02: Six Ways Professional Services Firms are Different

Steve Preda breaks down the key aspects that make professional services companies different from other businesses, and the unique difficulties involved in the leadership and management that these kinds of businesses must overcome in order to break through to the next level. 

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Six Ways Professional Services Firms are Different

The second episode is about how a professional services business is different from all other services businesses and all other businesses, in fact. And there are six areas that I find these professional service firms are really, really different. And I include technology firms here as well in this category from other type of businesses. So what are these things?

So the first one, it’s much harder, I find, to manage a professional services business from other businesses. Why that is? I believe this is because in a professional service business, you have a lot of highly trained and highly skilled smart people, and they are kind of cats that are hard to hurt. These people tend to be more autonomous, they are more in charge of their careers, and you really have to be a good leader and a compelling leader to lead these people. So that’s one difference.

The second difference is that in professional services firms, there are traditional hierarchy structures that you don’t always find in other companies. Like when I joined KPMG back in the early 90s, then we had a very rigid hierarchy there. We had the first year auditor, second year, and then you become a senior, and I think it was a assistant manager, and a manager, and a senior manager, and partner.

So that was the career structure and it took someone from anywhere between 9 to 15 years to become a partner. And people were looking at always progressing in this career structure, which means that when you are a leader of such a firm, it’s much harder to manage these firms and to make changes because people expect the rigidity, they expect the predictability of a career structure. And if you mess around with it too much then you take away that long-term incentive of someone becoming a partner. So you really want to be careful with that but that it creates some constraints on the manager to make changes there. So that’s number two.

Number three is the focus on billability of people in a professional service firm. And what that means is that because that’s the primary focus that let’s make as many people as possible billable and whoever is not billable is kind of a second-rate citizen that creates this incentive for people to step up into leadership roles. I mean, who wants to be a second-rate citizen? Who wants to take the risk that they step out of their professional service role and become a leader and then maybe their skills might lose some of their edge or because they are not billing as much, they are seen to be by those professionals who are billing highly to be not as productive.

You know, there’s a need to justify the value of the work of the leader. So that can be a real trap and that can become a real disincentive for people to want to become leaders in these firms. And then you end up with these firms with no leaders. Everyone is just billing. One of my former clients, an accounting firm, they resolved their issue was that they promoted someone who was not on the partner track. That person was more of an operational person.

Billability isn't just a metric; it's the heartbeat of professional services. Leaders must balance the pursuit of billable hours with cultivating a culture that encourages leadership and innovation. Click To Tweet

She started in IT and then she was promoted to manager of operations and COO. And eventually they made her kind of the, what we call, integrator in entrepreneurial operating system parlance, integrator of the firm. She became the person who actually started managing the firm, and because she was a very strong personality, she could actually exert power even over tenured partners. So that was a lucky situation. But in general, it is a big challenge for these firms to create the leaders that they need. So that’s number three.

Number four is the problem of some of these professional service firms, especially legal advisory firms, law firms, that you see that these people are really just a collection of solopreneurs. So everyone is serving their own clients. They are essentially eating what they kill. They lend their own clients and they serve their own clients. And yes, they cross-sell each other’s services and specialties, but essentially, they see themselves as entrepreneurs within a cluster of entrepreneurs, like a group, like a network of entrepreneurs.

And to manage these people and to actually lead these people and to unify their efforts so that everyone is going in the same direction and grow the firm and make the decisions for the greater good of the business, it becomes challenging. So that’s the fourth difference, a collection of soil pruners. Somewhat connected to this is that the ownership of some of these firms is also dispersed. So you have a partnership of partnership structure firm, which is a very common structure for these firms, and then you have all these people owning a piece of the firm.

How do you remove someone who may not be in the right role, may not be executing the function properly? How do you make changes there when they are the owners? Then you have to bring together an owner’s council and sometimes the owner’s council is going to override the decisions that the management partner would be making. So it just creates more complexity and sometimes when you have a very charismatic leader that will be able to override that complexity, but that’s not going to be wired into the system. So how do you deal with that? That’s a challenge.

And then number six, which is somewhat connected to this, is what I see some firms have too many people around the table, around the leadership. Because people are partners, because people are owners, or because they are high billing people in the organization and seen as very senior because of that, they cannot be left out of discussions and decisions. So, they will be part of the group that makes decisions. But because they are billing all the time, because they don’t have a clear leadership role, they won’t have the bandwidth to engage with other parts of the business and to really contribute to strategic decisions.

At the leadership table, too many voices can turn strategic discussions into token gatherings, creating a circle where ideas flow but resolutions elude. Click To Tweet

So, you end up with these token shops of 10, 12, or sometimes more people, where it’s going to be really difficult to make decisions. It’s going to be really difficult to harvest the ideas of these people. They will all feel that they have to speak, add to the discussion so you can have this circle of discussions where issues are not really being resolved. So that can be an issue. Whenever we start the journey with the professional services firm on the entrepreneurial operating system, EOS traction, then one of the first things that we do on a focus day, the first full session together, is to figure out what the real functions, the major functions of that business are, and who are the people who get it, who want it, and to have the capacity to execute on those major functions, and what are the major roles for each of those functions.

So, typically you would have a business development function, you would have a delivery function, you would have an administrative function, you can have a finance function, and who are those people who are going to drive those functions? Maybe you have a marketing function as well. So what are the functions, who are the people who are driving those functions, and how do you harmonize and orchestrate the energies of the key people in the organization so that you are moving the organization forward? You’re not just a collection of solopreneurs billing $25,000 a month.

It’s very nice to do that, or $50,000, but how do you harvest the knowledge and energies of these people, and some of them, maybe not all of them, to actually figure out where to take this company next quarter? What’s going to be our sales and business development strategy? What’s going to be our marketing strategy? How are we going to upgrade our technology in this organization? How are we going to upgrade our skills to attract the right kind of talent to this organization? How are we branding ourselves? So what are we doing to move, to raise the chip forward? So these are some ideas about the differences between professional services, businesses and other businesses. And that’s it for today. Stay tuned and I’ll be back very soon.


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