Managing The Professional Service Firm

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3 Sentence Summary

This book is required reading for anyone entering a career at a professional service firm. David Maister masterfully teaches the fundamentals of a firm’s unique business model, describing how it differs from other business enterprises, and shares best practices for overcoming many of the common problems these organizations face. Exploring issues ranging from marketing to business development, human resource policies to profit improvement strategies, senior leaders, as well as new associates, will find practical insights they can apply to the future success of their firm and professional careers.

5 Key Takeaways

1. Every professional service firm has the same mission: To deliver outstanding client service; to provide fulfilling careers and professional satisfaction for its people; and to achieve financial success.
2. Success is achieved by balancing the firm. The type of services a firm provides falls somewhere on the spectrum of custom and complex, to simple and routine. This mix of project types is the most important variable in determining ideal leverage and management strategy.
3. Profitability is measured as profit per partner. Profits per partner only grow as a result of increased billing rates or increased leverage.
4. Clients pick empathy over ability. Buyers are looking for the rare professional who has both technical skills and a sincere desire to be helpful.
5. Leadership is about providing perspective, direction, and purpose. For professional work, both productivity and quality are highly correlated with the degree to which the professional worker is engaged and committed to the task at hand.

Managing The Professional Service Firm Summary

Introduction

• Professional services involve (1) a high degree of customization in their work and (2) face-to-face interaction with the client. These two characteristics make managing such firms particularly challenging.
• Professional service firms must attract and retain highly skilled individuals. They are the ultimate embodiment of “our assets are our people.”
• Firms compete in two markets at the same time: The market for its client services, and the market for a highly skilled workforce.

1. A Question of Balance

• Leverage = The ratio of junior, middle-level, and senior staff in a firm’s organization.
• The shape of the organization (relative mix of juniors, managers, and seniors) is determined by the skill requirements of the services it offers to clients.
• All projects fit along a spectrum of Brains, Gray Hair, or Procedural work.
• The choice that the firm makes in its mix of project types is one of the most important variables it has available to balance the firm. Choice of project type significantly influences the economic and organizational structures of the firm.
• Matching the skills required by the work to the skills available in the firm (i.e. managing the leverage structure) is central to keeping the firm in balance.

	Brains	Gray Hair	Procedure
Marketing Slogan	“Hire us because we’re smart.”	“Hire us because we’ve done this before.”	“Hire us because we know how to do this and can deliver it effectively.”
Project Type	Extremely complex problems.	The general nature of problems addressed is not unfamiliar; activities necessary to complete the project may be similar to those performed on other projects.	Well recognized and familiar type of problem.
Value Proposition	Creativity, innovation, pioneering of new approaches.	Sell their expertise and judgment.	Some customization required, but steps are somewhat programmatic.
Repeatability	Few routine tasks.	Some of the tasks are known in advance and can be specified and delegated.	Client may have the ability to do tasks themselves, but choose to hire PSF because they can do it more efficiently. Selling its procedures, its efficiency, its availability.
Leverage	Low ratio of juniors to seniors	Medium ratio of juniors to seniors	Highest ratio of juniors to seniors.
Fee Sensitivity	Low	Medium	High

Leverage and The People Marketplace

• People do not join professional firms for jobs, but for careers.
• There should be a general shared consensus around how long an individual should stay in each role.
• The promotion system (up or out) serves an essential screening function for the firm.
• The promotion incentive is directly influenced by two key dimensions: the normal amount of time spent at each level before being considered for promotion, and the “odds of making it”.
• The odds of “making it” are lower at a higher leveraged firm.

Title	Nickname	Responsibilities
Partners	Finders	Marketing and client relations
Managers	Minders	Daily supervision and coordination
Staff	Grinders	Task work

Leverage and Profitability

• The successful leveraging of top professionals is at the heart of the success of the professional firm.
• Most profits derive from the surplus generated from hiring staff at a given salary and billing them out at multiples of that salary.
• The market for the firm’s services will determine the fees it can charge.
• Costs are determined by the firm’s ability to deliver the service with a cost-effective mix of junior, manager, and senior time.
• Leverage should be as high as the requirements of the work allow.
• The growth rate of the firm is determined by two forces: (1) leverage structure and (2) promotion incentives. If it does not hit its growth targets, it cannot maintain its promotion incentive within the firm or it will end up with an “unbalanced factory” (too many seniors and not enough juniors). Growing too quickly can result in the necessity of promoting juniors faster and having a negative impact on the quality of services.
• Given a given growth rate and an organizational structure (leverage), the target turnover rate of the firm can be specified.

Growth and Profitability

• There is not necessarily a relationship between growth and profits.
• Growth is driven primarily by the need to attract and retain staff. That’s it.
• Profits per partner only grow when billing rates increase, or the same work can be done with a larger percentage of junior time.

2. The Professional Firm Lifecycle

• Clients are usually seeking one of three things: expertise, experience, or efficiency.
• Accommodating the varying needs of these different types of clients within a single practice group is an almost impossible task.
• Expertise (Brains), experience (Gray Hair), and efficiency (Procedure) are just three points along a spectrum. Every aspect of a practice group’s affairs, from practice development to hiring, from economic structure to governance, will be affected by its relative positioning on this spectrum.

The Expertise Practice

• Seek out and attract only the top percentile graduates from the best schools.
• A rigorous up-or-out promotion system ensures you keep only the best and the brightest.
• Low leverage. Most engagements will require a lot of senior time.
• Low fixed costs and high margins.
• Profits are made through high billing rates.
• Prominence and reputation are the keys to winning clients.
• Marketing efforts should be focused on writing articles or books, giving speeches, and being quoted in the media as the “expert.”
• More about building the reputation of the individuals than the firm.
• Governance works best as a collegial partnership of peers.
• Decision-making is done by consensus.
• Compensation for juniors may include a profit-sharing and bonus pool system.

The Experience-Based Practice

• Marketing is focused more on boosting the institutional reputation, based not only on the “raw” talent of key individuals, but on the ability of the firm to bring to bear its collective knowledge derived from past engagements.
• Practice development would involve identifying, documenting, and promoting their specialized knowledge, through brochures, newsletters, and seminars on topics within their expertise.
• More clearly focused and stable mix of clients.
• Problems are familiar, even though deliverables may be custom.
• Medium leverage.
• Time-and-expenses billing practices are most common.
• Hiring needs expand to include a major role for less-skilled professionals and more paraprofessionals.
• Increasing degree of systems and procedures and hence require less mature talent.
• Less of a need for a strict up-or-out promotion system. Room to keep “permanent associates.”
• Training becomes more formal and structured in order to disseminate internally the firm’s experience base.
• Greater need for formally recognized departments and areas of specialization.
• Compensation for juniors is usually a straight salary.

The Efficiency-Based Practice

• In the business of demonstrating that it had established systems and procedures to handle specific types of problems.
• Cost, reliability, and speed matter most.
• High volume, low margin clients.
• Client fee sensitivity requires the highest leverage possible.
• Fixed-price contracts and bids are popular.
• Managers need to be disciplined, organized, and detail-oriented.
• Compensation for juniors is hourly wages with overtime.

Implications

• Firms can choose to follow a practice area down its life cycle (from Brain to Gray Hair to Procedure) and adapt its organizational structures, staffing strategies, pricing, leadership styles, etc. Or firms can gradually abandon maturing practice areas in order to maintain stability in firm culture and management, requiring them to move into new practice areas that more closely match the basic approach of the firm. Or firms can maintain diverse practices at various stages of the life-cycle spectrum. But this is a challenging managerial task.
• The best approach to resolving this tension is through the use of departments and divisions. A classic illustration is given by some large accounting firms that allow variations in various management practices between their accounting, tax, and consulting divisions.
• For many firms, the better option may be to strive for some internal consistency between its practice areas, so that a single approach to management practice can be devised.
• The inability to identify the true positioning along the expertise, experience, and efficiency spectrum is the primary reason why so many strategic planning and firm-wide marketing efforts fail.
• Many firms grossly underestimate the progress of a practice area down the life cycle. They maintain expertise-based approaches to running their affairs when their marketplace is probably closer to the efficiency stage.
• You must match management practices to the practice.

