the things that I first noticed when I first started working with professional services firms 20 odd years ago, was that in my mind firms consistently put marketing in the wrong place. Marketing was often a support function that rolls up to a chief administrative officer, maybe it rolls up to an HR lead.

It’s grouped in with HR and IT as this expense to be managed and cost to be reduced, and my assumption is that … That’s why I’ve felt it’s upside down. I feel like it’s in the wrong place. I feel like marketing should be at the table with the senior leaders of the firm and there should be a CMO, right? That is setting the growth agenda. Is that a true statement, that there’s a relationship between the school, I guess, the philosophy of our marketing, and the organizational structure for it?

Jeff McKay: Yes, very much so. I think it is born out of the objective set for each school. The objective for the productivity school, again, goes back to consultant utilization and productivity. What can we take off of that consultant to make them higher in terms of utilization? Utilization is normally serving client, billable hour. Most firms look at that in terms of just build brand awareness and then people will go out and sell under it.

Marketing is seen as a very discreet function, whereas in the growth school, I think there’s a totally different view of the client and the client experience, where the objective is revenue growth and a share of wallet, it’s penetration, but that only comes when you look across the entire client experience.

Growth school is going to be focused on client loyalty, and how can we enhance client loyalty? How can we more deeply penetrate an existing client? That’s additional services for solutions, so it’s more innovation focused, but all three of those come together. Marketing, business development, and client service, into a continuous cycle called client experience, and that’s the strategic difference I think, between the productivity school and the growth school.

One looks at marketing as a discreet function that says, “Give me a lead or build my brand” and the other looks at marketing as, “Let’s grow the legacy of the firm, let’s deepen the loyalty we have with our clients, and by extension accelerate our growth.” The growth is the result of doing those other things really well.

Jason Mlicki: Oh, that’s really interesting. What you’re saying is the growth-oriented firm, the growth oriented marketer isn’t necessarily first and foremost prioritizing growth at the top line, growth of the bottom line. They’re prioritizing growth of client loyalty. Is that what you’re saying? That revenue and profit growth follows delivering on a better client experience, delivering on a more innovative product set. The notion of a growth school isn’t that, “Well, we’re going to set an aggressive growth plan.” It’s more, “We’re going to look to grow our firm in these ways.”

Jeff McKay: I’m glad that you point that out, Jason, because I think that is a very good observation, is it is more holistic. It isn’t just growth for growth’s sake, and I said this at the beginning, that it’s about profitable growth, not just pursuing profit. Or it’s not just about growth. There are very cheap and easy ways to grow faster but less profitably, and there’s ways to grow more profitably but slower.

It’s the combination of the two that is the holy grail I think for most partners, is to grow profitably and at that same time, enhancing the reputation of the firm, building its legacy, and all of that at the same time is enhancing the culture and the success of the individuals in it as well. It’s just a more holistic approach to growth and it just doesn’t create these arbitrary functional silos inside out. It’s always outside in.

Jason Mlicki: Yeah, no, that’s really interesting. When I first read your eBook, “The Optimal Marketing Organization” and we first started talking about this, I always thought of it as the productivity school, growth is constrained by the networks of the partners, right? The whole business is hinged on a group of partners doing relational marketing, right? And marketing’s a support function to that. So your growth is constrained by who you know, right?

Jeff McKay: Yeah, and how many hours in a day.

Jason Mlicki: Yeah, and I felt like the growth school was setting a more aggressive growth path saying, “Well, we want 30% growth, 50% growth. We want something more” but I love you’ve just opened the door to say, “No, it’s not necessarily that. It’s not necessarily about the scale of growth,” although it might be. It’s more about the relationship you want your firm to have in the marketplace, the relationship you want your firm to have with clients, the relationship you want your firm to have to profit.

Now, my question/comment is, in your experience, do you firms even, can they really wrap their head around profitability that well? Do they even really know which lines of business are more profitable or less profitable than others? Or is that a fuzzy black box? Because in my experience, it’s a fuzzy black box. They don’t really know. They’re like, “Ah, I think this one’s more profitable. I’m pretty sure that’s not, but we don’t really know.”

Jeff McKay: I do think most firms have a handle on that to some degree. At least it’s the 80/20 perspective. I think they know the core cost because it is people and real estate and overhead allocations, but I think there is room for more detailed type of costing out around those things, but that’s probably another podcast.

Jason Mlicki: Yes, totally.

Jeff McKay: Every firm differs in its sophistication. It really does, and its systems and its focus on those things. Some firms don’t want to get to hung up on some KPI that can create dysfunctional behavior, and I think that’s pretty prudent. But there’s others that really have their hands on the levers, that impact client satisfaction, and their consultant satisfaction. Those are the ones I think that do it best, and we’ll probably talk about that in an upcoming podcast on metrics.

Jason Mlicki: Yeah. I think we’ve envisioned a series around this topic and so I think that there’s definitely space to have that dialogue.

