Broderick, Big4.com Guest Blogger
“The fundamentals of the professional service business are brutally simple; it’s about talent, it’s about clients, and it’s about teaming to bring it all together to create and deliver value.” Jim Quigley, former CEO, Deloitte
Operating a professional service firm (PSF) is very different from running a product-based business. Infrastructures, governance, talent management, compensation, and profitability vary significantly from traditional corporate environments. Firm leaders will tell you that managing a successful PSF is a challenging business that requires a delicate balance between structure and autonomy and a unique leadership style. Not to mention the enormous challenge of managing an organization of extremely smart, highly autonomous, and somewhat quirky professionals. It’s definitely not a job for the faint of heart.
In researching my new book, The Art of Managing Professional Services, my team conducted more than 130 in-depth interviews with leaders of the world’s top firms. What emerged were their proven practices on how to tackle the ten critical areas that firm leaders must monitor to build and maintain a strong organization: vision, values, and culture; people; clients; services; finance; positioning; partnership; strategy; structure; and leadership style.
To keep the firm operating at maximum strength, leadership must constantly monitor and tinker with each of these critical pieces of the organizational puzzle. But even the best firms in the business can find themselves out of alignment at certain periods in their life cycle. And virtually all of the leaders interviewed admitted that many areas of their organization need attention and improvement (to test your firm’s performance on the 10 critical areas, see Management Questions to Ponder). The key is maintaining a vigilant focus on the firm’s vision, values, and culture – the anchor and core of every successful professional service firm.
- Vision, Values and Culture“For a professional service firm, vision, values, and culture are really 99 percent of the equation.” Damien O’Brien, CEO, Egon Zehnder InternationalThe leaders of the professional service firms interviewed were passionate about their firms’ values and culture. Values are the bedrock of the organization – the rules that govern behavior toward colleagues, clients, and the communities in which they serve. In successful firms, adherence to the values is cultivated and rewarded; failure to comply can result in expulsion. The organizations we studied devote an enormous amount of time and resources to embedding their values and reinforcing their culture. In fact, the leaders we interviewed agree that the preservation and nurturing of their firm’s vision, values and culture is their number one job.
- People“Creating an environment where people with very different backgrounds and skills feel that they can have a successful career is essential.” Dennis Nally, Global Chairman, PwCYou might expect that professional services would be good at talent management. After all, people are the product. Without committed, highly skilled people, there is nothing to sell. Some impressive best practices emerged in our discussions, but perhaps the most important lesson is that people are treated with respect. Their opinions are valued, they are trusted to interact with clients early on in their careers, and their contributions are expected and rewarded. Successful firms invest significantly in recruiting, career management, training and mentoring of their professionals.
- Portfolio“If you’re serving the wrong clients, you don’t have a chance for success.” Bill Hermann, Former Managing Partner, Plante & MoranFor PSFs, the client base, in effect, defines the business. Clients represent much more than a revenue stream: they are the magnet that attracts other desirable clients as well as top professionals to the firm. The client base helps shape a firm’s brand and has a powerful influence on its reputation and standing in the marketplace. The best-run firms follow five steps to effectively manage the client cycle from concept through acquisition, retention, and renewal. The cycle begins with strategically planning and regularly reviewing the client mix. As clients come on board, they are carefully introduced into the firm and are nurtured and managed via a well-defined process to sustain, grow, solicit feedback and improve the client relationship. The cycle is completed with regular reviews of client profitability, partner management and relationship status. Each step in the cycle is integral to building a profitable client base that sustains and nourishes the firm and its professionals.
- Services“Without productization, intellectual capital just builds brand; it doesn’t create a new service portfolio.” Stephen Rhinesmith, former Senior Partner, Oliver WymanIf talent is the lifeblood of a firm, then an effective service portfolio strategy represents the arteries through which that talent is channeled – and innovation keeps the whole system healthy and energized. Firm leaders agree that successfully managing service development and renewal is a continuous cycle of activities that begins with a portfolio review to identify gaps and retire services that are no longer relevant. It continues with ideation, the often complex task of stimulating and capturing new ideas. The next step is selecting the best candidates for development. And finally, ideas are transformed into viable service offerings, the troops are trained on delivery, and the services are launched. Gathering and sharing knowledge and client experiences is integral to the ongoing success of a service strategy. Each step of the cycle is important in creating a consistent engine of innovation.