3. Profitability: Health and Hygiene

• In a partnership, profitability is measured as profit per partner.
• “Profit per partner” = “Return on equity”
• The time and efforts of the partners can be seen as the firm’s equity investment (sweat equity). The total assets employed in the business are the sum of the (partner) equity investment, and the non-partner staff, whose salaries are comparable to assets financed by debt.
• Profitability is driven by three main factors: margin, productivity, and leverage.

• Rather than establish firm-wide goals for margins, productivity, or leverage, firms should hold each practice accountable for a profit per partner target and let the practice figure out the best mixture of margin, productivity, and leverage necessary to achieve that goal.
• Only by understanding the profit per partner of different practices, services (and even engagements) that the firm can manage its “equity investments” (partner time) wisely.

Managing Margins

• Margin = Profits / Fees
• Don’t overemphasize margins. They are an incomplete indicator of profitability.
• Low margin, high leverage practices are often more profitable, on a per-partner basis, than high margin, low leverage practices.
• Managing margins is a short-term solution.

Managing Productivity

• Productivity = Fees / Staff = Value x Utilization
• Value = Fees / Hour
• Utilization = Billable hours / Total hours worked
• Increase productivity by increasing billing rates or staff utilization.
• Chargeability (or utilization) is a short-run issue. Most firms monitor this very carefully. But once you know that the average utilization is reasonable, there’s no sense in increasing the number of hours people work in an attempt to increase profitability. You have to start increasing your net realized fee per hour (or value).

Managing Leverage

• Leverage = Staff / Partners
• Managing leverage is a long-term “health” issue.
• Once overhead and utilization are in the “good hygiene” range, only an improvement in fee levels or leverage will change the basic economics of the business.
• The appropriate leverage for any practice is determined by the nature of the services the practice is engaged in.
• High-priced people should NOT be doing low-value tasks.
• “Managing” leverage means one thing: Ensuring that the mix of skill levels on a project matches the true skill requirements of the engagement. (See Chapter 4).

Profitability and Growth

• Growth is NOT a factor in profitability.
• Only increased fee levels or increased leverage will increase profitability.
• Many firms are revenue-driven, or “top-line” oriented, taking the view that “any new business is good business.” This is patently false…Yet many firms reward partners for the volume of fees (top-line) that they bring in, not whether or not they bring in profitable work.
• They do this because they lack a good profitability reporting system that allows them to know which work is truly profitable and which is not.
• If low profitability cannot be fixed through more efficient staffing (i.e. leverage) then working to replace low-profitability work with high-profitability work is critical to long-run success.

4. Solving the Underdelegation Problem

• Most firms suffer from systemic under-delegation.
• The average firm’s seniors spend 40-50% of their time doing things that a more junior person could do with quality if properly trained.

Why It’s A Problem

• Under-delegation means that the firm has a high-cost delivery system.
• More difficult to stay competitive with your fees.
• You’re cutting into your profitability.
• You’re missing out on an opportunity to develop your junior staff. Your people’s skills are an asset. Anything that compromises the rate of skill-building hurts the firm.
• Risk higher turnover of junior staff that is lacking motivation and suffering from poor morale.
• Senior people neglect high-value tasks that are of critical importance to the future success of the firm.

The Causes of the Problem

• Excessive pressure on personal billability at senior levels can lead to inefficiencies in staffing.
• Senior leaders are rarely held responsible for finding ways to reduce the costs of delivering the project. Partners must be held responsible not only for the revenues they collect on an engagement but also for the precise costs to the firm that they incur by the way they get the engagement done.
• Reluctance to invest in the coaching and supervision time necessary to achieve successful delegation. On a single engagement, it will always be more costly, not less, to spend the time to get a junior involved. To reduce costs in the long term, you must increase costs in the short term.
• Partners don’t want to do other work if they delegate the day-to-day stuff down. They’re comfortable doing what they do now.

Solving The Problem

Step 1

• Modify the partner performance appraisal system to place less emphasis on the partners’ personal efforts (i.e. billable hours) and to make partners primarily accountable for the net income per partner of each engagement.

Step 2

• Introduce a system whereby all staff on an engagement complete an evaluation form, rating their engagement experience, at the end of every engagement.
• The forms are sent to the managing partner, and the scores are accumulated throughout the year. At year-end, the aggregate score for each partner is compared to the aggregate scores for the office (and firm) as a whole.

Step 3

• No activity in the office surpasses the importance of good management of the scheduling process.
• High-level attention to this area by practice managers offers a significant opportunity to correct the under delegation problem.
• It should be a time when powerful practice managers challenge equally powerful partners to defend why they have staffed their engagement in the way they have; to explain why they really need the people they have requested.

Additional Tactics to Solve the Problem

• Aggressively raise the fee rates of the firm’s more senior or experienced people. This encourages senior people to stretch for more higher-value tasks and reflect on what they should delegate.
• Set annual goals with partners that include objectives for developing staff.

Part 2: Client Matters

5. The Practice Development Package

• You must execute a full package of practice development steps covering five main categories of activity:

1. Broadcasting
2. Courting
3. Superpleasing
4. Nurturing
5. Listening

Broadcasting (10%)

• All activities that generate leads, inquiries, and opportunities with new clients.
• Seminars, articles, newsletters, and speeches.
• Messaging that is sent to a large audience.
• See Chapter 11 for more on this topic.

Courting (25-40%)

• Addressing a single, specific prospect.
• “Courting” is a better word than “selling” or “proposing” because the client is deciding whether or not to enter into a relationship with your firm.
• See Chapter 10 for more on this topic.

Superpleasing (10-15%)

• Superpleasing existing clients helps generate word-of-mouth referrals.
• The client is delighted and eager to work with the individual again.
• See Chapter 7 and Chapter 8 for more on this topic.

Nurturing (30-35%)

• Relationships must be nurtured if they are to remain strong.
• Clients do not like to be taken for granted.
• They expect firms to invest their own (non-reimbursed) time in getting to know the clients’ business and bringing new ideas to the table.
• See Chapter 9 for more on this topic.

Listening (10-15%)

• Listening to the market, or “gathering market intelligence.”
• Get better at understanding how the client thinks. What their needs are now, and anticipating what they will be in the future.
• Be systematic about going to the horse’s mouth and asking the client, through surveys, visits, and industry meetings.
• See Chapter 6 for more on this topic.

Which Activities Have The Highest ROI?

1. Listening. Do this well and all that follows will be easier.
2. Superpleasing. This makes it easier to win existing clients’ future business and get new clients through word of mouth.
3. Capture the new business of existing clients before tackling the more difficult area of winning new clients.
4. Court inquiries into signed deals.
5. General inquiries.

6. Listening To Clients

• Listening to clients well is the primary means of achieving a competitive advantage over your competition.
• Most professional firms are always asking themselves, “What does the client want?” But too few go do the obvious and ask the client.

Why Listen to Clients?

• To improve the competitiveness of current services
• To identify opportunities to develop new services
• No professional firm can engage in strategic thinking, or decide which of two forms of investment is worthier until it has received client input.
• A firm that has a program of continuously soliciting, analyzing, and acting upon such input will be better positioned to capitalize on strategic opportunities.
• It is this need not only to get client feedback but to use it, that constitutes the challenge to professional firms today.

The Various Means of Listening to Clients

1. User Groups

• 5-7 client participants meet two or three times a year to discuss the firm’s service offerings in a particular area.
• After dinner, the firm presents its plans for developing a practice area and then solicits feedback from the group.
• Better to focus on a particular service, rather than evaluate the firm as a whole.
• A well-functioning user group does strategic planning for the firm.

2. Reverse Seminars

• The firm invites the client executive to come and talk to members of the firm.
• Clients are flattered when you invite them to come to speak. It’s a simple way to show that you sincerely care about the client and want to learn more about them.
• Reverse seminars add to the knowledge base of the firm.
• Exposes junior staff to the thinking of business people.
• Make sure that the client feels that they’re being listened to, not sold to.

