Your People Are Your Worst Asset: Why Consultancies Need Talent Systems

Key Takeaways

• People vs. Systems: Over-reliance on key individuals can increase strategic risks for a firm. Transitioning to system-based processes is crucial for sustainable growth.
• Growth to Scaling: Start-ups benefit from entrepreneurial talent, but as they scale, systems and processes become essential to maintain efficiency and reduce dependency on star performers.
• Risks of Key Personnel: Key individuals, while initially beneficial, can become bottlenecks and create vulnerabilities within the firm if their knowledge and skills are not documented and shared.
• Structured Development: Implementing structured recruitment, training, and mentoring systems helps capture and distribute essential knowledge, reducing the reliance on any single person.
• Management Balance: Balancing the roles of entrepreneur, manager, and technician is critical for growth, with a strong emphasis on systematisation and efficiency.
• Systematisation Benefits: Systems are more reliable and consistent than individuals, offering stability and predictability without the risks associated with personal issues or demands.

Contrary to the trite nonsense on LinkedIn and the CIPD magazine, people are not your greatest asset. Indeed, this blog argues, acting this way can devalue your firm and increase strategic risks.

It examines when a founder should switch from an entrepreneurial focus, where a reliance on individuals is crucial, to a system-based firm where talent processes are the primary asset.

“Mark’s got me over a barrel” – The Paradox of Key Personnel in Business Growth

During my PhD, I found myself studying a company called Johnson & Sons, which was establish in 1667 and, to be honest, hadn’t changed much since. They employed highly skilled craftspeople who made buttons, breastplates, insignia and headwear for the military.

Unsurprisingly, their warehouse of moulds and diecasts was enormous as it contained the templates for pretty much every button, medal or badge for every British military force (not to mention royal ranks).

As was common at the time, the company was bought by a Taiwanese businessman and given to his son, a recent MBA graduate, to make more efficient.

The son, a bright, ambitious man called Zhìqiáng bought in several innovations to drag the firm into the 20^th Century, created their first marketing strategy and plan, and began offering cheaper, more standardised and mass produced offerings.

Zhìqiáng also made a lot of what he called the ‘old guard’ redundant, including Mark – an old-hand who I very much liked and who had been with the company since 1667 – or at least seemed that way. Mark didn’t mind leaving, he told me: ‘the company isn’t what it used to be. There’s no art in what we do anymore’.

My PhD was examining these types of stories in the context of 1990s, where, despite economic growth, the deindustrialisation of Britain continued apace, and the trend of ‘Business Process Re-engineering’ was emptying the ranks of middle-management – and often improving little in the process.

A few weeks later, I was back at Johnson, interviewing. I was surprised to see Mark walk past my room. More surprising was that he was smiling. Mark rarely smiled. After the interview, I caught up with him, and he told me: ‘they’ve got me back on treble the money. I’ve got Zhìqiáng over a barrel’.

Mark, it transpired, was the only person who knew where to find the relevant moulds or dies in the warehouse. Indeed, some (sotto voice) suggested that the most important looked as if they’d been hidden.

Production had pretty much come to a stand-still until they got Mark back in to find, and then catalogue, the warehouse.

Moving Away From Mark – Rethinking the Value of People in Consultancy Firms

“Our people are our greatest asset” is a phrase regurgitated by consultancies (and other firms) across the globe. Whilst it’s a jolly (if trite) marketing slogan for recruits, believing and acting on this can do your firm serious damage.

Great people are the lifeblood of a start-up. During the growth (working out what you do) phase of a firm, you need entrepreneurs with creativity, energy and vision. These will help the firm find its niche, establish its clients, and deliver great – if varied – work. Long hours are a feature of start-up life, especially if the first few people have an equity stake in the firm.

However, in order to move from the growth to the scaling phase, you should move away from relying on the effort, genius, and hard work of key individuals and move actively towards systems and processes that can recruit, develop, and promote the behaviours that deliver value in your company.

Transitioning from Growth to Scaling: The Role of Systems Over Individuals

Indeed, whilst even a scaling firm needs to still innovate and explore, too many entrepreneurial midnight oil burners or know-it-alls will actively harm your firm.

This is because you will tend to rely on them going ‘above and beyond’, often to the extent that there is no point constraining them with processes and systems. After all – why make them follow a process when they’re performing so well?

You probably know someone like this in your firm. They’re a star performer in many respects, delivering the sales, getting the perfect team co-ordinated for that crucial project, or flying across the world to save that 11^th hour delivery just in time! Wonderful, but……

….In the long term, what the Marks of the world are doing is creating a dependency, and thus a risk, for your firm. Worse, as you grow, they will become a bottleneck for your firm, which can only go as fast as Mark lets them go.

In the worst situations, like at Johnson, Mark will know his power and fail to train others up or capture his knowledge, because it weakens his position.

We have probably all experienced that amazing rainmaker who won’t fill out their timesheets, never have time to mentor or capture their sales insights, and instead demand an ever-higher set of pay, bonus and equity to prevent them leaving. Perhaps it’s not the partner – perhaps it’s you, the owner?

From a buyers’ perspective, these types of people are of course, very risky. If your cornerstone can, metaphorically, pack its bags and depart, how robust is your building?

Reducing Key Person Risks During Consultancy Growth

Michael Gerber’s oddly-named “The E-Myth” offers a strong critique of over-dependence on key personnel. Gerber encourages us to see our growth efforts as building a franchisable firm: a company that is built on systems and roles, not people.

For professional service firms, this means:

A Competence System:

Implementing structured recruitment and training systems is crucial. This ensures a steady influx of talent aligned with the consultancy’s vision and goals.

A Mentoring System:

This helps tacit knowledge (i.e. stuff that’s hard to train for) get passed from seniors to juniors. It mimics the apprenticeship model and is well suited to skills such as trust-building, leadership and relationship management.

Knowledge Management:

Knowledge can’t remain in people’s heads. It needs to be captured, stored, searched and redistributed so that less experienced juniors can approximate the job of seniors without burdening them with incessant questions.

Balancing Hats:

Gerber talks about the Entrepreneur, the Manager, and the Technician as different roles necessary for firm growth. In professional services, practitioners often fall into the Technician role and for growth, this needs to be balanced with Entrepreneurship.

However, what is often forgotten is the manager – that role essential for the systematisation and efficiency of the company.

Of course, this is not to say that star-performers need to be constrained or removed. Simply that, for the firm to increase in value, it must capture and share what it is that makes them star-performers. When set up right, these systems consistently bring in and develop the right people, ensuring stability, predictability, and growth.

Compared to individual employees, systems don’t quit or ask for raises. Their performance isn’t based on daily feelings or personal issues. They’re the backbone of a business that’s built to last.

Contrary to what McKinsey & Co. argued in The War for Talent, a scaling firm should not seek to give these individuals free rein in the firm. Instead, we should focus on getting them to help us build systems and IP that will allow others to emulate them.

Conclusion

The transition from individual talent to systematic processes represents a critical evolution in the consultancy industry. The case of Johnson & Sons and the argument of the e-Myth underscores the importance of developing reliable systems.

These systems, rather than individual star performers, form the backbone of a consultancy’s growth and stability, ensuring that the organization maximises its value and reduces its risks.