Potential Benchmarking Targets
What processes are typically benchmarked? A benchmark target can be any function within a firm that is important in enabling the organization to successfully deliver its products and services. Almost all professional services Operating Processes
5
Produce
and deliver
products and
1
2
3
4
7
services
Understand
Develop
Design
Invoice
Market
markets
vision
products
and
and
and
and
and
6
service
sell
customers
strategy
services
Produce and
customers
deliver for
service
Management Processes
organizations
8 Develop and manage human resources
9 Manage information resources and technology
10 Manage financial and physical resources
11 Manage environmental, health, and safety issues
12 Manage external relationships
13 Manage improvement and change
Exhibit 2.1
Operating and Management Processes
24
Managing and Governing the Professional Services Firm
organizations perform similar business functions that are categorized as either operating or management oriented. Exhibit 2.1 shows a process classification framework codeveloped by PricewaterhouseCoopers’ Global Best Practices® and APQC’s International Benchmarking Clearinghouse with its founding members. The framework targets the objectives behind benchmarking the major operating or management processes.
“These categories create a common ground for business professionals in different industries to compare similar processes, ensuring an ‘apples to apples’ approach to benchmark processes against one another and against best practices,7 as business processes are the lowest common denominator of companies,” says Susan Leandri, managing director of Global Best Practices, for PricewaterhouseCoopers.
When Is It Time to Benchmark?
There are no predetermined points in a firm’s life cycle when executives should initiate benchmarking. Still, there may be some clues or triggers. It could be the realization that the HR department isn’t running as efficiently as possible. Or, it might be when the firm reaches the next plateau in size, such as when a law firm that had comfortably run with 15 employees suddenly expands to 50 employees following a merger. Or, it could arise in considering, “Are there ways to bring administrative costs per professional staff down?” Change is difficult, but the stress of change on staff can be mitigated by implementation of benchmarks that have a visible, positive impact.
Furthermore, the objective nature of benchmarks can help highlight the need for change and reduce the impression that the firm is simply “rearranging the deck chairs.”
When There Isn’t Time to Benchmark
The chief financial officer of a medium-size consulting firm of 1,100
people, of whom 850 are billable professionals, has 70 people reporting to him in the areas of finance, HR, real estate, and IT. He believes in running a lean operation, with staffing for each function kept at exactly the headcount required to get the job done.
Still, he tries to stay ahead of the curve; since 1999 there have been six acquisitions, and as a result he maintains a staff that verges on over-staffing because he never wants to be caught at the next acquisition with inadequate back office support. His mission at the time of an acquisition is to physically integrate functions such as billing almost immediately after the transaction closes. When the company was launched five years ago, it had $35 million in revenue. It went though a public offering and today has revenue of approximately $500 million, with SG&A coming in at 20 percent of revenue.
Professional Services Firm Benchmarking
25
“Should I benchmark to be more efficient?” he asks. “Of course I
should. But I don’t have the time. My one concession: I try to pay close attention to billing rates and how billable the professionals are, as well as establishing criteria for billing hours at each level that are market-based and cost-driven. And one day I’ll do a formal benchmarking study. For now, this interim system works for us.” This chief financial officer (CFO) has discovered that whether he likes it or not, triage is often the operative phrase in a professional services firm. The outlay of time for a benchmarking exercise won’t equal the benefits—at this point in the
firm’s life.
Getting Started
An early decision in the benchmarking process is whether to handle the project internally or whether to hire an outside consultant. For a number of industries with large and organized professional associations, such as the American Bar Association (ABA), Society of Human Resource Managers
(SHRM) or the American Medical Association (AMA), the data required for benchmarking can be easily and reasonably purchased. For example, the ABA can provide statistical data on the industry standards for billable hours for associates and partners and for hourly fees, broken down by firm size and geographical location. There are numerous other large industry organizations that offer dependable information and forums in which they discuss performance issues and other useful information resources.
If the internal benchmark targets are complex, if there are too many areas to benchmark, or if it is difficult to access data for your particular industry, the firm should consider hiring an outside consultant. To minimize the costs of consultants, a firm can do a great deal of preparation work itself and /or pare down the list of possible benchmarks to critical categories so that there are fewer areas to explore.
Whether conducting the benchmarking internally or using an outside consultant, the following multistep process will help achieve reliable benchmarking results:
1. Decide specifically which area(s) to benchmark.
2. Identify and communicate the objective of the benchmarking study.
3. Understand and communicate the processes involved.
4. Recognize and understand the best practices.
5. Compare performance data.
6. Import and adapt new standards.
7. Implement change.8
26
Managing and Governing the Professional Services Firm
Other factors for success are less obvious or process-driven but are just as critical to the success of any benchmarking effort:
• Management commitment
• Clear objectives and plans
• Consistent and accurate data
• Openness/willingness for improvement (and change)
• Implementation9
It is essential that the firm identify the objective of the benchmarking process. All too often firms do not identify the objective of the project and find themselves losing sight of the targeted goal for the exercise, whether it is continuous improvement, understanding the process, or just for informational purposes.
Benchmarking a Professional Services Firm
We now take a closer look at the benchmarking process in four areas that are key functions in any professional services firm: revenue and expense, finance and accounting, IT, and HR. These benchmarks are best developed through collaboration with the professional and administrative staff in each area. They are in the best position to suggest changes and innovations—and they will know best which changes will work.
Benchmarking Revenue and Expense
Within the actual “business” of the services firm, there are five critical areas to examine: time management, revenue drivers, controllable costs, professional costs, and profitability.
TIME MANAGEMENT.
Executives, partners, and vice presidents’ time is
usually oversubscribed between competing priorities and activities. These activities could include but are not be limited to:
• Client service
• Marketing and business development to sell and promote the firm and related tactics to build the business pipeline and generate future revenue for the organization
• Managing and developing people—the firm’s principal asset
Professional Services Firm Benchmarking
27
• Performing support /administrative services to ensure that the organization runs smoothly, efficiently, and in accordance with the firm’s business requirements
Time allocation should ref lect the tasks required to achieve the business plan and strategic goals set by the organization. However, even that may be difficult because professionals tend to focus on tasks they are comfortable doing (usually client service), as opposed to tasks at which they are not as proficient. We next examine time allocation of managing partners and regular partners.
Managing Partner Time Allocation.
By definition, managing partners or
chief executives must devote more of their time to managing the firm and less to client work. How much time allocation toward firm management is reasonable? The answer to this depends on the size of the firm. One study found that the larger the size of the law firm, the more time partners spend on firm management rather than practicing law. In fact, the study found that the managing partner typically spends 12 percent of his or her time on firm management if there are fewer than five employees but more than 60 percent once the employee count reaches 100 or more. This is a staggering adjustment and in one sense seems counterintuitive. Certainly, a 100-attorney law firm would have additional administrative support for a managing partner; however, this support is counterweighted with the complexities of the business thus requiring greater attention from the managing partner. The finding is congruent with the laws of leverage. If the managing partner can improve the efficiency and effectiveness of 100 or more attorneys, even a slight improvement in this efficiency would greatly outweigh the economic benefit of the managing partner billing a few more hours that month. Why wouldn’t a managing partner drop all client service work altogether? The main reason is that they want to stay sharp and “practice” the business; otherwise, over time, their client skills, knowledge, and capabilities would dull to the point that they may not be a good representative of the firm, which would jeopardize their managing partner status. As the firm gets larger, it will take more and more time to manage, and this time usually comes from the managing partner.