3. Attending Client Industry meetings

• Go where clients go to discuss their challenges, interests, and needs.
• Even better if you can attend with a respected client.
• Circulate what you learn with a written summary to the rest of the firm.

4. Market Research

• By nature, professional service firms don’t service a mass market.
• Market research that provides aggregated results of what large numbers of clients “think” may not be as helpful as talking to your clients directly.

5. Senior Partner Visits to Key Clients

• A good way for senior partners to conduct quality assurance (“How are our people serving you?”)
• Senior partners can often meet with leaders higher-up in the client’s organization, and thus get exposure to a broader and deeper view of the client’s challenges, concerns, and needs.

6. Engagement team Debriefings

• At the best professional service firms, it is routine practice to require that, at the end of each and every client project, the engagement leader will sit down with the client to obtain the client’s feedback on what went well, what less well, and how the engagement might have been improved.
• These conversations often immediately highlight additional unsolved issues that become new business for the firm.
• Create a mechanism for capturing and disseminating the feedback received from these debriefings.

7. Systemic client feedback

• A system whereby the firm adopts a mandatory policy of sending a questionnaire to clients at the end of each engagement, inviting the client to evaluate the firm.
• Such questionnaires sometimes solicit comments from the client that they may not be willing to express face-to-face.
• The questionnaire is an institutional mechanism and helps accomplish the goal of firmwide quality assurance.
• The act of asking for feedback signals to clients a willingness to listen and respond.

7. Quality Work Doesn’t Mean Quality Service

• Because of the ambiguity that surrounds technical excellence (and the difficulty the client has in appraising it), the personal relationship between the client and the provider takes on great significance in all the professions.
• Clients consider style, manner, and attitude in choosing professional service providers.
• Goods are consumed, but services are experienced.
• Satisfaction = Perception – Expectation
• The three most important keys to success are availability, affability, and ability—in that order.
• Clients of professional service firms are almost by definition in a state of anxiety and nervousness: They need to be confident that they are in good hands.
• People don’t care how much you know until they know how much you care.
• Clients want to know that they are not being lost in the shuffle.
• Don’t just assume that the client will place their trust, confidence, and respect in your firm.
• Anticipate the client’s perceptions and reactions and explicitly deal with them in advance.
• Discuss at the earliest possible point all potential roadblocks, detours, and contingencies that may arise, and make it clear how your firm will handle them.
• Client expectations can be managed by keeping the client informed as to developments, progress, and discretionary decisions.
• Some clients may interpret constant telephone calls as harassment rather than good service. But it is the preferences of the client, not the professional, that should determine how the professional communicates.

How to Create the Experience of Client Satisfaction

• Consistently follow up client meetings with a brief summary of the discussion and key takeaways.
• Explain in advance the format of your complex bills so that the client knows what to expect when it arrives.
• Follow up with a thank-you note for all referrals from clients, whether or not new business resulted.
• Find out the client’s real deadlines, and work hard to meet them.
• Demonstrate trustworthiness by advising clients on how to avoid fees by doing some things themselves
• Demonstrate integrity, either by admitting areas of weakness and recommending other professionals or by refusing work when you know you are too busy.
• All of these things are the result of a firmwide attitude toward clients—an attitude that must be created by the senior professionals of the firm through exemplary personal behavior and role modeling.
• Improving the quality of work can be costly and hard to demonstrate. Improving the quality of service can be as cheap as instilling more responsive attitudes in professional staff, and it tends to be infinitely more visible to clients.
• It ain’t what you do, it’s the way that you do it: That’s what gets results.

8. A Service Quality Program

• What “we” hate about having to deal with “those guys” is a very good predictor of what our clients hate about having to deal with us.
• Find ways to make client assignments substantively more valuable to clients by changing the way professionals interact with their clients during the project.
• Achieving excellence in client service is made up of hundreds of little, trivial actions, not a few grand gestures. It requires rethinking every communication and interaction with clients, no matter how mundane.

Traits of Quality Services

• Make it your business to understand what is special and unique about the client and their company.
• Listen carefully to what the client has to say and what they want, rather than substituting your own judgment and telling them what needs to be done.
• Give good explanations of what you’re doing and why.
• Let the client know in advance what you are going to do.
• Help the client understand what is going on and help them reach their own conclusion.
• Keep the client informed on progress.
• Document your work activities well.
• Avoid confusing jargon.
• Be accessible and available when your client needs you.
• Notify clients promptly of changes in scope and get their approval.
• Keep your promises on deadlines.
• Involve the client at major decision points in the engagement.
• Make the client feel important.
• Show an interest in the client beyond the specifics of the engagement.
• Make an attempt to be helpful beyond what has been outlined in the engagement proposal.

How to Make It Happen

• You must follow a system to achieve excellence in client service quality.

1. Measurements

• Mail a questionnaire to every client at the end of every single client project.
• Make it a mandatory part of your workflow.
• The purpose of the questionnaire isn’t necessarily to collect good information from the client, but rather to induce a change in the behavior of the firm’s members. It’s a conscience mechanism that forces all firm members to feel personally accountable at all times for executing those actions that lead to client satisfaction.
• The system must be designed to make it easy for the client to surface concerns.
• Do not design the questionnaire to sell the client more work.

2. Management’s Role

• Don’t half-ass a client feedback program. Either make it an integral part of your workflow or don’t do it at all.
• After reviewing the client’s feedback, the partner should decide which of the following responses the client should receive:

1. A letter saying thank you for your flattering comments
2. A visit from the engagement partner to clarify areas where the client is less than fully satisfied
3. A visit from the managing partner

• Follow-up is needed to make the system work.
• Survey results should be aggregated every 6-12 months and reviewed across different parts of the practice.

3. Tips and Tools

• Develop and disseminate specific, concrete ideas, to be shared among the professionals of your firm, for enhancing value to clients during projects.
• Develop a proprietary client-service methodology. “We’re different because of the way we deal with you.”
• Create a flowchart of the prototypical client project, identifying each detailed step where the firm has the opportunity to influence the client’s experience with the firm.
• These operating methodologies must be written down.

4. Training

• Have training programs in client-contact skills.
• Training programs are for knowledge transfer (“here are the elements of good service”) and skill-building (“we’re going to give you practice at dealing with this client situation”).
• Skills in face-to-face client interactions can be taught. It’s not an immutable personality trait that can’t be changed.
• Skill-building topics included in some firms’ programs include:
  • Learning to persuade, not assert
  • Helping clients understand what you’re doing and saying and why
  • Empowering clients with reasons, not just conclusions
  • Running meetings in ways that add more value to clients
  • Reporting to clients in ways they find more valuable
  • Coaching clients to use what we deliver
  • Facilitating client’s ability to act on what we deliver

5. Rewards

• The final step in a full-service quality program is ensuring that those who excel in this area (as revealed by client satisfaction scores) are rewarded, and those who do not are penalized in some way.
• Once scorekeeping has begun, the results will influence compensation.

9. Marketing to Existing Clients

• Existing clients represent higher-probability prospects.
• Marketing costs to win a given volume of new business are lower.
• “Follow-on” engagements from existing clients often are more profitable than first-time engagements from new clients.
• There’s a good chance that you’ll be able to integrate more juniors into the delivery of services for an existing client.
• Existing clients are more likely to trust you with engagements that your firm has little to no experience with. This gives you a chance to grow your firm’s capabilities.

How to Make It Happen

1. Making the client predisposed to Use the Firm Again

• Go the extra mile on the current engagement
• Increase the amount of client contact
• Build the business relationship
• Build the personal relationship

2. Increasing the Firm’s capabilities

• Do things that persuade the client that the firm’s knowledge and talent not only can be but are customized to the specific client situation.
• Increase knowledge of the client’s industry
• Increase knowledge of the client’s business
• Increase knowledge of the client’s organization
• Increase knowledge of the client

3. Finding and pursuing the Next Engagement

• Sell the client on the new project.
• Identify the client’s new needs, show them evidence of your ability to help, and craft opportunities to make the client aware of the new need.

