Role of Professional Services Executives
As all successful executives know, to be “average” is never an acceptable standard for a growing business, particularly in professional services where client expectations are high and controlling costs are low. For the executive of a professional services firm, this is a critical business fact—the caliber of the enterprise, of its people, and of its operations has a direct impact on the firm’s service offerings and client satisfaction. Benchmarking can play a key role in helping the firm achieve or maintain best in class standards and practices, but the execution of the findings and actions requires the commitment and quality of its senior leadership. This is the foundation for a successful benchmarking exercise. At the heart of every f lourishing professional services firm are executives who demonstrate characteristics that drive their businesses to excel. These executives share similar characteristics of introspection, critical business analysis, assessment of operations, and benchmarking. They:
• Know their firm inside and out and continuously examine the organization closely and objectively. They are not micromanagers but they
are aware of all critical policies and procedures and demand that
they be followed and consistently applied to enable the firm to operate efficiently.
• Are involved, proactive executives who continuously seek improvement and desire to innovate and exceed industry best practices. Even when the business appears to be running smoothly, they compare individual areas against competitors with an eye toward improvement.
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Managing and Governing the Professional Services Firm
• Look for opportunities to drive for positive change, particularly when fact-based such as benchmarked versus competition.
• Know that execution is critical to realizing this change. If they do not execute, they will have missed an opportunity to make improvements and will have wasted time and money on an exercise that served no purpose.
• Understand that introspection can help identify unnecessary costs and dismantle levels of complexity that have built up over the years.
• Value the fresh thinking that benchmarking can generate because the process gives license to look at a situation or problem from a different perspective, one that encourages long-term solutions and not quick fixes.
For many firm managers, having an external perspective comes automatically—they are always focused on clients, the marketplace, and how they and their organization are perceived by critical audiences. But introspection is necessary for benchmarking. Executives need to spend time understanding their organization, its functions, and processes. No matter how beautiful the veneer or elaborate the carving, the inner workings of the grandfather clock are what keeps it running. How an organization functions internally is a clear indicator of its attention to details—and how well it serves its clients, both today and in the future. It may be a cliché, but the devil is in both the detail and in the execution of a well-thought-out plan or process.
An example of the types of key questions that can indicate whether it is time for a critical analysis of the professional services firm includes:
• “Do I know how many client invoices on average are prepared per
month?”
• “ What is the firm’s average bill rate over the past 12 months?”
• “ What is the profit margin for any specific client?”
As this example indicates, the typical executive may know the firm’s revenue or expense dollars by category but be unaware of things at the next level of detail.
An appropriate starting point of any analysis of the firm is to begin by listing the questions for which you would like answers. Which activities might be accomplished by the staff more efficiently? Why has the staff utilization declined by 5 percent over the past year? The overall process starts by understanding the questions that need to be asked and the information needed to formulate answers.
Knowledge First, Benchmarking Later
An experienced HR director recently began running the HR function
for a newly formed property management firm. The firm has 100 full-
time and 75 part-time employees. Without any staff, she set up the HR
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department from scratch and handles all health care and COBRA bene-
fits, 401(k) plans, and disability, immigration, and disciplinary issues—
and those are just some of her responsibilities.
She knows she should conduct benchmarking in a number of areas but
feels certain that now is not the right time. “I’m still establishing policies and procedures,” she said. “I must go through one complete cycle of coverage enrollment and at least one full year of assessing the existing benefits offered before I have enough grounding in the company. Prior to benchmarking, I must understand the firm’s needs, strengths, and weaknesses. That takes time.”
A Primer on Benchmarking
This section outlines the key elements of implementing a benchmarking program and outlines the specific steps and analyses that should be part of the program.
Performance Measures
Benchmarks are performance measures. Benchmarking is an action that involves discovering the specific attributes that lead to higher firm performance, understanding how these practices work, and adapting and applying them to your organization. Benchmarks are facts that, when applied, enable real business improvement.
Performance measures are the “vital signs” of a business. They quantify a process or the results. There are many ways to measure a company, a department, or a person’s performance, but all share a single trait: They are fact-based, not subjective. They are measurable and quantifiable. Performance measures focus on cost, quality, and time:
• Cost-based measures cover the financial aspects of performance (e.g., direct labor cost).
• Quality-based measures assess how well a company’s products or services meet customer needs (e.g., client satisfaction).
• Time-based measures focus on the efficiency of the process (e.g., how long it takes to produce a proposal).
There are two different types of performance measures. Outcome measures identify the results of a process and allow firms to evaluate how well they are performing in a particular area. Typically, they are based on a company’s overall goals and objectives and are intended to demonstrate the effect of a process on the company’s finances and efficiency.
Activity measures focus on the incremental efforts that are necessary to enhance process improvement, specifically issues that concern the employees
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Managing and Governing the Professional Services Firm
in charge of process-specific activities. Therefore, managers identify problems in a business process as soon as they occur, which allows for correction.
One example of an activity measure is full-time equivalents (FTEs) versus number of invoices, as compared to revenue. For the professional services firm, it is critical to invoice clients and collect cash. How accurate, fast, and efficient these processes operate has a significant impact on revenue and cash f low of the organization. A three-day reduction in the invoicing process can improve cash f low by 10 percent. Conversely, a three-day bottleneck in the invoicing process can reduce cash f low by 10 percent. No matter how great the client service delivery of a company, there is an bottom-line impact if the firm can’t bill correctly or collect revenue in a timely manner. Billing rate and hours billed errors also erode client satisfaction and trust.
How Are Benchmarks Determined?
To conduct benchmarking, measurements are required—ones that can be performed consistently and reliably with a basis in fact. The specific benchmarks are typically determined through surveys, questionnaires, and interviews.
Question sets are designed to establish qualitative as well as quantitative metrics for the following performance dimensions:
• Process
• Technology
• Leverage
• Organization
• Strategic alignment
• Partnering activity
Qualitative tools are used to gauge where a firm stands in relation to best practices for a particular business process. They are subjective, judgmental, and focused on activities behind a particular business practice.
Quantitative tools are used to see how an organization compares itself to others for a particular business process. They are objective and focused on the measurements of specific operating or financial performance metrics.
Best Practices
Best practices are a key focus of benchmarking. Simply stated, they are the best way to perform a business process or practice within specific parameters, as perfected by the leaders in a given industry. Best practices, documented by quantitative and qualitative data, serve as a framework for achieving or striving for excellence. Benchmarking is one of the fastest ways
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to determine where the firm stands with industry best practices and to identify areas where best practices may be of highest benefit to the firm.
The American Productivity and Quality Center (APQC) offers a defini-
tion of best practice:
There is no single “best practice” because best is not best for everyone. Every organization is different in some way—different missions, cultures, environments, and technologies. What is meant by “best” are those practices that have been shown to produce superior results; selected by a systematic process; and judged as exemplary, good or successfully demonstrated. Best practices are then adapted to fit a particular organization.6
The best practices method is an integrated, comprehensive way of doing business more efficiently or with greater operational effectiveness. Best practices are determined by interviewing experts, sifting through company experiences, reviewing current business literature and academic research, and gathering information from employees, experts, consultants, and field specialists.