in Books, Reading books in 2013

Managing The Professional Service Firm

Managing The Professional Service Firm by David H. Maister

manging-the-psf-coverThis book is a gem. I have over 430 highlighted passages in this book. I remember reading it and I was in awe. Probably the one book if you want to structure, improve or build a professional service firm.

Again, most of my comments will be related to the work I did in the advertising industry.

most professional services have a strong component of face-to-face interaction with the client. This implies that definitions of quality and service take on special meanings and must be managed carefully, and that very special skills are required of top performers.

In contrast to production companies who can control quality without customer interaction. This is actually a bigger difference than you may think. The variance is bigger thanks to customer interaction, i.e. less standardization.

Both of these characteristics (customization and client contact) demand that the firm attract (and retain) highly skilled individuals. Because of this, the professional service firm is the ultimate embodiment of that familiar phrase “our assets are our people.”

This goes into the same direction. Production companies have a lot of value besides their people: processes, machines, inventory. This all is neglectable small for PSF (professional service firms). Even if you have a superior process it can easily be copied and more likely the difference isn’t that big.

One of the most interesting discoveries in my consulting work has been the fact that (apparently) every professional service firm in the world has the same mission statement, regardless of the firm’s size, specific profession, or country of operation.

To deliver outstanding client service; to provide fulfilling careers and professional satisfaction for our people; and to achieve financial success so that we can reward ourselves and grow.

n.c.

Consider three kinds of client work: Brains, Grey Hair, and Procedure projects.

Brains is new solutions to new problems. It’s basically: We’re smart, we can solve any problem. Many one-off projects, lots of learning.

Grey Hair are customized solutions to old problems. The client buys experience.

Procedure projects are old solutions to old problems. It’s basically: We’re doing this all day we know what we do and do it fast.

You can easily see how the personnel differs in each case. Procedure projects can easily be done be juniors and may give a higher leverage.

The professional service firm may be viewed as the modern embodiment of the medieval craftsman’s shop, with its apprentices, journeymen, and master craftsmen.

n.c.

By leveraging its high-cost seniors with low-cost juniors, the professional firm can lower its effective hourly rate and thus reduce its cost to clients while simultaneously generating additional profit for the partners.

n.c.

The firm thus makes its most money by “leading the market”: being able to sell as a fully customized service (at a fully customized price) what increasingly becomes a service with reproducible, standardized elements.

If you watch any industry with PSF closely you can see this over and over again. E.g. if you work in IT you probably saw this with Agile and Scrum.

In any professional service there are three key benefits that clients seek: expertise, experience, and efficiency.

However, accommodating the varying needs of these different types of clients within a single practice group is an almost impossible task.

Also very important and not that seldom neglected. You can’t really operate on two levels or even three. It comes down to specialization in the end. Specialize and win.

True to the professions’ traditional self-image of being elite practitioners, the staffing requirements of this “expertise-based” practice would be such that the firm would need to seek out and attract only the top percentile graduates from the best schools, in order to generate top-notch apprentices who could meet the quality needs of the frontier practice. Training would best be accomplished through an informal apprenticeship system and, since standards would be high, a rigorous up-or-out promotion system would ensure that the firm retained only the best and the brightest.

The firm would make its profits through high billing rates or some form of value billing, justifiable and sustainable because of the criticality, complexity, and risk in the client engagement.

An example for one way to manage a PSF. The books presents each of these different businesses in-depth but I won’t go into detail. Read the book – it’s worth it.

In my experience, many low-margin practices are more profitable, on a profit-per-partner basis, than higher margin practices with low leverage because of the effective use of leverage.

This is also something you see. Low cost, high efficiency practices can apply more leverage and scale easier. The problem solving in such PSF switches from the domain of practice (e.g. software development, accounting or law) to the domain of efficiency.

Only increased fee levels or leverage move the firm forward. All else is hygiene. It is the nature of the work brought in, not just its volume, that contributes to profit health.

Also important. It often get’s into this line of thinking:

Many firms are revenue driven, or “top-line” oriented, taking the view that “any new business is good business.” This is patently false.

I’ve seen companies which had very good revenue but didn’t exist one year later because their margin wasn’t existent.

Professional firms do not sell time (although they often bill that way). Rather, their stock-in-trade is skill. Anything that compromises the rate of skill building (which systemic underdelegation does) hurts the firm.

Also something which isn’t often done right. Generally you want to grow your replacement as soon as possible. Because there are two cases in which your replacement is necessary. a) If the work-load is to high and b) If you are promoted or switch to an other position.

Also there is an other side-effect:

If underdelegation exists, that is, if juniors are being given additional responsibilities less rapidly than they are capable of handling with good training and supervision, the result will be poor morale and motivation.

the lack of challenging (“growing”) work will be the single biggest contributor to turnover/retention problems.