10. How Clients Choose

• You must understand the purchasing process (not the sales process) from the client’s perspective.
• Unless their skills are truly unique, unmatched by any competitor, professionals are never hired because of their technical capabilities.
• Excellent capabilities are necessary to get you considered, but there are other things that get you hired.

What It Feels Like to Be A Buyer

• Insecure: Which firm is the genius and which is just good? I have no way of making a technical distinction.
• Threatened: This is my area of responsibility, and now I need outside expertise. Emotionally, it’s not comfortable to put my affairs in the hands of others.
• Risk: I’m taking a personal risk in handing over control.
• Impatient: I’ve been thinking about this problem for a while.
• Worried: Did I wait too long to get this problem under control? What will people think of my abilities?
• Exposed: Whoever I hire will get access to some proprietary secrets, not all of which are flattering.
• Ignorant: I don’t know what kind of problem I have. Is it simple or complex?
• Skeptical: I’ve been burned by these kinds of people before. You’re selling promises. How do I know which ones will be kept?
• Concerned: That you can’t or won’t take the time to understand what makes my situation special. You’ll sell me on what you have rather than what I need.
• Suspicious: Are you the typical professional who’s annoying to work with? Or will you deal with me the way I want to be dealt with?

What A Buyer Looks For

• The qualification phase is rational, logical, and based on facts. But the selection stage is mostly intuitive, personal, and based on impressions.
• Buyers are forced to rely on clues from the interview process in order to guess what kind of person you are.
• Be prepared. Do your homework. A potential client will be off-put by questions that could have been found out in advance.
• Demonstrate initiative. Clients will be a lot less impressed by your preprinted brochure than something that has clearly been put together for them.
• Do not talk about you and your firm. The client wants you to talk about them and their situation. The only way to influence a buyer is to find out what they want and show them how to get it.
• Make the buyer feel comfortable. Establish trust and pure motives first.
• The best way to win their trust is by finding a way to be immediately helpful.
• Treat prospects like they’re already a client.
• Give the buyer an education. Help them understand the advantages and disadvantages of some of the things they’ve been reading about.
• Tell them something they didn’t know.
• Demonstrate your creativity.
• Assertations about your experience will be discounted until you show evidence to back it up.
• Don’t patronize the buyer by trying to tell them what’s going on in their business. Turn assertations into questions. Be curious.
• Involve them in the thinking process.
• Don’t talk at the buyer. Have a conversation.
• Show a sympathetic understanding of their role in the company.
• Be sensitive to the fact that your prospective client is a person, not a corporate entity.
• The key talent in good selling is being good at getting the buyer to reveal their needs, wants, and concerns.
• Ask good questions and listen. If they’re talking, you’re winning.
• Ask why they do certain things the way they do, and why they haven’t tried certain options.
• Convince them that the issue is big enough to bother with. Before the prospect will want to hear how you’ll solve their problem, you need to get them to agree that it’s worth solving. Ask “How valuable would it be if…?”
• Give the prospect options. Help them understand their advantages and disadvantages. Then let them choose. Don’t give them “your firm’s approach” which strikes the prospect as a standardized solution.
• Instead of reaching for a sale every meeting, make your objective one of making progress in a relationship.
• When a prospect challenges you with an objection, hear it out, don’t interrupt. Don’t tell them not to be concerned about that. They’ve just told you that they’re concerned.
• Impress the prospect by anticipating their concerns or objections with prepared responses. It shows that you’ve taken time to see things from their perspective.
• Buyers are looking for the rare professional who has both technical skills and a sincere desire to be helpful. The key is empathy—the ability to enter the client’s world and see it through their eyes.

11. Attracting New Clients

• The broader the audience you attempt to reach, the weaker its impact.
• Rather than paying a little attention to a lot of prospects, it is always better to give more attention to a smaller, well-selected audience.
• Marketing works when it demonstrates, not when it asserts.
• “In-person” marketing tactics should be given preference over attempts to communicate with the written word.
• Professional services are not a “mass” business—clients are acquired one at a time, and any marketing program must reflect this.
• Marketing must be a seduction, not an assault.

The First Team

• The best marketing tactics are small-scale seminars, speeches, articles, and proprietary research.
• They all involve giving something to the prospective clients—new facts, new knowledge, new ideas.
• Demonstrate the firm’s usefulness.

The Second String Tactics

• Community and civic involvement, and networking with potential referral sources.
• These activities can be powerful, but the required time investment is high.
• Purchasing professional services is becoming more formal, and fewer deals are done today on the golf course.
• If you’re doing the articles, speeches, and seminars, by all means, get involved in community activities. It’s a wonderful add-on, but a poor substitute.

Newsletters

• So many firms have one, that yours will only be valuable if it’s unique.
• If you publish on a regular schedule, don’t let the quality deteriorate.
• A newsletter can be powerful if it has real substance, a point of view, and offer an interpretation of recent events.

12. Managing The Marketing Effort

• For most firms, the “marketing problem” is really a “managerial problem.” It’s figuring out why it’s not getting done.
• The problem is that marketing is nonbillable time. And nonbillable time isn’t managed well.
• Marketing activities frequently go neglected, unmanaged, or uncoordinated.

Managing The Effort

• The solution is for all senior professionals to be involved in managing the marketing efforts, not just results.
• Practice development is a team activity. No one person is likely to have all the skills to perform all the necessary steps to develop the practice.
• Adopt a policy that each and every partner is expected to contribute in some way to the marketing effort. Set a minimum time allotment.

The Power of The Small Team

• Organize teams of professionals who, together, design and execute their own marketing action plan.
• Individuals are allowed to pick the team that interests them most: one focused on a target industry, perhaps, or a particular specialty.
• Teams that have developed a joint plan and allocated responsibilities among themselves tend to keep each other honest: the planned activities have a higher probability of being executed.
• Competition between marketing teams can be energizing.
• The marketing plan should have concrete actions, with a specific time budget, that can be monitored to see if they were completed or not.
• Team leaders must make sure that each part of the marketing plan is assigned to a specific individual. What is everybody’s responsibility is truly nobody’s.

Part 3: People Matters

13. How’s Your Asset?

• Every professional has two groups of assets: (1) Personal knowledge and skills, and (2) client relationships.
• Professionals get paid for their time, but they sell knowledge and skill.
• The value of your client relationships is not in the number of clients, nor by their prestige, but by how deep the relationship is.
• Doing work that is easiest and most comfortable is rarely what is best for your career. If you’re comfortable, you’re heading for trouble.

The Personal Strategic Plan

• What you know now and are able to do now, what your current success is built on, will unavoidably depreciate in value unless you actively work on learning new things and building new skills.
• The health of your career is not dependent so much on the volume of business you do, but on the type of work you do and who you do it for.
• No matter how busy you are, you still owe it to yourself and to your career to get involved with and take charge of your own practice development activities.
• Take charge of building your career assets. Don’t wait for someone else to do it for you.
• Do not automatically assume that what your firm “asks you to do” will always be the right thing to build your asset.
• Among the worst mistakes a professional can make is underinvesting in marketing to existing clients.
• To learn well, you have to set out to learn something specific.
• If you want to create a truly valuable asset, then you have to focus your attention on building a highly specific set of knowledge and skills.
• Clients give importance to specialization in “their kind of business”
• Go for depth of knowledge first and then breadth.
• Technical skill alone is rarely enough. To be a valuable professional, you must learn a variety of interpersonal skills.

How to Speed Up Your Asset Building

• Slow down. Reflect and learn from your successes and failures.
• Having experiences does you no good unless you work at learning from them.
• Keep a written professional journal.

Questions to Ponder

• In what way are you personally more valuable in the marketplace than last year?
• What are your plans to make yourself more valuable in the marketplace than in the past?
• What specific new skills do you plan to acquire or enhance in the next year?
• What’s your personal strategic plan for your career over the next three years?
• What can you do to make yourself even more special on the market in the near future?
• What do you want to be known for?

