The external board helps to keep individuals or small groups from wielding disproportionate power over critical firm decisions, and provides invaluable outside guidance and direction setting.
In most partnerships, it is also the case that there are differing levels of partner “rank.” For example, Booz Allen has established three levels of partnership: entry level, lead partners, and senior partners. Partners progress based on how they perform against a set of pre-defined, agreed-upon partnership characteristics, as well as how much business they develop or facilitate for the firm. Senior-level partners have a higher equity stake than junior partners. That provides a further series of checks and balances and provides an increasing level of reward for seniority and performance, even within the partnership.
If a partnership has concerns about having equal partners appraising each other, it can overcome those concerns by making sure that the appraisals are based on wide input. The best kind of feedback for such evaluations is 360-degree feedback, with seniors, peers, and juniors who have interacted with the subject over time. Chapter 11 discusses the topic of appraisals as part of an overall professional development program.
Another challenge is that partners must devote intensive, nonbillable hours to management activities including mentoring, training, and business development, as well as leading client engagements. At the most junior staff levels, the goal is for each person to be 100 percent billable. At the senior partner level, however, a partner ’s billable time may represent 50 percent or less of total hours because the need to focus on business activities—including marketing and sales—becomes more imperative than delivering on specific engagements. Some partnerships put excessive pressure on their uppermost levels of management for billable hours. That quickly becomes an issue for that firm, leading to a vicious cycle of engagements followed by troughs between projects while partners try to generate new work for their firm. It is
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critical to put metrics in place that do not penalize partners for spending time on business development and sales activities. Rather, senior staff needs to be free to be only partially billable on assignments, using other time to feed the engagement pipeline. At Booz Allen, this is accomplished by assigning the lowest billability targets to the most senior people. While clients demand that senior people be involved with their projects, it is generally not a full-time requirement and has a fair amount of f lexibility in arrangement.
They understand very well that there is a team structure, with the most senior (and most expensive in terms of hourly rate) leveraged as counselors around specific issues, while actual delivery of services is performed by an expert working team that is thinking about the clients issues full time. Generally, clients demand a senior person on the case full time only if they are not comfortable with the underlying team. If that is the case, the firm has already damaged its relationship with the client, possibly irreparably and there are a variety of other issues that must be addressed.
While most professional services firms are structured as partnerships, some are publicly owned, and may be organized like a typical corporation.
The benefits of this model include having a CEO and a COO to oversee operations, strategy, and other corporate functions so senior staff can focus exclusively on delivery and business development. In addition, a publicly owned firm can leverage capital markets to finance growth. Also, because the employees are not necessarily owners (except through stock purchases), systems and processes may be more efficiently managed, and there can be a perception that they are more objective. With public ownership, there is also a ready-made mechanism for checks and balances because of the more rigid structure, the reporting requirements, legal mandates for certain disclosures and shareholder pressure.
All of the benefits of public ownership can also be drawbacks. Public ownership can lead to increased bureaucracy, which hampers a firm’s ability to respond with agility to changes in the market or business environment.
Lack of partnership as an incentive can make it more difficult to attract and retain top employees. Employees may even feel less committed to developing the firm because they cannot aspire to ownership. Given that people are its most valuable resource and that a professional services firm grows by adding people, publicly owned firms need to be very careful that their ownership model doesn’t hamper necessary staff growth because shareholders are too focused on revenues and profits. During the late 1990s dot-com craze, for example, Sapient and Scient Corp. could drive growth by adding people—an expensive but necessary proposition—but their shareholders were applying increasing pressure for profits. It put them in a difficult dilemma. A privately owned company can be more insulated from the roller coaster of public markets and the accompanying outside pressures. Partners tend to be much more tolerant and understanding of business cycles than distant shareholders, who are focused primarily on financial returns.
