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I've spent the past few days reaching out to seasoned marketing professionals in the professional services industry to ask how they measured the value of thought leadership on their company's financial performance, and I've heard an extraordinary number of tactical responses, the web metrics covered (e.g. page views). , social media (e.g. sentiment analytics), mindshare (e.g. media mentions), sales (e.g. CRM metrics that count customer meetings, use in suggestions, etc.), and tons of anecdotal evidence (e.g. Stories of customers discussing their thoughts at board meetings).

These metrics are useful for tracking operational performance in the short term. But no one talked about the strategic, long-term impact of thought leadership on their company's financial performance. Therefore, this article is aimed at management consultancy executives who are making strategic decisions about marketing.

A company's brand attracts business and warrants higher margins, especially in a downturn. Customers who take the risk of hiring companies they don't know when the economy is growing are more likely to hire the safe and reputable leader during a downturn because they can justify to their board of directors and stakeholders that they hired the best . I assumed this was common knowledge, but perhaps the past decade of economic growth has left many executives at large consulting firms with no experience to lead their businesses through a downturn. With this in mind, it is worth reviewing the data for the past decade.

The first thing to note is that the value of a management consulting firm is exceptionally tied to its brand and reputation. This should come as no surprise. Most executives know that intangible assets make up 84% of the value of companies in the S&P 500. Hence, management consultancy executives know that their intangible value is a much larger percentage of their value because they do not have many assets. They rent office space, laptops and most of their IT. We saw with Arthur Anderson in 2001 that any value can disappear practically overnight.

Management consultancies are extremely competitive. They spend a lot of time chasing each other and trying to outperform their competitors. I became Deloitte's first Director of Competitive Intelligence (CI) in 2006, which enabled me to work closely with executives across the company to understand their top intelligence topics, and their number one priority has always been understanding how they fare against their competition claim. The most popular reports from the CI team were always about comparing the financial performance of their top competitors. These reports would spark endless debate about which service deserves the most credit for current success and which service would drive the company's future growth. Most of these executive discussions focused on drivers of short-term growth. However, at the annual board retreats, our team conducted a long-term analysis of the industry and presented results on what is really driving growth in the industry.

The drivers of growth

Our research has shown that the overwhelming growth driver for the industry is the economy. This probably doesn't surprise people outside of the industry, but it's troubling for most of these highly competitive consulting firms to learn that no matter how brilliant they were or how hard they worked, the economy was the most influential factor in their growth.

The second highest correlated factor in revenue and margin growth was the company's brand equity, which was heavily influenced by its thought leadership. Every two years Deloitte conducts a brand perception survey of 1,000+ executives to measure brand equity. If you track brand equity in the Brand Directory published annually by Brand Finance, you know that Deloitte improved its overall brand ranking among all companies from 117th in 2011 to 46th in 2019, and became the world's leading commercial services brand in 2019 Success has been achieved through considerable collaboration between the Brand, Marketing and Insights teams.

Our analysis found that thought leadership is one of the key factors shaping the impression of Deloitte's brand reputation, especially in strategy consulting and tax services. In addition, we learned that thought leadership has the most important influence on the perception of Deloitte's ability to innovate and has improved the perception of Deloitte's strategy practice to the extent that it is just as innovative and insightful in the last customer survey as McKinsey No. 1, as it is under their competitors average in 2009. Thought leadership was also recognized as the determining factor that placed Deloitte's No. 1 tax stamp ahead of its Big Four competitors.

A brand is much more than thinking. The value of the brand results from the effective cooperation of all business areas. However, clients and branding methods prove that thought leadership is the largest contributor to a company's ranking and is 35% to 40% of the value in most branding methods. If you look at the correlation between Deloitte's brand equity rankings and the thought leadership rankings published twice a year in Source Global Research's White Space reports, you can see the direct correlation. When I joined Deloitte's Insights team in 2012, the quality of the company's thought leadership was ranked 18th in management consulting. Within two years we improved to second place and got one of the top two positions for five years in a row. Changing a company's brand and reputation takes time, but we did it quickly and Deloitte has benefited greatly from it.

Brand, thought leadership, and financial performance

This leads me to connect branding and thought leadership to a company's financial performance, which is what the leadership of any management consulting firm really wants to know. Managing partners trying to optimize costs, especially during a downturn, will recognize that thought leadership creates value by developing their business's expertise. However, they often cut their budgets because they don't have an ROI calculation to justify any short-term marketing effort. They can't calculate it the way they can for every sales rep. Also, many managing partners who lead branding and marketing see their work as analogous to controlling an aircraft carrier, where it takes a long time for their decisions to influence the direction of the business. You're not wrong, but most of them underestimate the impact of their decisions on their company's future financial performance.

At Deloitte, we have seen the dramatic financial impact of our thought management improvements. The correlations between the quality of thought leadership and the financial performance of strategy consulting services from the top 10 management consulting firms were particularly high. Many of the top 10 companies have a number of other functions, such as: B. Technology, tax, outsourcing and accounting services, making analysis difficult. Therefore, my research limits management consulting in any company. The fact that most of these companies are private also makes comparisons difficult. Therefore, I only use the financial information from each company's business advisory services as collected by the experts at TBR, Inc. I know they have the best financial details of any of the management consulting firms in the industry. They have followed these companies for years and validate their information against reliable sources. TBR's financial data is the best source for apple to apple comparisons among the advisory services of top management advisory firms.