14. How to Build Human Capital

• To add to the firm’s human capital—the collective judgment, knowledge, experience, and ability of its members—there must be an ongoing, continual effort at all levels.
• The true added value of professionals lies less in what they know than in what they can do.
• Like all skillful arts, a professional craft is learned through apprenticeship.

15. The Motivation Crisis

• For professional work, both productivity and quality are highly correlated with the degree to which the professional worker is engaged and committed to the task at hand.
• Success breeds success and failure sets the scene for more failure.

Motivation and The Recruiting Process

• A significant component in achieving a highly motivated organization is the recruitment process which must screen as much for drive, energy, and ambition as it does for intellectual capabilities and technical skills.
• Be honest with new recruits. Let them know exactly what it is their signing up for.
• A professional service firm should always have slightly more work than it can handle with its current staff putting in a normal workweek. Professionals flourish with a full work plate in an atmosphere of challenge.
• Expressions of discontent, complaints about the firm, and poor morale never surface more frequently than when there is not enough work to keep everyone occupied.

The Professional Psyche

• The best professionals are constantly driven to seek out the new, the unfamiliar, and the challenging.
• Many suffer from imposter syndrome.
• They require continual challenge and personal growth to retain their interest.
• Because of their insecurity, and the ambiguity that surrounds the definition of “good work” in professional contexts, they need quick, repeated feedback on their performance to validate their efforts.
• They tend to be “scoreboard-oriented”.
• They like to have unambiguous goals to shoot at.

Motivational Maintainers

1. Provide clear goals
2. Give prompt feedback
3. Reward performance quickly
4. Treat them like winners
5. Involve in decision making
6. Seek their opinions often
7. Provide autonomy in work
8. Hold accountable for results
9. Tolerate impatience
10. Provide varied work opportunities
11. Keep them aware of upcoming challenging goals

The Importance of Meaning

• Successful leaders spend less time worrying about getting their subordinates to do something and more about supplying their subordinates with a meaningful understanding of what they are doing.
• Leadership is about providing perspective and direction. The same work can be stimulating and inspiring, or repetitive and dull, depending on whether or not the project is viewed as a worthy application of one’s talents or not.
• It is the role of the supervisor to help create the conditions under which the forces of commitment, creativity, and involvement can be unleashed.
• Be very clear on the what, spend only the bare minimum of time on the how, and spend a lot of time on the why.
• Demotivation is the result of too much meaningless work. And since almost no work done by a professional firm is in fact meaningless, this syndrome represents a failure of management.

16. On The Importance of Scheduling

• The scheduling of work assignments is the single most important managerial activity in a professional service firm.
• By allocating the right resources to different assignments, there is the opportunity to influence the cost of the work, its quality, and the timeliness of its delivery.
• Scheduling also influences a professional’s development, satisfaction with the firm, motivation, and productivity.
• Scheduling is a strategic, not administrative, decision.

What Makes A “Good” Scheduling System?

• Helps ensure high utilization amongst all members of the firm.
• It matches the right team to fit the “personality” of the client.
• It is responsive to individual staff members’ needs for development.
• Juniors should be assigned to work with a variety of senior staff members.
• Takes into account the personal preferences for specific assignments.

17. On The Meaning of Partnership

1. Equity participation: Partners share in the net profits (or losses) of the firm.
2. Tenure: Partners cannot be removed except by an extraordinary vote of the partnership.
3. Autonomy: A partner’s work is no longer subject to automatic review by others.
4. Participation in policy making
5. Income: Partners typically earn significantly more than nonpartners.
6. Internal and external status and recognition

Degrees of Partnership

• It might be wise to unbundle the six rewards (above) and not embed them all in one “go/no go” decision for partnership.
• It’s certainly possible to retain good people without making them partners.

18. Surviving The People Crisis

• In the next decade and beyond, the ability to attract, develop, retain, and deploy staff will be the single biggest determinant of a professional service firm’s competitive success.

Productivity Strategies

• Speed up the apprenticeship process so that costly resources can handle higher-value work.
• Reward partners explicitly for good coaching.
• Change engagement staffing so that all are put to “highest and best use”.
• Use technology to enhance productive capabilities of staff members.
• Increase expected billable hours from staff.
• Change pay schemes to reward performance differentials.

Reduce Need Strategies

• Withdraw from some services and markets that cannot support new salary levels.
• Drop “up-or-out” system to reduce turnover.
• Rethink fast-growth strategies.
• Emphasize profitability more, volume of fees less.

Substitution Strategies

• Use more paraprofessionals.
• Use technology to substitute for labor.
• Hire “nontraditional” candidates and offset by training.
• Hire people for “jobs” instead of “careers”.
• Accommodate part-time, or flex-time workers.

Part 4: Management Matters

19. How Practice Leaders Add Value

• The best firms differentiate themselves by their energy, drive, enthusiasm, motivation, morale, determination, dedication, and commitment.
• The skills and behavior of the practice leader(s) influence the culture, and thus the success of the firm.
• A professional practice is like a sports team, filled with talented athletes who will only win if they truly fulfill their potential. Professionals, like athletes, only perform their best when supported by a good coach.

What Good Coaches Do

• The only truly effective way to influence people is one on one, in highly individualized, closed-door counseling.
• A good coach has a knack for recognizing what motivates each specific individual and dealing with people on their own terms.
• They give small doses of feedback and performance guidance on a regular basis.
• They tell people not only what could be improved, but how.
• Effective practice leaders go out of their way to celebrate successes and triumphs.
• Good coaches are also demanding. They must be chief cheerleader and chief critic. One without the other is insufficient.
• They know that getting people to change is difficult. So they structure small pilot projects designed to give the individual (and group) the experience of early success.
• Good coaches build teams. They pay attention to how the group’s resources are being deployed, and whether or not all the bases are being covered.
• They make frequent use of small-group team meetings to discuss “What are we going to do about X?”
• Good coaches are Socratic. They don’t present conclusions. Instead, they probe by asking questions and leading the team to discover the right answer for themselves.
• Perhaps most important of all, good coaches follow up. They monitor the execution of plans.

How The Practice Leader Spends Time

• Left to their own devices, bright energetic people will look after “today.” Practice leaders are needed to be the guardians of the long-term.
• Hire an assistant and delegate much of your administrative and financial tasks. Any practice leader spending more than 10% of their time on these matters is being an administrator, not a manager.
• A manager can continue to demonstrate “value as a professional” by being no more than 10-20% chargeable.
• A manager adds the most value not by selling, but by teaching others how to sell. There is the leverage.
• 30-60% of your time should be spent dealing with senior professionals. This is a very high-value activity.
• 20-40% of your time should be spent with existing client executives. This goes a long way in cementing relationships, assuring client satisfaction, and uncovering new business issues with decision-makers.

Who Should Coach?

• Except in very small firms, one person cannot possibly coach all other partners.
• Coaching should be the responsibility not only of the managing partner but of each and every one of the departmental practice leaders.
• It is almost certainly more profitable for the practice leader to help other people become successful than to focus on their own activities.

Evaluating The Practice leader

• Since the job of the practice leader is to help the group succeed, they should never be evaluated on their individual performance.
• Practice leaders should be explicitly judged on the aggregate performance results of the group they manage.

The Management Strain

• A manager must learn to live with a higher level of ambiguity and risk than the typical partner.
• The manager must accomplish goals through others. Their success is less under their personal control.
• Operate under the principle of “No Good Days, No Bad Days”.
• To be successful, the coach must be able to suppress his or her own ego, be quick to give credit to others and play down their own role in successes.
• They must earn the trust of others. Trust is the conviction that the manager means what he or she says, that the manager cares.
• The coach does not have to be the best player in order to coach well.