- Finance“Financial management is the bedrock. You can’t be successful if you don’t end up with competitive earnings, whatever metrics you use.” Steve Harty, North American Chairman, BBHOn the surface, professional services seem like simple businesses to manage financially. As one leader told us, “It’s mostly a time and materials business driven by rates, revenue, utilization, realization, and expenses.” But there are nuances that make it challenging. In the short-term project-based PSF environment it is almost impossible for many firm leaders to see beyond the window of a few months, which makes revenue forecasting a distinct challenge. The top firms have a clearly articulated financial strategy that establishes revenue and earnings goals, and responsibilities for financial performance. They are rigorous at tracking key financial metrics – both lagging and leading indicators – and invest in the people and the analytical tools that provide timely, action-oriented financial information. Cash flow is king, as one CEO told us, “If a firm has cash, it’s a well run place. If they don’t, it isn’t.”
- Positioning“Your brand is the place you occupy in the consciousness of your constituents.” Frank Burch, Chairman, DLA Piper Global BoardIn professional services, positioning is what you stand for. Positioning defines what the firm does, how it does it and why it is different from other organizations. To succeed, a PSF must identify a credible position to occupy in the market. Determining positioning involves decisions on a number of fronts. Will you be a lower cost/higher volume provider or will you offer high cost, unique solutions to unique problems? What specific services will you sell? Which segments, geographies, companies and buyers will you target? What is the service experience the firm will create for the client? The best firms know who they are and what they do and are masters at communicating their positioning both internally to staff and externally to their market.
- Partnership“There has to be a lot more than money to hold a group of very smart, type-A partners together.” Evan Chesler, Presiding Partner, Cravath, Swaine & MooreThe term partnership has a very special meaning in professional services. Much more than a type of ownership structure, the concept of partnership is both an industry mindset – a core belief that everyone is in it together, united by a common vision and cause – and a distinctive set of governance characteristics. A successful partnership-driven governance model is based on shared values, collaboration and teamwork, peer relationships, highly participatory decision making, and equity sharing with partner/owners.
- Strategy“We spend a lot of time, as a management team, just making sure we are aligned in our ambition.” Steve Gunby, former Chairman, North and South America, The Boston Consulting GroupSome view strategic planning as an art, some as a science – and some as an inspired combination of the two. Firm leaders described their strategic planning processes as everything from intensive brainstorming marathons over weeks or even months to routine annual budget exercises. The best firms view strategic planning as a continuous cycle, not a one-time event. Long-term strategic plans are integrated with annual plans and progress is regularly reviewed and communicated to all stakeholders.
- Structure“We really hate bureaucracy. That is why we are pretty flat and there is not a lot of politics happening here.” Donna Imperato, President and CEO, Cohn and WolfeThe choice of the organizational structure and governance model has critical implications for professional service firms. Together they form the internal architecture of a firm – the invisible scaffolding that supports everything, from day-to-day operations to strategic planning and effective execution. The structure delineates the organizational layers and management reporting hierarchies within the firm. Governance is the leadership style – collaborative, dictatorial, or corporate – and the policies, systems and procedures that underpin the enterprise. Organization design choices can reinforce or undermine culture, endanger or enhance performance and service quality, and enable or diminish profitability.
- Leadership“You’ve got to convince people with whom you are working that they want to follow your vision.” Ben Fisher, COO, Perkins+WillOf all the ingredients in the professional service mix, leadership is probably the most essential to success – and often the most elusive. In most industries the person in the corner office calls the shots. Operating within a traditional command and control environment is relatively straightforward: the divisions between leading, managing, and following are clearly defined and widely understood. In contrast, the matrix structure that most professional service firms have embraced is a far more dynamic business model; it’s flat, fluid, fragmented, and often unruly.
We asked interviewees to describe the most important characteristics of a successful service firm leader. By a wide margin, the traits they believe define successful leadership – good influencer, listener and communicator; inspirational; passionate; visionary – fall under the umbrella of strong interpersonal skills and emotional intelligence. As one CEO summed up, “There is an under-appreciation of what it takes to lead one of these kinds of businesses – better be darn sure you want to do it.”
Maureen Broderick is founder and CEO of Broderick & Company (www.broderickco.com), a consulting firm specializing in strategy, research and training for professional services. The Art of Managing Professional Services (www.theartofmanagingprofessionalservices.com) was published in November 2010 by Wharton School Publishing.