A few years ago, I authored a book on elite professional service firms (PSFs) like Blackstone. Among the many success stories, Blackstone’s meteoric rise stands out as particularly remarkable. What truly sets them apart, however, is something surprisingly simple yet profoundly impactful: an unwavering commitment to their original mission — a value proposition crafted decades ago that still drives their success. The foundation? Institutional skills focused on investment performance and clients.
Clarifying a PSF’s value proposition is the starting point for building effective firm-wide or ‘institutional’ skills — Blackstone’s hallmark asset. A value proposition is a statement of the benefits clients will receive. Therefore, a clear understanding of client needs is essential for defining the firm’s value proposition. Ultimately, a competitive edge lies in delivering superior client value to create wealth for all parties involved. It also requires a keen understanding of why clients choose one firm over another — why Blackstone? Consequently, leading firms prioritize client value over a purely product- or service-centric approach.
I always use the following questions to assess whether a PSF — a potential investment — has a well-defined and compelling value proposition: [1] What services do their clients want, and are they willing to pay for them?; [2] Does the firm’s ‘statement of benefits’ include evidence-backed reasons why clients would choose this value proposition over alternatives?; [3] Does analysis support the value proposition’s potential for generating above-average returns?; and [4] How does the firm’s value proposition compare to those of its rivals? Is it more attractive?
For PSFs, being explicit about the institutional skills required to fulfill their value proposition is essential. These skills must be clearly defined and consistently applied in a way that outperforms the competition. This approach was precisely what Schwarzman and Peterson envisioned when they founded Blackstone in 1985.
Successfully building and leveraging institutional skills involves identifying the pivotal individual roles — including designing the right systems and management style to support and empower them — that must be performed excellently. Individual skills articulate the actions that individuals must perform well for the firm to build superior institutional skills. The list of individual skills should summarize the capabilities that contribute to institutional skills.
Schwarzman, the late Peterson, and exceptional colleagues like Jonathan Gray exemplify a crucial principle of building great businesses: unwavering consistency in mission and purpose — paired with a healthy dose of restlessness — is essential for expanding a firm beyond the limits of markets, countries, or industries. Happy shareholder, over here — mission accomplished.