20. How to Create A Strategy

• Strategy = The development of a set of actions that will make the firm’s services more valuable to clients than the services of competing firms.
• Developing a strategy is fundamentally a creative activity, not an analytical one. It’s about finding new ways of doing things that give you an advantage.
• Don’t get pigeon-holed into thinking only about new things. An improvement in competitiveness in the firm’s core businesses will have a much higher return on investment since the firm can capitalize on it by applying it to a larger volume of business.

List of Possible Strategies For Being More Valuable to Clients

• Develop a new approach to hiring so that you can attract a higher caliber of staff than the competition.
• Train your people better than the competition in a variety of technical or interpersonal skills so that they will be more valuable in the marketplace.
• Develop innovative methodologies for handling our matters so that our delivery of services becomes more thorough or efficient.
• Develop systematic ways of helping, encouraging, and ensuring that our people are skilled at client counseling in addition to being top technicians.
• Get better at accumulating, disseminating, and building on our firmwide expertise and experience, so that each professional becomes more valuable in the marketplace by being empowered with a greater breadth and depth of experience.
• Organize and specialize our people in innovative ways, so that they become particularly skilled and valuable to a particular segment in the market.
• Become more valuable to our clients by being more systematic and diligent about listening to the market: collecting, analyzing, and absorbing the details of their business.
• Invest in research and development on issues of particular interest to our clients.

Who Should Develop the Strategy?

• You can’t apply one strategy to the whole firm.
• Figuring out how to make the firm’s services more valuable to clients logically belongs at the level of each service line—at the practice level.
• Strategy development must be consultative, one in which individual partners can become convinced that the benefits to them personally of achieving the goals will be worth the personal costs of doing new things or different things.
• It is essential that the professionals in the firm perform the strategic planning activities themselves. They must “own” the recommendations if they are to be implemented.
• People always feel more committed to self-selected goals than to goals and plans imposed from above.
• The best way to structure the strategy development process in firms is to do it as much “bottom-up” as possible.

• Strategy development is not an exercise in forecasting. Rather, the goal is to create a continuously improving organization that habitually evaluates itself and looks for ways to improve.
• Spend 20% of your time identifying the goal, and 80% of your time developing the action plans that will get you there.
• Too many strategic plans lie unchallenged, unread, and thus, unimplemented. The only piece of documentation that matters in this process is the list of action items: who will do what and by when.
• It is not the responsibility of the firm’s management to develop and enforce a strategy for the firm. However, it is their responsibility to ensure that strategy development is done.

21. Fast-Track Strategy

• Divide the firm into small teams or practice groupings (by location, discipline or industry).
• Give each team four sheets of paper, which have four key objectives, one to a page.
• Beneath each objective listed on each page are five columns: 1) what actions are proposed; 2) who will take responsibility for each action; 3) how much time will be spent on each action; 4) when each will be done by; 5) how we’ll know each action is done.

• Assign a coach (either managing partner or member of the executive committee) to meet with the team for 2-3 hours over the next month to discuss what actions they are prepared to commit to doing over the next three months.
• The surviving plan becomes a contract between the coach and the team. A specific meeting date is chosen approximately three months hence to review the execution of the plan and its impact.

What’s Different About This

• Don’t waste a lot of time talking about the objectives of the practice. These four objectives are the same as any other firm.
• Cuts through the bullshit and get directly to the actions.
• It’s strategy through activity: Try something, anything, but act—now!
• It fights complacency, because every three months it asks, “…and what are you going to do next?”

The Role of The Coaches

• Don’t tell people what to do.
• Encourage them to take responsibility for their practice’s success.
• Follow-up. If the 3-month follow-up meetings do not take place as scheduled, then the whole approach falls to the ground.
• Cross-fertilize ideas. “Group X has tried this. Do you think it can work for you?”
• Capture and share the best ideas from each team.
• By encouraging and supporting continued experimentation in each of the four key areas, they will help to breed a flexible, adaptable, responsive organization—one that is constantly trying new things and responding to the marketplace.

Part 5: Partnership Matters

22. Partner Performance Counseling

• Help partners reflect on and learn from the past year’s accomplishments, receive constructive feedback, and receive personal advice on how best to advance their careers.

Step 1: Specify Performance Criteria

1. Profitability of work supervised
2. Client satisfaction on work supervised
3. Coaching on work supervised
4. Contributions to practice development
5. Contributions to the success of others
6. Personal growth (career strategy)

• Systems that stress a partner’s personal numbers (rather than the aggregate of what he or she is responsible for) tend to lead to “hoarding” of work and a lack of attention to efficiency and productivity.
• Firms should calculate a full profit and loss statement for each client assignment.
• Client satisfaction can be measured on a systematic basis by using feedback questionnaires.
• Upward feedback questionnaires from junior professionals will similarly provide a measure of each partner’s performance in coaching.
• #3-6 (above) need to be judged, not measured.
• Ask each partner how they have contributed to practice development, the success of others, and grown as a professional.

Step 2: Design the Counseling Process

• Give each partner the quantitative information it keeps on partner performance. Show performance this year and last year’s comparison.
• Then ask each of them to prepare a self-evaluation of their accomplishments.

Step 3: Implement the Process

• The practice leader should be responsible for counseling the partners.
• A compensation committee may be appropriate to take the results of the counseling and translate them into compensation awards, but the counseling itself is a managerial function.

Forced Ranking

• Force rank each partner, relative to the others, on the six categories described above.
• The partner should also be invited to rank himself on this scale.
• Differences in perception of performance should be documented in writing and used as input for the compensation committee.

Career Planning

• Have the partner answer this question: “What, specifically, do you wish to be famous for?”
• Together, the counselor and the partner can think through what that partner could do to make himself “special in the marketplace.”

Goal Setting and Action Planning

• Force the discipline of designing (and documenting) concrete action plans by requiring every action item must have a due date, a tracking measure, and an estimate of the time required.

23. The Art of Partner Compensation

• Compensation decisions send a message—about what gets rewarded and about the relative status and respect accorded each partner. This affects the firm’s culture and strategic direction.

The Seniority System

• The senior partners’ past efforts have contributed to the firm’s current profitability. More experience makes you more valuable to the firm. These are two testable propositions, but should not be assumed to be true.
• The greatest benefit of the seniority system is that, by de-emphasizing year-to-year performance, it avoids the whole problem of trying to weight the various forms of performance.
• Very easy to administer.
• Risks failing to reward superior, high-performing professionals.
• Fails to reward differences in performance among partners of equivalent tenure. This can create an extremely discouraging environment.
• Once partners stop striving for excellence and settle for competence, the firm has entered a period of inevitable decline.

Performance-Based Compensation

You have to be tougher on partners than nonpartners. If you believe that partners’ performance is more critical to the firm than juniors’, then you must hold the partners at least as accountable. Most firms have elaborate performance appraisal and reward systems for their young professionals. Why not for partners? To believe that all partners can be trusted to perform well forever without being held accountbale flies in the face of reality, particularly in a large firm. And if you are overpaying one partner, it comes straight out of the pocket of another partner, and therefore it is not to be treated lightly.

• In order to avoid “subjective” assessments of partners’ work, some firms divide partnership profits solely according to measurable criteria.
• Even more extreme, some firms attempt what might be termed a “profit center” approach, whereby all expenses are allocated among the partners, creating a P&L statement for each partner.
• Such methods almost always lead to the sacrifice of mutual cooperation among partners and fail to recognize that many important contributions can’t be measured.
• Measurement-oriented (or “formula”) approaches also work against the efficient delivery of professional services. Partners who are too busy or overqualified should pass on work to others, using younger partners or associates where appropriate—but if numbers are all that count, there are real reasons to hoard work rather than delegate it.
• Measurements are inherently short-term oriented. Whenever compensation is based too heavily on current contributions, investments in the firm’s future will suffer.
• Decisions about compensation must result from a judgment process, not a measurement process.

