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Evaluating Knowledge Firms

Professional services firms are a dime a dozen nowadays. The service offering is largely presented in matrix format, where functional expertise intersects market verticals. Everyone boasts unique capabilities based in innovative thinking. Yet truly distinguishable knowledge is scarce. To further confuse things, terms like 'capabilities', 'solutions', 'services', 'expertise' are used interchangeably. How can we tell these firms apart and select the truly innovative and forward thinking ones?

I present below a general way to to do just that. My approach is based on mapping Roger Martin's knowledge funnel to a knowledge firm's service offering.

Martin introduced the knowledge funnel in his The Design of Business best-seller. According to him, innovative firms are engaged in a continual process of converting complexity to simplicity. Complex and ill-defined problems are introduced to the funnel as mysteries, transitioned to rule-of-thumb heuristics, which in turn are converted to fixed and repeatable algorithm-like formulas - see figure.

My test for innovative professional services firms is that the service offering resemble Martin's knowledge funnel. I look to substitute 'thought leadership' for mysteries, 'solutions' for heuristics and 'expertise' for algorithms.

An innovative professional services firm's service offering should demonstrate that it contemplates problem mysteries spelled out as exploratory thought leadership activities. This demonstrates they possess the exploratory knowledge pool from which to derive rule of thumb heuristics, which I equate to solutions in the service offering. Solutions require no formal proof; they are rules-of-thumb that have proven to work in certain general problem contexts. Because the underlying formalism doesn't have to be understood, there is always some degree of risk associated with solutions. The reverse of the coin is that solutions imply an entrepreneurial and outcome focused mindset that embeds the opportunity for novel insights. Finally, expertise is algorithmic and presents little risk; there is also little innovation opportunity. Expertise is strictly the repeatable application of established skills to known problem types - you will get no new insights.

In terms of the service offering taxonomy challenge, I apply the mystery-heuristic-algorithm lens. It doesn't matter what a firm may call its offerings; what matters is intersecting those terms with the definitions introduced above.

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