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The Great Convergence is Upon Us

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One of the clearest trends in professional firms today is the convergence of the disciplines of design, business consulting and software engineering on the same client business challenges. This Great Convergence is pitting firms of radically different types against each other in the battle to best serve the client, and it’s creating new types of hybrid firms that are combining these diverse skills with impressive marketplace results.

The Great Convergence is the latest wave of creative destruction to hit the shores of the design profession. Any fast-growing design firm today (and there are plenty) is one that is riding this wave to prosperity. Just as many have their backs to it; however, many of those are about to get crushed.

Three Circles Itching to Venn

The Great Convergence began when the consulting firms–long used to being alone in having the ear of the C-suite client–found the challenges on which they were advising their clients to be increasingly technical. For every MBA a new engagement required, it soon demanded many more computer scientists. Then a growing appreciation of the economic value of elegant product design and intuitive user experience elevated the design function, opening the C-suite door to a few select creatives, too.

Without exaggeration, I cannot think of one rapidly-growing design firm today that is not blending these three functions of design, business consulting and software engineering, or that has successfully blended two and is facing up to the challenge of how to add the third.

Single-skill design firms are increasingly finding themselves relegated to vendors. Like their ad agency brethren, they find themselves locked out of the C-suite, left working on more tactical projects at the middle management layers.

The New Not-Quite-A-Design Firm

As the overlapping of these three spaces continues, new entities are evolving that aren’t quite design firms; nor are they traditional business consultancies or typical engineering companies, but myriad mixes of all three. Not only have we not agreed on what we should be calling these new hybrid firms (“digital agencies” seems to be the most common label but increasingly unsatisfactory) they often find they don’t have a home in any of the typical industry or trade associations. It may simply be too early in the evolution of these firms for them to have their own club.

The Three Components, Their Strengths and Weaknesses

Each hybrid firm seems to be a little different from the next, with novel takes on how they blend design, consulting and engineering expertise. Almost all of them have a lead discipline as their starting point. Below, I’ll talk about the strengths and weaknesses of each of these disciplines as they compete or merge, and then share my thoughts on how to combine these skills.

Consulting-First Firms

Of the three disciplines, it’s the consultants that run the highest-margin businesses. These margins allow them to easily buy or hire top talent, including the other skills. Consultants also have the best access to the C-suite, dominated by their fellow MBAs. They speak the language of executives and fully expect to be seated at the adult table having the adult conversations.

Consultants also tend to be better salespeople than designers or engineers, and are as good at keeping clients as they are at getting them. Once invited into a client organization, consultants defy the expectations of everyone, including the client, by somehow never leaving. Unlike creatives, consultants spend more time in the client’s offices than they do in their own, forming and expanding relationships and looking for new opportunities to create value.

What Consulting Firms Lack

Jack Skeels is president of Agency Agile, a training organization that has adapted the agile software development approach to ad agencies and other creative firms. He’s also a former consultant and he sees a fundamental difference in how consultants and creatives approach problems. According to Skeels, consultants almost universally work from a convergent approach to problem-solving–where existing knowledge and models are brought to bear to arrive at or converge on the one correct solution.

Creative firms, on the other hand, bring a more divergent problem solving approach that challenges assumptions, prioritizes curiosity, invites complexity without the need to get to the “right answer.” Divergent thinking tries to make intuitive connections between the varied and diverse answers their questions raise. I’ll generalize here but convergent thinking is neat and leads to the logical outcome whereas divergent thinking is messy and leads to numerous outcomes spanning the range from greatness to disaster.

The only real challenge with the consultant’s business-like convergent approach to problem-solving is the culture clash it can engender when consulting firms try to add design talent. The creative professions have watched with interest as the consulting companies have bought and digested some good design firms. It remains to be seen how these design-thinking creatives will integrate with the model-and-case-study approach of the consultants. My hunch is talented creatives need to work in firms that value their divergent problem-solving approach, where their ADHD is seen as a superpower and not a liability.

Those firms that successfully blend both problem-solving approaches are the ones on which I would place the biggest bets.

