Bain & Company: What we can learn about operating models through a services firm

We tend to think about operating models as they relate to fixed asset or repeatable process businesses. But operating models are as important if not more with services firms, where your competitive advantage may walk out the door every day. This post is not to say Bain has been, or will be, more successful than any of it's competitors. Rather it looks to examine why their chosen combination of operating design principles appears to support a successful business model that works for them, and how the firm has created a virtuous cycle between its people, processes, and results.

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Bain & Company is a leading strategy consulting firm servicing large and small companies, investors, and non-profits alike from across their 53 offices in 34 countries.  Founded in 1973 Bain did some $2.2B in revenues in 2014 and employed over 5,500 people.

For an intro to Bain see here: http://www.joinbain.com/why-bain/world-changing-impact/default.asp

Effective Operating model:

Put simply, Bain’s business model is selling expertise, strategic thinking, process management, and human capital resources to the world’s leading organizations.  Bain continues to differentiate based on the quality of its human capital, relationship management, and its subject matter expertise.  While simple on the surface there are a number of key operating model elements which align directly with, and support, this successful business model.

To me, Bain’s operating model is centered on three things: labor, intellectual property, and organizational structure/incentives.  While other factors such as capital allocation matter, they are not as important to the day to day success of the firm.

Labor:

A consulting firm is only as good as its people.  While this is said in many organizations it is especially true in this industry where the product is more nebulous.  The ways in which Bain addresses this need are:

  • Sourcing- Bain recruits at many top academic institutions globally and has established itself as a preferred employer. Bain also runs much of its recruiting centrally (amount to which this is true can vary by region).  This ensures consistent approaches to assessing talent and funnels candidates through a few people who have a lot of say over hiring decisions.
  • Training- Bain trains all levels of its staff together globally. This comes at substantial cost but it accomplishes a few critical things.  First and foremost it ensures similar approaches and training standards across offices and regions.  It also helps support a consistent culture across offices as trainers help establish these ways early on.  Finally, it builds long lasting relationships across offices which are then reinvested in annually through subsequent social and training events.
  • Retention/satisfaction- Bain invests substantial amounts of resources in local, regional, and global events that are firm building. From drink nights to global soccer tournaments, these make it a fun organization to be a part of and a top place to work. Bain knows that keeping top employees is far cheaper than repeated hiring and leads to better results as employees are more experienced and engaged.

Intellectual property:

To support the development of IP Bain deploys several structural elements to its operating design.  First, it follows a quasi-matrix structure in which it has regional areas of focus/P&L’s but also practice area specializations.  Practice areas support the development and capture of key concepts across cases and across geographies. On a day to day level Bain has systematized the capture of templates, analytic processes, and learnings into a central system.  Doing so allows each subsequent case to benefit from non-confidential advances made by previous engagements focusing on a similar task.  Finally, Bain has structured incentives of senior members to include contributions to this global information platform.  This ensures this critical step is not overlooked for other more near term imperatives.

Organizational structure & incentives:

Consulting firms make very clear tradeoffs in their organizational design.  Three are most critical to Bain’s success:

  • Regional, generalist, model: Bain staffs its cases largely by region vs. nationally or globally. Bain feels this is critical to its culture as it can reduce travel and ensures teams know each other well, and return to the same offices.  Bain sacrifices some on utilization but believes the tradeoffs are worth it.  The generalist approach is also not without flaws, but allows Bain to put its resources onto whatever assignments are the best fit for them and office needs.
  • Group performance not “eat what you kill”: Partners at Bain are not incentivized directly based on what they can bring in.  As a result, compared to other firms, top performers may arguably be “underpaid.”  But Bain’s leadership has chosen to optimize around cooperation and group productivity.  At the end of the day this is only good if it leads to a better product for the client, and Bain believes it does, which creates a virtuous cycle supporting follow-on sales.
  • Pyramid vs. diamond design: Bain has more pre-MBA resources than do its peers.  This goes back to the core principal that retaining talent is less costly and delivers a better product than hiring at more senior levels.

Conclusion- Why this has been sustainable?

There is no shortage of consultants in the world.  And Bain continuously faces competition from direct competitors, smaller shops, and large multi-service firms alike.  But the operating model it has chosen continues to support a profitable, high growth business model because of the virtuous cycle it has created around its people and product.  Bain attracts a certain type of individual, trains and retains them, motivates employees towards cooperation to deliver the top product, and sells and resells based on its reputation and performance.

stock-price-chart-2015

Sources?

http://www.bain.com/about/people-and-values/our-team/index.aspx

http://www.forbes.com/companies/bain-and-company/

https://www.glassdoor.com/Best-Places-to-Work-LST_KQ0,19.htm

http://www.bain.com/industry-expertise/index.aspx

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6 thoughts on “Bain & Company: What we can learn about operating models through a services firm

  1. Do you think Bain has any differentiation points vs BCG and Mckinsey?

  2. Great post, Matt. I appreciated the chance to learn more about Bain and also how this exercise can be effectively applied to a services oriented business.

  3. Hi Matt – you mentioned when discussing IP that Bain encourages employees to “benefit from non-confidential advances made by previous engagements focusing on a similar task.” I’m really interested in learning about more how this occurs, because it seems that all projects would be considered confidential; most customers would not want the result of their (usually) multi-million dollars investments in a template to be used by the next company that hires Bain. It’d be great if you could shed more light on this!

  4. Matt, in your article you underline that you’re not claiming that Bain is necessarily a winner verses other consultancies. However, this is an industry in which we’ve seen a lot of consolidation recently with the acquisition by the Big 4 of Monitor, Booz & Co, etc

    Why do you think Bain has been successful in this industry? Have they just out-performed competition on these metrics? Been better at attracting and retaining top talent, codifying IP or structuring in a more effective way? Or is there some other factor (scale or strong client relationships) that set Bain apart?

  5. Hi Matt,

    thanks for sharing this perspective. Given the large numbers of consolidations in this industry and the factor that Bain is the smallest of the “Big 3 Consultancies” do you see a danger of Bain being “eaten” by the expanding accounting giants PWC, E&Y, Deloitte and KPMG?

    What parts of its operating model do you think will protect Bain from this threat?

    Thanks
    Peter

  6. The IP component of the business plan seems most critical to the core function of the business. People are replaceable, and the structure is replicable, but the IP is seemingly what drives successful solutions to similar problems across industry. I wonder if Bain will need to increase the focus on that as technological advances in various industries start to be the core differentiating factor between successes?

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