I think maybe the big question to answer, because you hinted at this briefly, you said, “Okay, I think that with all of the pressures that are coming at firms in the marketplace, that they need to get from the productivity school to the growth school quickly. They need to get over on this other side of the arc.” There’s multiple barriers there. There’s cultural barriers, there’s organizational structure barriers that they need to think through. There’s certainly talent barriers, there’s mindset barriers. How do they do it? What are the leaps that they have to take? What’s the roadmap for success or failure to make that type of transition? In five minutes or less.

Jeff McKay: Yeah.

Jason Mlicki: I’m teasing.

Jeff McKay: Well, I would say the majority of companies and firms don’t successfully make that leap because they don’t see a need to make that leap. They’re perfectly content with where they are. I think there needs to be a couple of catalysts that have to take place. I think one significant one would be to unfetter the firm’s overarching performance measure from utilization, and the billable hour.

That would probably be proceeded by more value based pricing. That would be one of those things that would come first. The mindset would need to change around marketing. Is it a function that has this discreet outcome it’s trying to achieve? I.e. get me a lead or build brand awareness. I think that silo needs to be knocked down and it needs to be more holistic around client experience, and looked at in terms of acquiring, serving, and retaining clients, as if it’s all one continuous cycle where everyone overlaps, learns, serves, and commits, and that there is a performance measure that integrates all three of those.

Because if you’re not serving your clients, you’re not retaining them well, then we all know that you have a big hole that you have to dig out of before you even get to start growing. Because you’re just replacing. And if you keep acquiring these clients but you’re not on-boarding them effectively, you’re not serving them effectively, then that creates other problems as well. I think changing that mindset of the silos is second.

The third would be, “Okay, what skills does it take to play in a client experience model of acquiring, serving, and retaining the market?” For me, those are all about a strategic mindset, leadership, client centricity, operational strength, digital capability is really important there too, because that’s going to give you the scale to address the growth once you’ve unfettered from the billable hour.

Jason Mlicki: Now, I want to go on that mindset of unfettering from the billable hour for a second to understand what you’re saying. Time is a cost input, right? It’s an input to define how much it costs a firm to deliver on a service or deliver on a project to a client. I think the argument you’re making is price is unfettered from that. Price should be based on value, that ultimately what a client pays the firm for its services is a function of the value to the client, not a function of the cost of delivery from the firm.

Are you going as far to say that firms should be walking away from time tracking? They should not be even tracking their time? Or, are you just saying that they need to get off of this myopic focus on utilization? That it’s okay to track time, because it helps you understand cost structures.

Jeff McKay: I think it’s both. I definitely think they need to get off of the time and material. Clients don’t like it, it discourages real integration and collaboration, and relationship building, I think. I’ve seen this myself as CMO, working with agencies, right? I don’t want to make phone calls, I don’t want to make this change, or do this part of this initiative, because I feel like I’m going to be nickeled and dimed.

I understand that mindset, that as a client, I just don’t want involved in that. As a business person, I’m asking an agency to give me a number for a result that I want. We negotiate around that result and that price and then we manage each side of that for ourselves, and if there’s a big disparity, we come together as partners and try to understand why and learn from it so that we both win.

I think that’s mostly what I’m getting at, but I also, I see the importance of understanding utilization as a cost input, but it just to me, creates so many dysfunctional follow ons that I would get rid of it. I would rather see a metric like revenue per employee and maybe those costs allocated in terms of acquire, serve, and retain, and create a totally different dynamic beause when you look at revenue per employee and you break those out by acquire, serve, and retain, marketing and business development take on totally different perspective.

Client service takes on a totally different perspective, and then finance, HR, and legal really are either compliance functions, or you get them thinking in ways that they can do business much differently with clients. Whether that’s accounts receivables, or master service agreements, that makes the acquisition, serving, and retaining that much better. But it just changes the mix.

Jason Mlicki: Okay. If I’m going to try to make a transition, I’m going to say as a firm leader that I want to move my firm in the direction of becoming a growth-oriented marketing model, I have a growth orientation towards marketing. First, I have to tackle head on the cultural barrier around, focus on utilization. I forget the next two, what were the next two?

Jeff McKay: Utilization, and when I say utilization, you need to rethink your performance measures in general. It doesn’t necessarily have to be revenue per employee. There are many other metrics that you can look at. Two, you need to rethink your functional silos in terms of what you’re asking them to do holistically. Not in these bifurcated, “That’s not my job, that’s your job” that we see every day in marketing and sales for example.

And then, I think third is you need a different set of skills in order to do that. I think overall, those skills are designed at a different type of impact. It’s a strategic impact. Whether that is something like brand relevance or some loyalty measure, net promoter scores, or market share, or any number of more strategic outcomes other than a number of brochures produced, or webinars held.

The fundamental difference between the two schools is the growth school is about strategic impact. The productivity school is about activity. “Get this stuff done for me so I don’t have to do it.” Like I tell my kids, when you try to clean the house or do yard work or something, when they say, “I did it,” it’s not the action, it’s the result. The growth school is looking for a strategic result.

Jason Mlicki: I can’t think of a better place to stop, so let’s stop there and then next time we get back together, I think we ought to really go deeper into the skills and capabilities underlying each school.

Jeff McKay: That sounds good.

Jason Mlicki: All right, man.

Jeff McKay: Thanks Jason.

Jason Mlicki: Alright, See you Jeff.