For a company to have a competitive advantage, it must rely on low cost, differentiation, or a market niche. Commodity products typically use low cost as a competitive advantage. Non-commodity products often rely on differentiation and market niche. One of the most common differentiators in the sale of products is the level of service associated with the sale.

Since professional services are not commodities by definition, cost is rarely a competitive advantage. In fact, the federal government and most state agencies are forbidden by law from considering price in the procurement of architectural and engineering professional services. The government, and other purchasers of professional services, is best served by selecting the professional with the best qualifications and experience to do a given job - particularly when the public health, safety, and welfare are at stake. This leaves the professional services firm with differentiation and market niche as the two remaining competitive positions.

Most successful professional service firms try to establish a differentiator as a competitive advantage. And while not all firms provide services in a niche market, most that are successful are focused on a select number of targeted markets, a specific geography, or a specialty service to gain a competitive advantage. Those who believe their competitive advantage is differentiation are often wrong, not realizing that their competitors offer the same "differentiated" service.

One firm I interviewed felt their competitive advantage was that they provided superior service, fast response, and highly ethical employees in the delivery of their service. When challenged with the reality that most similar firms would make the same claim, it became more evident that the firm's single focus on a specific market niche was likely the bigger reason for their success.

Many firms try to grab onto a new technology or a new way to deliver their service as a differentiator. The problem with this approach is that technology is not usually a sustainable differentiator. An example is the use of advanced building information modeling software in architectural design. The early adopters of these systems have the ability to tell their clients of all the wonderful advantages they can provide over their competition through the use of these high-tech tools. Unfortunately, these advantages are short-lived as the systems are adopted by the competition as they become more developed and more affordable.

The best differentiator in professional services is market niche. Even if the market is not quite niche, a disciplined focus on a market or a limited number of markets seems to be the recipe for success for most firms. Since clients most often select their professionals on qualifications, the more focused firms can show better experience and qualifications for the work they pursue. If you were seeking an accountant to prepare the tax filing for your c-corporation, you'd be less likely to hire the accountant that says he can do any and all accounting than the one who specializes in c- and s-corporation tax filings. The architecture firm who focuses on higher education and K-through-12 is likely to be more successful in procuring work I those markets than the firm who claims to do all types of architecture for all clients.

In addition to the increase likelihood of being selected, the focused firm has a much higher likelihood of being successful in doing the work in a market or project type he is most familiar with. This not only increases the chance for higher profit through increased efficiencies, it decreases the chance for negligent acts when performing the service. The engineer who designs a waste water treatment plant the same way he designed a flood control structure is almost sure not to meet the ordinary standard of care of someone who regularly designs waste water treatment plants.

It is interesting to observe that smaller professional service firms claim to be able to practice across all project types, clients, and markets, while the larger, more successful firms can usually tell you very specifically what markets, clients, and project types they serve. Even when large firms practice across broad areas, they typically break their businesses down into units to serve market niches.