Engineering-First Firms

Any project that requires a large team of embedded software engineers is bound to be lucrative and low-risk. That’s one of the advantages of engineering firms: they tend to be hyper-efficient from a utilization point of view. People are sold into projects in increments of weeks or months based on a day rate that might flex with volume. A firm might have a team of dozens of engineers embedded into a client, effectively billing every hour they are on site. Sometimes this leads to more pure staff augmentation models where the firm and it’s contracted engineers are used to getting around headcount limits. Again, almost perfectly efficient.

Another advantage engineers have is that any tech-driven client (which is not quite every client but does cover most of the meaningful ones) has an engineer CTO sitting in the executive suite. Having one of their own kind on the inside is the engineer’s ready-made path to the highest levels of decision making. They’re not as well placed as consultants in this regard but are better off than designers.

And finally, engineers’ technical work can sometimes allow them to get a glimpse of future business challenges or opportunities before they materialize, giving them a potential head start on their competitors.

What Engineering Firms Lack

The first weakness of engineering firms I want to address is a corollary of my point immediately above: while an engineer embedded in a client organization is well-placed to spot business opportunities revealed by tech issues, they almost never see them. In training scenarios, I’m frequently struck by how the bigger opportunity does not jump out to engineers like it would for a consultant or designer. I suspect it’s an issue of their heads-down problem-solving focus that keeps them from seeing the big (business) picture. Or perhaps they find the business opportunity nowhere near as interesting as the technical challenge.

Another, related challenge for engineers is that when they do see new opportunities to create value for the client they struggle to sell a business case to the right people, even when they have a path to the C-suite via the CTO. A heads-down engineer rarely feels comfortable selling something higher up in the client organization to non-engineer audiences. For this reason, engineering-first firms need consultants at the highest levels of their firms and they benefit from having designers or consultants working in cross-functional teams so that these other professionals can spot the value-creation opportunities and sell them into the higher levels of the client organization.

The final challenge of an engineering-first firm that I want to address here is related to the first advantage I identified: efficiencies. As I wrote in Pricing Creativity, there’s a cost to the pursuit of efficiencies. The efficient firm gives up the ability to create extraordinary value and therefore capture extraordinary profits. Otherwise stated, while the pursuit of efficiencies drives profit to a certain point, it keeps a firm from the highest levels of profit–the consulting firm levels–that exist beyond that point. Getting to that next level of profit requires the firm to let go of pricing based on the inputs of time and price instead based on the value created for the client.

Engineering-driven firms argue that the unscopable and iterative nature of their work precludes them from value-based pricing, but that’s a weak argument. Their lean approaches may make contingency pricing–the most extreme version of value-based pricing–too risky, but there are many other ways to get expenses and base profit covered while aligning incentives to value creation. The real reason engineering-first firms eschew value-based pricing is engineers tend to be risk averse (like lawyers and accountants, their job demands it) so they prefer pricing models that push all risk to the client. The lowest-risk pricing model to the firm is the highest-risk to the client: sell time in the form of sprints. In such a model the incentives are all wrong. The firm is incentivized to throw more bodies and more time at a problem instead of thinking in terms of value creation.

Being a profitable, efficient firm is not the worst problem to have! But it gets harder as you watch some of the consulting-first firms get paid based on value creation (rather than inputs) and shatter your idea of the limits of ethically attainable profits. This is one more area where adding consultants to the mix can take an engineering firm to the next level.

Design-First Firms

Design is finally being taken seriously by successful companies that have witnessed the price and loyalty premium that great design can generate. Design thinking–a phrase the misuse of which I have trashed for years on this blog–is taught in business schools and is the subject of thought leadership coming from some prestigious consulting firms.

Good design in tangible and digital products is now more common and great design is the goal of many CEOs who see it as a significant competitive advantage. Every day I marvel at my Simple Human trash can and wonder what the hell took us so long. Everything about the Simple Human experience–from the product form, to bag design, to the bag resupply chain–is a delightfully designed experience. I would let the people who designed my trash can design most of my life. At the risk of overstating this, in a world that is only adequately designed, I–a non-designer–derive hugely disproportionate pleasure from the design of a trash can.

I won’t even bother mentioning the usual hardware and software experiences from the oft-cited companies like Apple and Uber. The point is good design is now recognized in many companies as an opportunity to add incredible value and good designers have earned the right to claim the freak role in the C-suite.

