Delivering a more timely and accurate tax return is important, but understanding what their client really needs is far more meaningful. That includes knowing what goals the client has and making sure that everything done for the client, even if it is just a tax return, moves the client closer to its desired outcome. Beyond that, helping clients articulate their goals, and develop strategy to achieve them, is a much better application of a client-centered focus.
Vendors/Suppliers
The key issue with vendors is: Are they in a position to give the firm lower quality products and services at a higher price? If the firm is vulnerable to its vendors, it must address the problem decisively. Vendor relationships affect everything the firm does. If the firm is able to maximize its margins or reduce its costs, it gains economic power to reinvest in its business and in the needs of its clients. But if vendors consume the firm’s resources, the firm cannot reinvest them. Chapter 16 covers the topic of vendor selection and management in detail; it is addressed in brief here.
The relationship a firm has with its vendors should be the reverse of the relationship the firm has with its own clients. The firm should think of itself as the customer of the vendor, then be proactive in making sure the vendor knows exactly what it wants. But be aware of vendors that overpromise and underdeliver. That can be just as expensive as paying too much for a product or service.
Match purchases with the needs of the firm. For instance, if expensive office space in a tony financial district is critical to the profile of the firm’s practice, it has to be there. If such a location is not critical, then do not consume resources on something that will not advance the profile of the firm.
Look instead for less expensive space in more modest locations, and apply the resources saved to enhance the benefits provided to one of the firm’s other three constituency segments. For example, if a firm saves money with
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a vendor, it could create performance incentives for its employees, upgrade its technological capabilities to impact the way it serves its clients, or simply provide a higher return to the owners.
The owners’ challenge is maximizing the return to their business and ultimately to themselves. They must decide how much capital to reinvest in the future of the organization and how much capital to take out as a result of successful operations.
Management Structure
A firm can be strategically managed regardless of whether it has a single managing partner, an executive committee, or a decentralized management structure that may assign certain management tasks to people who are not owners. However, key decision makers must be involved. The manner in which the firm establishes its value objective is the responsibility of the management team. The team sets the goals and evaluates progress toward them. Timely management reports should provide feedback to the team—tell them how they are performing against the established value objective—and the management must be committed to keeping the teams involved in the key decisions that are being made. The more information provided, the better, as long as it is relevant to the pursuit of the value objective and is not just for the purpose of filling the office with paper.
It is a common misconception that to be part of the management team in a professional services firm, you must be an owner. In fact, with today’s access to information, people at all levels of the organization can be capable of making informed decisions for the firm. Nonowner managers, however, must be educated about how the organization thinks strategically and manages strategically, as well as taught effective decision-making skills. The result should be a broader definition of “management team” that includes all individuals who have significant responsibility for ensuring that the firm reaches its goals.
Managers are the people who make decisions and supervise other employees. They are the ones who handle relationships and deal with vendors. All of their interactions have an impact on the firm’s ability to achieve its value objective. They are the management team and they work in various layers. The firm can have a multitiered management structure that incorporates the contributions of employees from the top to the bottom of the organization, and all of them can have a strategic impact on the way the business is run.
There is no reason that a firm cannot look at all of those individuals as being part of its management team.
Today, it is more important for a firm to be interactive than hierarchical.
Exhibit 12.3, which depicts an organization that is ostensibly hierarchical, shows that successful organizations include all staff levels in running their business—from the owners who set the vision, to the management team
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Services Delivery: Taking Care of Business
50,000
Set the value objectives
Owners/
feet
“grow by 20%, profitability”
shareholders
35,000
Performance areas
Leadership
feet
client “centered” services
team
Factors critical
25,000
Department
to success of each
feet
managers
performance area element
5,000
Key measurement standards
Supervisors/
feet
“current versus future state”
team leaders
Eye
Strategic change
Front line
level
initiatives/activities
personnel
Exhibit 12.3
Top-Down Strategic Management Objectives
responsible for establishing the value objectives, to the front line people who are responsible for carrying out instructions, all the way down to the support group whose job it is to help the firm determine how to work more effectively and efficiently with clients. There is more integration and more top-to-bottom involvement in management today than there has ever been before, even in hierarchical firms.
Strategic Delivery of Professional Services
The strategic delivery of professional services is of paramount concern to the successful firm. It includes competitive response, results measurement, pricing, staffing, and managing the work. This section covers the topic of strategic delivery in detail.
Confront the Competition
In a professional services economy, there are few barriers to entry. Competitors do not need huge amounts of capital to buy manufacturing equipment or build large facilities. Practically anyone can enter the professional services marketplace tomorrow.
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When Arthur Andersen, one of the world’s largest accounting and tax
practices, went out of business, its partners did not disappear. They simply moved to other firms where they again are providing accounting and tax services. Their former firm has been broken down into new competitors in the mid-level marketplace. Accounting firms that did not compete directly with Andersen now find themselves competing with many of its offspring.
That kind of change in market dynamics can happen rapidly in virtually any profession. In the health care industry, for example, the evolution of HMOs has dramatically reshaped the traditional medical practice market, such that most sole practitioners were forced to join corporate medical groups to survive.
Ask the Clients
The number of clients a firm has and the revenues they generate are obviously critical to the firm’s success or failure. Logically, therefore, the most important source of information for shaping the service objectives and behavior of the firm should be its clients. Professional services firms need constant client feedback because their services are based on human interaction. Companies that build widgets in a factory and sell them to consumers through distribution channels do not have the same intimacy with the ultimate users of widgets. A professional services firm cannot be successful without having intense contact with its clients. Everything the firm does must be focused on satisfying the clients at the point of encounter. But the firm will not understand what clients need, what they value, what they are looking for, and what their highest priorities are unless it asks them.
Professionals are often out of touch with their clients’ real concerns. For example, if asked what their clients need from them or value most, most CPAs would say that clients want more services at a lower cost. But surveys of accounting clients reveal that what they expect and demand most from their accounting firms is concrete business advice that delivers value. If a firm provides value, price is not a problem. A firm that does not understand this simple fact is not going to be successful at satisfying its clients.
One option for gathering client input is to put together a focus group of clients and take them through a process of understanding what the firm does, what it thinks it is there to do for its clients, how it has designed its services, and how it delivers those services. Tell the focus group members what the firm’s philosophy is about quality and standards; explain how it deals with vendors, customers, and employees; and explain its philosophy on investing in its business.
Then ask the focus group for its feedback. It is amazing how much the firm will learn about itself using this process. A firm that does not do this will not understand the critical factors affecting its marketplace. But the process is never ending. Strategic management is a system that supports