How Consultancies Can Achieve Long-Term Success: Balancing Exploration and Exploitation

How Can People Businesses Remain Relevant While Achieving Sustainable Growth?

 I had a phone-call this morning with a founder that had ‘missed the boat’. He’d had a wonderful growth story until about 2008 when the market began to shift. Instead of moving with the market, he doubled down: hiring expensive sales-people and investing more in marketing.

Some of his senior people, sensing the market mood, decided to jump ship, and the increased competition in his space meant that price pressures became common. This poses serious challenges for a CEO (and a potential advisor!) because there is a ‘path dependency’ to where the firm has arrived, and without radical change (in short, shrinking in order to grow) the vicious circle will continue until the firm goes bankrupt.

Sadly, this owner didn’t have the appetite for radical change and so we agreed to part ways. I may be wrong, and hope I am, but clinging to a sinking ship is not a wise strategy when there is a small life-boat that could take the firm to a safe harbour.

The Importance of Continuous Innovation

While some in the industry suggest that firms should completely reinvent themselves every 5-7 years, research suggests a more effective strategy: balancing exploration (chasing new opportunities) and exploitation (maximising existing strengths) – a concept known as the ambidextrous organisation.

By taking this approach, consultancies can stay ahead of the curve, strengthening current offerings while making strides into new, promising areas.

So, how do you get this balance right in practice?

When to Branch Out Into New Services

Deciding when to expand into new service lines is not about following your gut; it’s about reading the signs and acting strategically:

• Build the Identification of New Markets into an Annual Review: First, keep a close eye on your current market for signs of maturity or saturation. Markets with slowing growth, shrinking margins, or increased competition are red flags that it might be time to look for greener pastures. Another is if you struggle to increase your prices above inflation. In such cases, expanding into adjacent service lines or sectors may help sustain growth and profitability.
• Listen to Client Demand: Clients are often your best barometer for future growth. Companies adjusting their services based on client feedback tend to grow faster than less responsive peers². Regular engagement with clients through surveys, interviews, or even informal chats can provide the insights you need to evolve your offerings.
• Monitor Industry Trends: Aligning with shifts in demand—like the surge in interest in digital transformation, AI, or ESG (Environmental, Social, and Governance) consulting—can position your firm as a leader in new, high-growth areas. Those who spot these trends early and act swiftly often reap the rewards.
• Time Your Move Strategically: Don’t wait until your current services are stale. Firms exploring new opportunities while still strong—rather than waiting until desperation sets in—are more likely to succeed. Ensure you know your KPIs and triggers for moving into a new market or service line.

The Importance of Client Input and Boundary Scanning

Client feedback and boundary scanning are vital tools for spotting new opportunities and shaping your innovation strategy. Here’s how to get it right:

• Leverage Client Input for Innovation: A study by MIT Sloan Management Review found that firms co-creating solutions with clients are 60% more likely to succeed with new offerings. Use methods like pilot projects, beta testing, and innovation workshops to align new services closely with client needs. The closer you get to your clients’ evolving pain points, the better your chances of crafting something they will pay for.
• Practice Effective Boundary Scanning: Keep your eyes wide open beyond your immediate field. Working with academia or simply regularly reviewing competitors, regulatory changes, and technological advancements will help you stay ahead of the curve.

How to Practically Invest in Innovation

Innovation doesn’t have to mean betting the firm on the next big thing. Here are some down-to-earth, evidence-based strategies for fostering innovation:

• Dedicate Resources Strategically: Firms with dedicated innovation funds—typically 2-5% of revenue—are more likely to develop new services successfully. Even small, incremental improvements can accumulate into major competitive advantages over time.
• Build an Innovation Team or Hub: Organisations with dedicated innovation teams are 30% more likely to succeed in launching new services. This team should have the autonomy to experiment and fail fast without being hampered by day-to-day operational constraints.
• Encourage a Culture of Innovation: Promoting and rewarding innovative behaviours as part of the consulting (including celebrating failure!) leads to improvements in employee engagement and revenue growth. Partnering with startups, universities, or using open innovation strategies can inject fresh thinking into the organisation, reducing costs and risks.

The Role of Leadership in Driving Ambidexterity

Leadership is central to fostering an ambidextrous organisation. Leaders who encourage a dual focus on exploiting existing strengths while exploring new opportunities tend to outperform their competitors in both stable and turbulent markets.

Conclusion: The Path to Sustainable Success

For consultancies, long-term success isn’t about ripping up the rulebook every few years. It’s about finding the balance between exploration and exploitation, maintaining core strengths while seizing new growth opportunities.

You can’t predict the future, but you can be better informed about when and why your present and recent past are not looking good.