The Characteristics Of A Judgment System

• Systems involving judgments will always have winners and losers. People will disagree with the results. Errors will be made. The system will never be perfect.
• Therefore, attention should be directed at the judgment process, not the decisions. If the process is thorough, unbiased, and equitable—and is perceived to be so—then good judgments will result and be accepted.
• The compensation committee should be small: three to five partners is ideal.
• A written statement of compensation policy, including a detailed description of the information-collecting process, should be updated and circulated every year.
• The committee need not give different criteria the same weight in every partner’s case. It cannot if it is to acknowledge that different individuals and groups contribute in different ways.
• A rigid formula—”hours count 60%, new business 30%, and profitability 10%—is unworkable.
• What is required is a process of “management by objectives,” whereby each individual, in consultation with the executive committee, agrees to a set of objectives for the forthcoming year and is assessed accordingly.
• Top producers shouldn’t be attempting to become managers to increase their pay and status. Glory, and dollars, should always flow to those who excel at client work.
• Compensation adjustments should be based on relative improvements in performance, not on absolute levels.
• An inflexible compensation structure is likely to become moribund over time. As the partnership’s strategy changes, so should the weighting of performance criteria.
• Feedback must be given and decisions must be explained. When clear reasoning is given for a judgment, it is more likely to be accepted.
• Better not to disclose partner compensation. If people are concerned about their absolute level of compensation, they can be satisfied. However, if their focus is on relative standing, then they can never be satisfied.
• Disclosure discourages cooperative behavior and creates more opportunities for misunderstandings and resentment.

Balancing Past and Present

• Superior performance is evident only over an extended period of time and should be so appraised.
• Think of compensation awards as a smoothed, moving average of performance, updated every year as new evidence comes in.
• You may choose to use statistics covering a three-year period rather than a single year’s time.
• The “two-pool” system distributes some large percentage of profits based on long-term considerations, while a smaller percentage is distributed in recognition of outstanding contributions in the current year.

24. Patterns in Partner Compensation

• The compensation system should have a simple goal: Motivate partners to focus on those aspects of performance that will make the firm successful.
• If partners misperceive what is being rewarded, then they will focus their attention and efforts only on the things they think are rewarded, and fail to focus on other important performance areas that will affect the success of the firm.
• What is needed is an approach that demonstrates unequivocally what has been rewarded, clearly reveals how much reliance has been placed on quantitative factors, and how much on qualitative factors, and yet can preserve (where necessary) the confidentiality of specific individual partner data.
• Show a scatter-plot graph of the data, with an R-squared value, so that partners can see what has been done and the correlation between the factor and the amount of profit share.
• A compensation committee has not done its job until it can show (not just tell) the partners precisely “what is rewarded around here”

25. Pie-Splitting

• Variations in the criteria firms use in splitting the partnership pie are understandable and, indeed, desirable. Different strategic positions in the marketplace require different compensation systems.
• Compensation system experts note that any compensation scheme, if it is to stand up over time, must pass two tests: that of internal equity and that of external equity.
• Internal equity requires that, whatever the rules are, they be applied in a consistent manner.
• External equity must pass the question: Do the compensation rewards in the firm reflect the economic realities of the open market?

26. Partnership Governance

• In a service in which the “technology” is well-established, and can be delivered with a reasonably routine set of actions, specialization, and division of labor are possible; these organizations tend to be more bureaucratic, hierarchical, and “managed.”
• Where a service is so highly customized, complex, more art than science; these organizations tend to be more free-form, less hierarchical, and less bureaucratic.

The Emerging Norm

1. An elected board of partners, whose function is to discuss and resolve matters of firm policy, meeting three to four times a year. This board is not an executive body, running the firm, but instead focuses on long-run policy issues.
2. A managing partner who devotes a significant proportion of his time to the executive function (50-100%). This individual is either elected by the partnership at large or appointed by the board, most commonly the latter.
3. A high-level business manager (or chief financial/administrative officer) who serves as the “right-hand man” to the managing partner, to free him or her from administrative duties and business analytic tasks.
4. An executive committee, formed from the (appointed) heads of practice areas and offices, who serve as part of the management team headed by the managing partner.
5. A compensation committee, formed from the executive committee, supplemented by additional members either directly elected or appointed by the board.

Key Positions

• The Board: Approve major policies affecting the firm. Members are elected at large firms.
• Managing Partner: Coaches the individual partners. Chosen by the board.
• Management Team: Comprised of the practice leaders and managing partner. Run the day-to-day operations of the firm. Directly accountable to the board.
• Business Manager: A chief financial officer who supports the managing partner. Reviews financials and operating statistics, supervises the preparation of budgets, deals with leases, contracts, and technology, and performs analysis of new strategic initiatives.
• Compensation Committee: Comprised of all or part of the executive committee, supplemented by other members chosen separately.

Evaluating A Governance Structure

• By having an elected board appoint, or at least nominate, the executive committee (managing partner and office heads), maximizes the chances that people with the right skills are placed in positions of authority, and that they work together as a team.
• The Board, as the highest-level committee, provides a place for “heavy-hitting” partners who may not be good managers to nevertheless hold important positions of influence.
• Policy functions are effectively separated from executive functions, and a place is provided for people of different skills to make their respective contributions.
• There should be a clear, shared sense of who is responsible for what, thereby eliminating the chance of gridlock.
• The structure allows speedy decision-making.
• There is a clear procedure to remove those no longer effective.
• The structure makes it possible to set clear goals, and hold people accountable for them.
• The people charged with executive functions should have time to carry them out.
• There is a vehicle or forum for dissatisfaction to be expressed, and those outside the official channels can participate.
• Governors have the consent of the governed.
• Committee-itis in decision-making is avoided.

Part 6: Multisite Matters

27. The One-Firm Firm

• One-firm firms have a remarkable degree of institutional loyalty and group effort that is clearly a critical ingredient in their success.
• Examples include McKinsey, Goldman Sachs, Hewitt Associates, and Latham & Watkins.
• One-firm firms have an elite Marine Corps attitude about themselves. An atmosphere of a special, private club prevails, where members feel that “we do things differently around here, and most of us couldn’t consider working anywhere else.”
• While all professional firms will assert that they have the best professionals in town, one-firm firms will claim they have the best firm in town, a subtle but important difference.

Characteristics

• Emphasis is placed on firmwide coordination of decision making, group identity, cooperative teamwork, and institutional commitment.
• Recruit SWANS: People who are Smart, Work hard, are Ambitious, and Nice.
• Particular emphasis on “nice.” Avoid big egos that don’t play well with others.
• Avoid the star player mentality.
• Promote the firm/team over the individual.
• Everybody views themselves as belonging to an institution that has an identity and existence of its own, above and beyond the individuals who happen currently to belong to it.
• Create an image/personality readily indentifiable to the outside world.
• Individuals illustrate their high involvement and commitment to the firm through hard work and long hours.
• People tend to work harder at these firms than at others.
• Client first, firm second, individual last.
• There is a clear firm ideology which everyone understands and which no one is allowed to take lightly.
• Significant attention is given to managing client relations.
• More than just technical excellence. It means remaining attentive to client needs and the quality of interaction between the firm and its clients.

Sustaining the One-Firm Culture

The elements of any high-performance unit include:

• Entrance requirements into the group are extremely difficult.
• Acceptance into the group is followed by intensive job-related training, followed by team training.
• Challenging and high-risk team assignments are given early in the individual’s career.
• Individuals are constantly tested to ensure that they measure up to the elite standards of the unit.
• Individuals and groups are given the autonomy to take risks normally not permissible at other firms.
• Training is viewed as continuous and related to assignments.
• Individual rewards are tied directly to collective results.
• Managers are seen as experts, pacesetters, and mentors (rather than as administrators).

Recruiting

• Senior professionals invest a significant amount of their time in the recruiting process.
• Much more selective than the competition.
• The game is won or lost at the recruiting stage. It’s that important.

Training

• Notable investment in firmwide training—especially for new hires.
• They “grow their own” professionals, rather than make significant use of lateral hiring of senior professionals.

Growth

• Deliberately avoid growth by merger. Helps preserve culture and institutional identity.
• High growth is not a declared goal. Rather, they aim to grow only as fast as they can train their people.
• Growth is neither shunned nor idolized. Growth is a simple by-product of achieving other goals.

