Culture as a Competitive Advantage

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We’ve all know how important it is for a business to have a competitive advantage. The competitive advantage helps separate a company’s products and services from those offered by other companies in the marketplace. The competitive advantage could be singular or it could involve multiple facets ranging from price to features to quality.

As an example, Amazon’s competitive advantage is rooted in both convenience and low prices. Amazon provides a single website where you can quickly find millions of products at attractive prices. Amazon then offers free shipping (with its Prime service) and your items will be at your door within a day or two (if not within hours). Amazon spent decades building out the infrastructure that enables it to maximize its competitive advantages of price and convenience.

With professional services firms, the competitive advantage may be comprised of things like industry expertise, reusable intellectual property, brand, and price. But, what often goes underestimated is the firm’s culture as a competitive advantage.

Before discussing how culture can be a vital component of your competitive advantage, let’s first define it. If you ask someone to define their company’s culture you will often get a robotic answer that includes the mission, vision, and values. The problem is that a company’s stated mission, vision, and values only matter to the extent that they align with the practiced behaviors of firm leaders.

Culture is a reflection of the behaviors of company leaders. Within a company, behavioral patterns run downhill and the behaviors of leaders heavily influence VPs, directors, managers, and eventually every employee. This is why you sometimes hear that a primary responsibility of the CEO is to be the “keeper of the culture”. It matters little what is on a motivational poster in the break room and it matters greatly how the leaders of the firm interact with others.

The reason culture is so important within professional services is that it directly impacts the quality of services and deliverables produced for clients. Since the “product” being sold to clients is the expertise of employees, it is important to attract and retain the best people in industry.

When a company has a strong and desirable culture, recruiting is easier and attrition is lower. While a high attrition rate will hurt any business, it will have an outsized negative impact on a professional services company. When key employees leave the company, there are high replacement costs related to recruiting, interviewing, onboarding, training, and the like. Moreover, the throughput and quality of client work is damaged any time a key member of the team exits. This damage is more immediate in a professional services company than in most other types of companies.

As we discussed previously, professional services firms are in the business of satisfaction. When client satisfaction is chronically low, it is impossible to build a high-performance firm. What is vital to recognize is the tight correlation between employee satisfaction and client satisfaction. If employees are not happy, their work will be substandard and their average tenure will be low. Unhappy employees that leave the company will always result in weak client satisfaction and firm under-performance.

Professional services firm leaders need to consistently practice behaviors that are appreciated and respected by the workforce. This doesn’t necessarily mean foos ball tables and beer on tap (although, perks are nice!). It means treating people well while still holding them to a high standard. Leaders who can build a culture around things like candor, empathy, transparency, excellence, respect, and some good old fashioned fun, will enjoy a better business that has loyal employees and happy clients.