Another advantage design firms have is their 20-plus-year history of playing nice with engineers. Today front-end developers sit with designers on one side and back-end devs on the other. For the first two decades or so of the graphical web, the debate of whether or not to have development inhouse went back and forth. Today, for design firms of any size, the debate is over. The Great Convergence is upon us.

What Design Firms Lack

Design firms have historically lacked the business strategy chops and pedigree of the consultants.

A hobby of mine for many years now has been collecting answers to the question, “What is strategy?” This quirky pastime was inspired by design firm principals who, when speaking of their competitors, would derisively comment that sure they do good work, “but they don’t do strategy.” I would respond with my hobby-question and then smile as the designer awkwardly contemplated the question for what almost always seemed to be the first time in their life.

Strategy to a designer is the thinking that precedes and wraps the design solution. Strategy to a CEO is a series of decisions across all aspects of the organization that leads to a sustainable marketplace advantage and corresponding long-term financial success.

Simply Getting “More Strategic” Won’t Cut It

I recently received a note from a design firm principal who was lamenting the state of business not just in her firm but in the design profession. Her frustrations and the bleak landscape she painted did not match what I’m seeing in the market, but as I read on the source of her failure became clear. She said she had evolved her design firm with the times, adding a brand strategy component to her offering. Her firm had no technical abilities and what she saw as brand strategy was nothing at all resembling any sort of real business strategy capabilities that would get her anywhere near the C-suite.

There are inflection points in any industry or profession and this Great Convergence is one. Web design disrupted graphic design then web firms were themselves disrupted. The greatest opportunities with the biggest and best clients are going to firms that have consultants already working with the client on broader business challenges and inhouse design and engineering capabilities. Design-only firms are increasingly left with only the work that these successful hybrid firms do not want.

The requirement for design firms that want to play at the highest level with the best clients is to push beyond brand or design strategy to influencing the fundamental decisions that comprise business strategy, and then to implement through the firm’s own engineering-heavy, cross-functional teams. But there is a cost of entry into this club of well-paid strategic advisors. It requires graduate degrees from prestigious business schools and brand name consulting experience advising executives and boards of successful organizations. A design firm proposing to get “more strategic” is not the same thing as bringing in a real, pedigreed, MBA business consultant–someone who believes they should be talking to the CEO and not a brand manager, and who is willing to knock on that door fully expecting to be let in.

The Hybrid Whole is Greater than the Sum

Consultants provide access to C-suites and skills in sales and pricing but lack the technical chops or the creative ability that will result in a transformative user experience like my magic garbage can. It makes sense to me that they should have leadership roles in the new hybrid firms and prominent roles in running the client engagements–spending the majority of their time onsite at client locations– without overpowering the other disciplines.

Engineers, who typically make up most of the body count, bring the obvious technical abilities and an embedded view on the front line from which to spot opportunities for future value creation. They tend to risk aversion in their business models, however, and find it difficult to swim upstream to the underlying business opportunity.

Designers bring the divergent thinking to the cross-functional teams, the aesthetic standards and the desire to make something “insanely great” but are seen as a little too freaky to be left alone without adult supervision. The client needs all three skills. The firms that are delivering all three today are blowing up.

It’s Time to Take Strategy Seriously

I recently worked with a software engineering company that merged with a design firm. While successful and growing, they lack business consulting experience and find themselves quickly slipping from expert adviser status in their client relationships to that of vendor as the engineering talent leading the engagements keeps their focus where it’s trained to be: on solutions to existing problems rather than opportunities to build future value. To address this they’ve just added a pedigreed consultant to their leadership team. This is exactly the right move.

Design has already embraced engineering. It’s time now to embrace consulting. Design firms don’t have the margins to buy consulting firms but they don’t need to acquire other businesses. A small number of good consultants can have a transformative effect on a firm that has already wedded design with engineering. The next step is for design firms to hire consultants away from the big four consultancies and brand name boutiques. Yes, they’re expensive but they open the door to much larger, longer-term and lucrative engagements. Design needs more MBAs with C-suite relationships and an almost arrogant assumption that of course they belong there, advising the CEO and truly bringing design thinking to business. It’s time to do strategy for real. The market has never been more receptive to it than it is right now.

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