If success were solely a function of personal and professional capabilities, all highly skilled professionals in practice would thrive. Clients would f lock to them. Unfortunately, it’s not that simple. There are countless examples of well-qualified law firms, medical practices, advertising agencies, public relations specialists, and accounting firms of every size that have failed to sustain success.
This chapter focuses on important issues affecting the successful development and delivery of professional services from a strategic management perspective. It offers a systematic approach to success that can be applied and sustained across a broad spectrum of professional services businesses—large and small, for-profit, and not-for-profit.
This chapter describes how a professional services firm can move from simply thinking strategically to becoming strategic in the manner in which the firm develops and delivers professional services and why becoming 265
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strategically managed is more critical than ever before as the marketplace becomes increasingly competitive. This chapter looks at developing a culture that embraces strategic management, which in turn ties together the business continuum of the firm, including the administrative, operational, and service and business development activities.
Overall, the chapter addresses these questions:
• What are the characteristics of a strategically managed practice?
• How does strategic management drive process improvement?
• How does process improvement lead to the successful delivery of services or, in other words, the sustainable success of the professional practice?
Why This Topic Is Important
The United States continues to move toward an economy based on professional services. Manufacturing jobs are being replaced by service jobs at a very high rate. This growth in the service industries is fueled by a number of important factors:
• The barriers to competitive entry are minimal.
• Initial capital commitments are less than in manufacturing-based
industries.
• Advancements in technology have enhanced the professional’s ability to access information.
• Experience is no longer the dominant characteristic of a successful professional that it once was.
• The growing senior segment of our population has increased the demand for professional services.
But with growth in the professional services industries comes a remarkable increase in the risk of failure. Professional services firms are under greater pressure than ever before and have no choice but to:
• Differentiate themselves from their competition.
• Understand the expectations of their target market and adapt to meet these expectations.
• Deliver clearly demonstrated value.
• Increase the quality of their services while not increasing the price.
• Shorten their service delivery time.
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• Accept less client loyalty, greater client turnover, and unprecedented scrutiny of the underlying profitability of the firm.
Therefore, the case is made in the sections that follow that the successful delivery of services and development of your client base is a continuous process—a never-ending cycle of embracing change that is an innate characteristic of a strategically managed culture.
Improvement Is Not
Possible without Change
Strategic management systems are about process improvement that drives change within the business environment. Creating a strategically managed environment depends on it. Success today does not guarantee success tomorrow. In extraordinary businesses—those that succeed and sustain their success for years—new beginning points instantly replace end points and the process starts anew.
To understand this concept, ask this question, “ What is the firm’s value objective as a professional services practice?” Is it net income? Earnings per partner? Market share? Number of constituents served? This isn’t a restatement of the mission of the organization. It’s a definition of what drives success (for the firm, and for the clients) and how it is to be measured. Once defined, the value objective can be measured over time. Exhibit 12.1 demonstrates this concept.
Components of the current state include:
• Management style/culture
• Professional resources
• Range of services
• Market share
• Strategic planning/budgeting
• Compensation structure
• Quality of client relationships
• Information systems
Exhibit 12.1 demonstrates that today this organization has delivered $150,000 of net earnings per partner, in a firm where net earnings per partner is the professional practice’s value objective.
Once the value objective has been defined and measured in today’s terms, the critical question is not, “ Where are we?” Rather, it is, “ Where do we want to be?” In value objective terms, “ What is the targeted, desired future state?”
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250
Current
state
150
Value objective * (in thousands of dollars)
Today
Time
* Value objective = Net earnings per partner
Exhibit 12.1
Value Objectives in a Professional Services Environment
Exhibit 12.2 shows that this practice has a future value objective
($250,000 of net earnings per partner) that exceeds its current condition. The difference between where the firm is and where it wants to be is the direction and goal of change.
Most professionals are inherently reluctant to change their approach to managing their practices. But progressive and successful professionals realize that they must embrace the argument for change because it:
• Creates a strategic management environment
• Solidifies the organization’s commitment and focus
• Delivers incremental future value
The following section looks at the firm’s internal strategic management.
Without a strategically managed environment, the strategic delivery of professional services, and the strategic building of a firm’s client base cannot be successfully accomplished.
Strategic Internal Management
Strategic management systems work when they become the way business
is conducted, the way decisions are made, and the way new services are
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Future
state
250
Current
state
150
Value objective * (in thousands of dollars)
Today
Time
* Value objective = Net earnings per partner
Exhibit 12.2
Value Objectives in Transition
developed and delivered to the market. In this manner, future value objectives can be realized.
Engaging the Management Team in the
Strategic Process
Everyone on the management team in a professional services firm must learn how to use the strategic process firsthand. There is great power in understanding how a strategically managed business functions. As so well put by Eliyahu M. Goldratt, author of The Goal:
So, what are we asking for? For the ability to answer three simple questions: What to change? What to change to? How do we cause the change? Basically what we are asking for is the most fundamental abilities one would ask from a manager.
Think about it. If a manager doesn’t know how to answer these questions, is he or she entitled to be called “Manager?”2
Equally important to strategic internal management is dedication to the process. It has to be backed by the leadership of the organization. This takes building a consensus among the leadership. Says Edi Osborne, principal of MentorPlus in Monterey, California:
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Professional service firms, by definition, are made up of individual professionals, each with their own agenda, their own vision for the future. Professional service firms tend to focus more on the individual and their personal production. As a result, most firms lose sight of the big picture or collective outcome. For a firm to survive beyond particular individuals and their production, it has to adopt a sustainable business model, one that is team- and goal-oriented. Herding cats toward the same bowl of milk is much easier than trying to motivate collective behavior when each has its own bowl to go to. This assumes that the collective bowl yields more and better milk.3
Moving forward is not possible unless everyone is on the same page and has come to terms with previous disagreement or dissension. Once this occurs, the firm must define and understand its constituencies, which is discussed in detail in the following section.
Every business, whether professional firm or client, has at least four main constituencies:
1. Owners/investors/founders
2. Employees/volunteers/human capital
3. Clients/customers/consumers
4. Vendors/suppliers
A strategic internal management system focuses on the key elements of its relationship with each of these constituencies.
Owners/Investors/Founders
The focus on this group should be maximizing the return on investment (ROI), creating better, greater outcomes from the capital available, setting reinvestment parameters, and meeting the needs of all owners over the short or long term. A professional services firm’s owners, that is, its partners, shareholders, or investors, must understand what their end game is. Why are they in this business? What is their value objective? If the value objective is to maximize personal net earnings on an annual basis, the firm must confront that objective in the way it manages its vendors, customers, and employees. It cannot be the sole driving force in the organization, but as the expectation of the owners, it will govern the way the firm spends money; provides incentives for its employees; and plans, prices, and delivers its professional services.
Firm owners can, however, have other value objectives besides maximizing their personal income, for example:
• Creating a legacy
• Growing the business
• Attracting new owners
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Owners must decide whether they are willing to reinvest their capital today in their business and let it appreciate for the future. If they are, that willingness should govern the way the firm hires people, manages its vendors, and delivers services to clients. If they are not, important management decisions will be very different.