George Beaton Columnist

George is the founder and executive chairman of Beaton Research + Consulting, which provides advisory, performance improvement and trouble-shooting services to professional services firms. George's management experience includes executive director roles in advisory, consulting, communications and marketing research firms.

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Does your firm have permission to diversify?

Published 30 January 2013 17:21, Updated 31 January 2013 06:22

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Does your firm have permission to diversify?

Firms may find that clients aren’t as enthusiastic about their acquisition plans as they had hoped. Photo: James Davies

Further consolidation and diversification among professional services firms will characterise 2013. Many large and small professional services firms are growing through acquisitions and mergers with the growth being both vertical, or deeper into core markets, and horizontal, into new markets.

This trend raises some big questions. With acquisition comes the concept of brand permission. This refers to clients’ degree of willingness to consider a firm for new and different services.

First and foremost brand permission is granted by clients. It is not something that a firm can simply claim or insist on based on its existing reputation and brand-building prowess.

Acceptance will depend on clients’ subjective judgements – it is not automatically granted.

In the 1990s and 2000s all the major accounting firms made acquisitions and it became the norm for acquisitions to be absorbed into the mothership, resulting in the disappearance of the acquired brand – irrespective of the equity in the acquiree’s brand.The ‘parent’ brand prevailed regardless. Specialist firms in strategy, environment, infrastructure, change management, law along with actuaries and economists were acquired and absorbed into the international brands of the Big 4 and to a lesser extent the Next 8, with little or no regard for brand permission.

It came as a shock to most of these firms when the acquisitions failed to retain their market positions.

The new owners discovered that they did not have an automatic right to assume the clients of the acquired firm would grant brand permission.

Those absorbed (obliterated?) had to fight anew for brand permission from both their existing and potential clients – which was not always granted. And staff, who identify as strongly as clients with the brand, were disaffected too.

So more often than not the investment in the acquisition was wasted as the business withered and despondent practitioners drifted away.

Today we are seeing a more measured approach to acquisitions and brand permission.

In accounting, where we are seeing the most ‘horizontal’ acquisitions, some firms are retaining separate brands as a way of preserving existing brand permission, maintaining the culture of the acquired firm and securing talent.

Examples include Deloitte Access Economics in Australia and the recently acquired HR consulting pioneer Bersin & Associates, now cleverly called ‘Bersin by Deloitte’. PwC retained the brands of The Difference, a strategy development boutique, and Avantis Information Systems, a business analytics and intelligence business.

Brand permission strategy is not limited to the accountants. Worley Parsons, ‘horizontally’ acquired Evans & Peck, an infrastructure advisory firm, and retained the brand. Other engineers like Cardno and Coffey blend their brands to get the best of both worlds although most of their acquisitions tend to be vertical where there is less of a brand permission issue to manage.

We predict professional services firms will not adopt the house-of-brands strategy pioneered by the global advertising agencies. The default position for the professions will remain the all-powerful single brand, but the most active accounting firms do recognise the role of brand permission in retaining the value of their acquisitions, albeit after decades of squandered investment. Where does this leave the lawyers, engineers and other professional services? No doubt, 2013 will point to an answer.

George Beaton is a director of Beaton Capital and Beaton Research + Consulting, firms dedicated to professional services.

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