By 2012, Deloitte's thought leader was highly decentralized, with little built-in content or guiding principles. The company's thought leadership ranking only hit the top 10 once prior to 2012 when it hit 8th in 2008. As mentioned earlier, we've greatly improved the thought guidance ranking and the linear correlation between the movement of Deloitte's thought guidance ranking and the brand ranking between the two from 2011 to 2019 is 0.83. As a background, any correlation between two variables above 0.5 is strong and above 0.7 is considered very strong. This shows a very strong relationship between Deloitte's thought leader and its brand rankings.

Over the same period, the correlation between Deloitte's brand ranking and sales is 0.87. To put it in money, Deloitte's corporate consulting revenue was the largest of the top 10 consulting firms in 2011, and it was still up 81.6% through 2019. This is faster than the 74.8% average of the other top 10 consultancies and the second fastest of the top 10 companies over the period.

Another financial metric to which the brand ranking shows a high correlation is the operating margin, which at Deloitte has a correlation of 0.65. Deloitte's improving brand enabled it to improve its operating margin from 16.5% in 2011 to 21.8% in 2019. Most convincingly, Deloitte's highest operating margin in 10 years was 22.8% in 2015, which was also the first time Deloitte had thought of reaching # 1 leadership. Coincidence? I do not believe that.

I'm not going to spend the entire article providing the high correlations between brand, thought leadership, and finance, but I'm going to point one more metric to the Big Four partners reading this article because I know that is one of the metrics that keeps you informed at night. The correlation between brand ranking and revenue per partner from 2011 to 2019 is 0.67. During this period, the other Big Four (PwC, EY and KPMG) barely kept their list of thought leaders in the top 10 and really didn't improve. Revenue per partner increased by approximately USD 225,215 for KPMG during this period, and decreased by USD 94,999 for EY and USD 163,220 for PwC. By comparison, Deloitte's revenue per partner increased $ 401,663 over the period, and Deloitte was the only Big Four company to have more than $ 4 million per partner.

This research can be applied to any major consulting firm, but would turn this article into a book. One example worth mentioning that underscores my results extremely well is CapGemini. Most people in the US have forgotten about CapGemini based in France after taking over the consulting practice from EY in 2002. Immediately after the acquisition, Cap Gemini mainly focused on its IT and outsourcing services, with a focus on the European market. Around 2014, they increased their focus on their business consulting services and improved their thought leader rankings by never being in the top 10 for several years and knocking on the door of the top 5 companies. Then in 2018 they took number 1 and have held it for the past two years. In the last two years at # 1, business consulting sales rose 83.4% compared to the 35.8% average of the top 10 companies. The correlation between sales and the ranking of their thought leaders is 0.966.

Now I fully expect a lot of people, especially my data scientist friends, to reach out to me to reiterate the point that correlation is not necessarily a cause. There are many factors to consider, and the correlations vary from company to company. I fully acknowledge this fact and encourage any management consulting executive team to use this data to study the impact of branding and thought leadership on their business before making cuts on their marketing teams. Other factors, such as major acquisitions, affect the correlations and require analysts to adjust their calculations. But years of data are hard to deny that there is a very strong correlation between a company's thought leadership, brand, and financial performance. They go hand in hand.

The clear effect for top companies

Before I finish, I want to share some qualitative considerations for managing partners as I look at this and their own data. First, the influence of thought leadership on business consulting revenues is significantly higher for the top companies. Correlations of companies with thought leaders below 11th are consistent, but not as high. It is the top companies that benefit the most. Companies that are in the top 10, especially the top 3, benefit much more financially because they are clear market leaders. Many clients automatically involve the best consulting firms in projects when they submit proposals. Deloitte saw an increase in offers for inclusion in Master Services Agreements (MSA) from Fortune 1000 companies between 2015 and 2018 after we were # 1 and staying at the top of the rankings. F1000's procurement departments limit the number of consultancies they offer an MSA to, and many re-evaluate companies annually using the thought leader ranking as one of their qualifications.

A second consideration, especially for midsize consultancies, is the importance of focusing your line of thought on the topics that you want to expand on most in order to differentiate yourself. It's hard to compete with the resources of a large consulting firm, but many clients will use the expertise of a thought leader evaluator like Source Global Research (SGR) to help select the best thought leaders on specific topics. For example, a Fortune 20 company hired SGR to identify the consulting firm with the best thought leadership on the smart home market before expanding into it. So, in addition to the overall ranking, consider how creating a high quality thought leadership guide can generate leads for growing revenue in new areas where you want to grow your business. And focus on the quality, not the quantity, of your reasoning. Inferior reasoning damages your brand.

After all, my data analysis covers economic growth from 2011 to 2019. Economic downturns put an immense burden on the consulting industry and it is natural for the managing partners to look for cuts. The large management consulting companies generate billions in sales every year without a lot of tangible assets. They rent their office space, laptops and almost everything else. They say their people are their "fortune," but people are also their greatest expense. Before cutting your marketing reps because you think of them as "cost centers" and your accountants can't calculate their ROI to a decimal point, consider the long-term impact of cutting on your brand and the resulting impact on sales and margins beyond this fiscal year.

Instead, think of this downturn as the right time to transform yourself into thought leadership. Assess your current structure and set up a program to improve the quality of your thought leaders and get out of this unprecedented recession that is leading the industry into the next cycle of economic growth.

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