Selective

• Choosy about which clients they take on.
• Only take on projects where there’s a belief that the value-added will be demonstrably in excess of the fees they charge.
• Tend to have a less varied practice mix and a more homogeneous client base.

Compensation

• Very few professionals choose to leave the firm, even if presented with higher compensation elsewhere.
• With up-or-out programs, firms work actively to place their alumni in good positions with favorable clients.
• They achieve very profitable high-leverage strategy without excessive pressures for growth to provide promotion opportunities.
• Compensation systems (particularly for partners) are designed to encourage intra-firm cooperation. Tend to favor a judgmental process more than a measurement-oriented approach.
• Vigorous efforts are made to assess contributions to the firm that do not show up in the measurable factors.
• At Latham & Watkins, 15% of the firm’s income is set aside as a separate fund from which the executive committee, at its sole discretion, awards partners additional compensation based on their general contribution to the firm of such factors as client relations, hours billed, and even the business office’s “scoring” of how promptly the partner has logged his or her own time, sent out and collected bills, and otherwise helped the place run well.

R&D and Communication

• Nonbillable activities like R&D, market research, and other investments in the firm’s future are given higher priority than at other firms.
• Firm projects are treated as seriously as client work.
• Communication is remarkably open and is clearly used as a bonding technique to hold the firm together. Heavy use of memorandums to keep everyone informed of what is happening in other parts of the firm.
• Firmwide meetings are frequent, with an emphasis on getting people to interact with other departments than their own. Meetings are designed as much for fun social interaction as for whatever the agenda happens to be.
• Anyone has a right to know anything about the firm except the personal affairs of another individual. No secrets.
• There’s a suppression of status differentials between senior and junior members of the firm. Everybody is made to feel like a valued and necessary member of the team.

28. Hunters and Farmers

• Two typical firm styles. You can’t have it both ways. Pick one and try to be consistent with your management style.

Farmer Firms

• Typical of the one-firm firm described above.
• Succeed through focus, muscle, and concentrated efforts in a few hand-picked areas.
• What counts is not individual performance, but the contribution to aggregate success.
• Rewards must be structured to emphasize teamwork and group contribution.

Hunter Firms

• Maximize the entrepreneurialism of their members, by creating the maximum possible degree of individual autonomy.
• Encourage individuals to respond and adapt to the local market.
• The benefits (and limitations) of firmwide consistency (in services, in markets, and in approach) are sacrificed in order to capture the benefits of local market opportunities.
• Firms must attract, motivate, and reward the best entrepreneurs.
• More short-term focused.

29. Making The Network Work

• Unlike their clients, most international firms are not hierarchical companies with a simple chain of command. Most of them are, in effect, federations of local organizations trading under the same brand name.
• A network can be valuable if it helps the local practice perform its local tasks better, and/or if the local client receives more value because its local provider is more empowered, as a result of being part of a network.
• Second, the network can be of value in pursuing and serving multisite (or international) clients that no one practice could pursue alone.

Empowering The Local Practice

• An obvious benefit of belonging to a network is the brand name. A strong brand provides comfort, confidence and quality assurance to the client.
• Membership in a network can provide the client access to additional expertise.
• A network may pass along referrals to the local practice.

30. Creating The Collaborative Firm

• A typical problem is one whereby individuals focus on improving the profitability of their own group, rather than assisting other groups by means of cross-selling to their clientele.
• Helps to build into the culture long-term repeated interaction between the same people. Cooperation emerges when people find it in their interest to do favors for each other.
• The foundation of cooperation is not really trust, but the durability of the relationship. Firms that have grown through mergers and lateral (senior-level) hires always have less internal cooperation than those that have grown from within.
• Groups don’t cooperate, people do.
• Firms must create a situation where the same people from different departments (or locations) interact frequently.
• Cooperation only works if it’s a two-way street. To get a favor, you must first give a favor.

Tactics to Achieve Network Benefits and Collaboration

• Cross-staffing
• Rotation of staff
• Generating integrated client work
• Reorganizing around people with whom we want to collaborate more
• Centralization of selected network decisions
• Firm-level funding of collaborative activities (“free” resources)
• System of cross-boundary “client relationship partners”
• Appointment of practice coordinators
• Rewards for collaboration in the compensation system
• Joint training
• Joint committees
• Transfer payments and other accounting devices
• Information sharing
• Databases to facilitate access to expertise
• Education/awareness of resources available

31. Coordinating Industry Specialty Groups

5 Ways to Share Knowledge

• A “skills inventory database” where people can see areas of expertise of their colleagues.
• A “transfer pricing” system, whereby an office can buy the services of professionals from other firm offices to facilitate sharing of expertise.
• Design the compensation system to encourage and reward cooperative behavior.
• “Discussion committees” bring individuals with similar client bases together to discuss mutual interests, common opportunities, and shared problems.
• Goal sharing: ensuring that the overall strategy of the firm is well understood and disseminated so that local office managing partners can integrate their decisions into the strategy.

Part 7: Last Thoughts

32. Asset Management

• The key to ensuring any professional firm’s future is wise management of its two key assets: (1) Its inventory of skills, talents, knowledge, and ability; (2) The strength of its client relations and reputation.
• To have been judged a good year, a firm must not only achieve its volume and profit goals but do so in a way that both builds new skills and strengthens client relations.
• Here are some ways to manage your firm’s balance sheet…

A Look-Back Mix Evaluation

• What do your people go out and sell to meet their new business targets? The familiar or the new?
• There is a temptation to exploit your current reputation, and sell projects that you’ve done well in the past, rather than to venture out and try something new (build your balance sheet).
• Firms should establish a mechanism to appraise the quality of their practice, as well as its quantity. Every 3 months, the firm should pull out the list of projects they have been working on and give each a grade (1 to 5) on each of a number of selected “balance-sheet-building” criteria.
• This type of assessment will give a good guide as to whether or not practice development efforts are helping the balance sheet as well as the income statement.

Did this engagement…

• Allow us to develop new skills?
• Expose us to an important new client?
• Allow us to train our juniors?
• Increase (not just sustain) an important existing client relationship?
• Allow us to work higher in client organizations?
• Introduce us to an important new market segment?

Explicitly Measure and Reward Skill Transfer

• In the short run, it is always more economic to get the assignment performed by those who already know how to do it. But you will never transfer and grow the capabilities of the firm in this way.
• The firm must use its staffing system to assign people to the project who don’t yet have the skills, so they can learn from project leaders.
• See more in Chapter 4.

Include Balance Sheet Questions in Partner Goal Setting, Evaluation and Reward

• Most compensation schemes for senior professionals stress income statement measures—revenues, workload, and profits. Few recognize or encourage investment in asset-building activities such as the development of new methodologies or the transfer of skills.
• In the performance evaluation process, ask senior professionals, “What have you done that makes us stronger for the future?” or “In what way are you personally more valuable in the marketplace than last year?”
• See more in Chapter 20 and Chapter 22.

Place More Emphasis On Marketing to Existing Clients

• Existing clients are more likely than new clients to give you a chance on a project where you have little to no previous experience.
• Asset-building projects are more likely to come from existing clients.
• See more in Chapter 9.

Systematic Debriefing of Engagements

• Most learning takes place on engagements. Yet many firms fail to capture and disseminate much of this potential learning.
• In principle, one of the competitive advantages of large firms is that the value they can bring to the market is not just the individual talents of their professionals, but that the individual professional is empowered by the accumulated knowledge, wisdom, systems, methodologies, and experiences of the firm.
• Realizing this potential value takes effort and attention.
• Make documentation of “what we learned from this one” a requirement of every project leader: as inescapable a responsibility as sending out the bill.
• See more in Chapter 14.

Industrial Engineering Study of Project Methodologies

• Compare the staffing of similar engagements performed two or three years apart. The firm should be getting more efficient with better methodologies, less senior time, and more practice tools.

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