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Attracting and Retaining the Best Professionals
Organizational Model Options
Professional services firms typically follow one of three generic business models: the practice model, the functional model, or the hybrid model. Exhibit 9.1
outlines the characteristics of the three models for organizing the professional services firm. Figure 9.2 summarizes the pros and cons of these models. A fourth model, the geographic model, which can take the form of any of the previous models but on a regional basis, is also appropriate for larger firms with multiple geographies, particularly international offices. Within each model, most organizations employ matrix structures, which are aligned against various dimensions, including industry, geography, and service line.
Regardless of model used, successful firms create mechanisms that avoid silos and eliminate as many boundaries and walls as possible. Intellectual capital is developed and made available to the whole firm, and avenues of information exchange exist across the entire firm structure. Leadership encourages transparency by creating mechanisms to ensure that everyone is aware of what projects the firm is working on and what large deals are due to start in the near term. There must also be mechanism for tracking professional staff assigned to projects and overall professional staff availability.
This encourages professional staff to work together on projects and opportunities regardless of their spot in the overall organization and provides a tracking mechanism to indicate when somebody is involved either too much or not enough. Many firms use an interlocking series of meetings to ensure effective information exchange. For example, there might be weekly practice meetings, biweekly cross-practice meetings, and monthly leadership meetings. Cross-practice announcements of new projects that include discussions of engagements, details of how the firm made the win, and suggestions for cross-selling opportunities can aid in achieving firmwide transparency. Because it can be all too easy for staff to become so involved in specific projects that the overall needs and goals of the firm are ignored, these key concepts must be built into any professional services firm organization structure. Resource and “bench management” are concepts covered in more detail in Chapter 13.
Transparency and organizational knowledge-sharing ensure lessons from previous experience are leveraged and inculcated to improve future performance. They also allow firms to create standard toolkits, methods and procedures to create scalable, lower cost solutions. They facilitate sharing of best practices for revenue growth and cost improvement. Finally, they help the firm leverage knowledge management platforms to enable broader
cross-staffing, reduce rework, and maintain its knowledge base despite turnover. The organization model adopted by a firm will have one of the largest single impacts on how well the firm will share information and be able to take full advantages of the firms internal capabilities, knowledge and expertise.
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What does it mean to be practice-based?
Professional services organizations typically follow one of three business models Three generic models
Role
Functional model
Hybrid practice model
Practice model
New business
development/
A
B
C
sales
Sales/business development
Relationship
management
A
B
C
Delivery
A
B
C
A
B
C
Product
management/
service
development
Product management
A
B
C
marketing
Shared services
Support services
Support services
HR/Ops/Etc.
Separate organizations focused
Specialized business develop-
Self contained practices with
on delivery, business develop-
ment and service development
single team of individuals
ment, and service development
resources
sharing delivery, business
Description
Marketing resources aligned
Limited support functions
development, and service roles
with delivery, BD with
provided as shared service
Limited support functions
customers
provided as shared service
Some large systems
IBM GS
Accenture
integrators
AMS—sales aligned with
Booz Allen
Examples
– Lockheed Martin
vertical industry practices
AT Kearney
– General Dynamics
Sapient
Exhibit 9.1
Three Professional Services Organization Models
Each organization model has its strengths and weaknesses. Which is best for a particular firm depends on the type of firm, what kind of services it provides, and how it chooses to leverage its staff. Choosing between them requires trade-offs primarily between economies of scale and degree of delivery staff involvement in customer relationship. Making the wrong choice can have dire consequences, the worst of which is that the firm becomes noncompetitive. A firm cannot deliver what its clients need at the right cost point if it chooses the wrong organization structure. The organization model defines staffing structure, numbers of staff skill sets, and the cost and leverage model of staff, and drives hiring and promotion practices. If a firm’s business involves large-scale technology implementation, for example, or requires large numbers of staff to work at the client’s site for an extended time period, it is illogical for the majority of employees to be senior staff with billable rates. Instead, it is more practical and cost effective to have a smaller number of senior staff to strategize, design, and oversee projects supported by a large pool of staff with lower level people with commensurately lower