In the Zone: Profitable Ideas Fuel Mercer's Advance

"We don't have a brand name that is as well-recognized as those of firms that have been in the business for 40 or 50 years," acknowledges Jim Down, one of the firm's two vice chairmen. "But we do have what we think is the best intellectual capital in the business, and that's what we're using to drive our growth." Down joined the firm 19 years ago when it was called Temple, Barker & Sloane and ran the firm's operations, which include transportation, manufacturing, and logistics. After stints at the helm of the firm's Boston and Washington, DC, offices, he became the firm's vice chairman in April 1997.

More Than the Sum of Its Parts

Mercer Management Consulting did not come into being until 1992, with the merger of two consulting firms: Temple, Barker & Sloane and Strategic Planning Associates, the latter owned by Marsh & McLennan Companies, Inc. Since then, steady expansion and strategic acquisitions have helped the firm grow steadily to its current size of 850 consultants in 17 offices worldwide. Since 1993, the firm has merged with or acquired five other companies in the U.S. and abroad. In fact, it was one of the firm's more recent mergers — with Corporate Decisions, Inc. — that brought Slywotzky and David J. Morrison, Slywotzky's coauthor on the last two books, into the firm.

"We are very committed to acquisitions as a key part of our growth strategy," says Down. "Our parent [Marsh & McLennan Companies, Inc.] has significant capital to put into this industry, and it's been their strategy from day one. One of our key skills is knowing how to integrate these mergers and acquisitions and make people feel like a part of the family, not feeling like they were just acquired and swallowed up." For example, Morrison has made an immediate impact with the firm not only by coauthoring The Profit Zone and Profit Patterns, but also by leading the firm's internal Strategic Capabilities Group.

The firm also does not hesitate to bring in partners from the outside. "We have done a fair amount of outside hiring at the partner level, which is certainly different from some of our competitors," says Down. The firm evaluates people based on their "classic" consulting skills —entrepreneurial, analytical, client-driven — as well as their ability to fit into the firm's culture and values. "This is a very collegial culture," adds Down. "For example, if four partners sell an assignment, we give them all the same credit and full credit for whatever is sold. We don't try to split it up or figure out how much Sam did vs. Sally. That is an incentive to get other partners involved in clients and casework."

At the nonpartner level, Down says the firm looks for people who are not only bright and ambitious, but who are willing to say, "I have an idea and I'm willing to take the ball and run with it." "That's how we built this firm," he says. "If it's a good idea, we've given people the resources and support they need to develop that idea."

Developing Tomorrow's Intellectual Capital

When it comes to developing its intellectual capital, Mercer Management Consulting leaves nothing to chance. Led by Morrison, the firm's Strategic Capabilities Group is charged with developing the next generation of the firm's intellectual capital in strategy consulting and supply chain management, while also developing database management and statistical tools for qualitative and quantitative research.

Once the Strategic Capabilities Group has developed a tool or innovation, it is up to each industry practice area to adapt it to its specific client needs. By the same token, the group also provides a means for different industry practices within the firm to share innovations that can be modified for different industry sectors. For example, if the financial services practice develops a framework for value growth in the banking sector, then this process provides a way for the manufacturing practice to modify it and apply it to their clients.

Once a year, the firm's most senior consultants meet to agree on the key capability modules the firm will develop for coming years. For example, if the group focuses on Internet-related products, it will do a skill-based evaluation to determine who will lead the initiative. Of course, gaining the agreement and support of a diverse group of partners who work in equally diverse industry specialties is never an easy undertaking. "I am amazed at how smoothly this has gone," Morrison says of the group's progress.

The firm's two most recent initiatives, focusing on private equity firms and enterprise risk management, grew out of this process. The enterprise risk management initiative is designed to help companies to view risk outside of traditional insurance terms. "People are just starting to think about strategic risk," says Down, noting that the firm is well positioned to grow in this area thanks to insurance affiliations through its parent, Marsh & McLennan Companies.

In the private equity area, the firm is focusing on helping these firms target appropriate investment opportunities, broker capital, conduct due diligence, and identify opportunities for post-acquisition value enhancement. "This is a very exciting business, because we are dealing with companies that are investing in and buying companies," says Down. "In some cases, we have a standard fee arrangement. In other cases, we will take equity in firms." Asked how many of the firm's fee arrangements involve equity, Mercer management declined to discuss specific figures, but noted such deals are today a "meaningful percentage" of its business.

Future Growth

Over the past five years, the company has made tremendous strides, but "that pales in comparison to where we're going to take the firm. We plan to be one of the most significant firms in this business," says Down. "We will continue to grow and build our brand to be one of the absolute premier players. That has been our vision from day one."

Sidebar: Firm Facts:

• Headquarters: New York, NY

• Vice Chairmen: James A. Quella and Jim Down

Established in 1992 as a result of the merger of Temple, Barker & Sloane (founded in 1970) and Strategic Planning Associates, Inc. (founded in 1972). Parent Company: Marsh & McLennan Companies, Inc., part of Mercer Consulting Group, which includes William M. Mercer, Inc., N/E/R/A, and Lippincott & Margulies.

• Number of Consultants: 850

• Number of Offices: 17

• Annual Revenues: $268 million in 1998

• Annual Growth Rate: 15.5% in 1998

• Web site: http://www.mercermc.com

The book Profit Patterns also has its own Web site, http://www.profitpatterns.com.

Sidebar: The Evolution of Ideas

If you want to trace the development of Mercer Management Consulting's intellectual capital, look at the ideas in the book called Value Migration that grew out of the strategy consulting Slywotzky and his colleagues were doing in the early 1990s. "Some of the things we had learned about relative market share being the pathway to profitability started being inconsistent with many of the things we saw happening in various industries," recalls Slywotzky.

It was becoming clear that the classic rules of business strategy were not working as well as they had in the past. Traditional business models based on scale and technological innovation were yielding to a new customer — and profit-centric business design. "Clients were asking: 'How come the old rules don't work?', 'How can I have 35% market share and no profitability?', 'Are there new rules out there and how can I take advantage of them rather than be victimized by them?'," says Slywotzky. The answers to those questions made up the central theme of Value Migration, as companies realized that scale and relative market share were no longer guarantors of success.

Building on that thinking, Slywotzky teamed up with David J. Morrison to write The Profit Zone, which profiled a dozen continually successful companies. The pair found that these successful companies run their businesses differently by embracing profit-centric thinking and understanding the origins of profitability in their industries. These companies focus on questions like, "How are my customers changing and how can I get ahead of that?" and "What am I good at now and what will I need to be good at to be relevant to customers and profitable tomorrow?" These companies operate under the assumption that you have to reinvent your business design every four or five years because (1) customer priorities change and (2) competitors imitate your business model and drive the profitability out of it, says Slywotzky.

In Profit Patterns, Slywotzky and Morrison reported that companies accepted the fact that "they have to reinvent themselves every five years." However, the authors found the pace of change to be increasing, as well as the level of complexity in business. Therefore, Profit Patterns focused on helping companies decipher these complex changes rapidly enough to take advantage of them. "We studied more than 200 companies in 40 different industries to understand the basic patterns of strategic change," says Slywotzky. In intensely competitive environments, he emphasizes, companies cannot just react quickly to change — they must be able to anticipate the direction and the rate and the nature of strategic change as it's happening.