And even more seniors often complain that they don’t have enough time to delegate or mentor their employees:

In firm after firm, I encounter senior professionals who know the importance of client service, business development, supervision and coaching, methodology-building, and personal development. In all of these cases, however, they report that they are not doing as much as they would like because they are “too busy”—and they are.

My observation of professional firms in general is that they tend to overinvest their nonbillable practice development time in categories mentioned first on my list (broadcasting and courting) and, as a rule, underinvest in those activities lower on my list (superpleasing, nurturing, and listening).

It seems that the research which shows that acquiring new clients is way higher than getting business from existing clients still isn’t believed.

Listening—soliciting clients’ evaluation of current services and getting them to describe their unfilled needs—has two interrelated purposes: (a) improving the competitiveness of current services and (b) identifying opportunities to develop new services.

n.c.

As the Japanese manufacturers say, a “defect is a treasure.” In other words, by eagerly seeking out your “defects” and studying them carefully to identify why and how that performance failure occurred, you get the opportunity to improve.

n.c.

“People don’t care how much you know until they know how much you care”—

Remember the definition of trust: competence + carefulness

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.

More generally: Don’t surprise the client – especially not with bad news. You will also notice how less problematic dealing with problems become if you are upfront.

“The most depressing day in the office is the day after we have won a new client. We all look at each other and say, ‘How on earth are we going to deliver all we promised for the budget we agreed to?’

n.c.

The firm that demonstrates its trustworthiness by advising clients on how to avoid fees by doing some things themselves, or that demonstrates its integrity, either by admitting areas of weakness and recommending other professionals or by refusing work when it knows it is too busy.

I liked to call it ‘full disclosure’. Most of my coworkers thought I was insane. Two of my coworkers did the same. The clients appreciated it insanely. It’s basically the application of honesty is the best policy. Sadly, most people are afraid of it.

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.

n.c.

It cannot be stressed enough that achieving excellence in client service is not an “educational” issue (i.e., enlightening staff and training them). Almost all client service training programs, taken by themselves, fail to be implemented in the press of daily business. Most firm personnel, if asked, could easily describe most of the activities that would represent good service. We must ask why they don’t already do these things.

n.c.

The bad news about achieving excellence in client service is that it is made up of hundreds of little, trivial actions, not a few grand gestures.

It takes an attention to detail, an attitude, that is essential if individuals are to find the self-discipline to handle all of their client-contact activities with empathy.

Just as with a lot of practices self-discipline is the key. Most people know what they have to do but the lack of self-discipline often undermines that. And all that results in inferior service.

By measuring client satisfaction on every assignment, and doing so in a way that can be monitored, it commits the members of the firm to inescapable implementation of good service.

This is something I learned in my quality manager position. Measurement has the highest payoff. When employees noticed how slow they are, or how many errors they made, or how unsatisfied their clients were, they suddenly improved that metric. They were aware of those measurements. If the management only highlights revenue they will focus on revenue. It starts with management & measurement.

In many firms, there may be a need for training programs in client-contact skills. These should include training in classic client situations such as “How do you tell a client he is wrong?” and “What do you do if the client doesn’t like your ideas?” Accumulated wisdom in the firm on these and other client contact situations should be built into training programs so the firm disseminates its best expertise quickly.

n.c.

If all time spent on existing clients must be accounted for, then things done in the name of pursuing more business from existing clients often show up in the accounts as extra costs (and hence lower profitability) on the existing engagement. As a consequence, the desirable marketing activities are not done.

n.c.

Unless their skills are truly unique, unmatched by any competitor, professionals are never hired because of their technical capabilities.

I am no longer asking “Can you do it?” but rather “Do I want to work with you?” I am no longer interested in the institutional characteristics of your firm, but am now trying to form a judgment about you.

What all this reveals is that, among the set of qualified candidates, I am looking for the one I can trust. The act of hiring a professional is, by very definition, an act of faith. I must, inevitably, believe a promise.

There isn’t much 100% rational judgement if any at all. The decision is emotional but later rationalized by facts. That is, you have to be good enough but that’s all. The rest is social skills and chemistry.

Give me an education. Tell me about alternate ways the common problems of my industry might be dealt with. Help me understand the advantages and disadvantages of some of the things I have been reading about. Ask me how I am doing things now, and use that as an opportunity to help me understand some options I may have for doing things differently. Tell me something I didn’t know.

Also something which is quite impressive if you ask valuable questions your competitors don’t ask.

For example, most firms should invest some of their nonbillable marketing time in:
• Writing articles
• Spending time with executives of existing clients, to understand their business better and to win follow-on assignments
• Conducting publishable proprietary research
• Organizing and delivering seminars
• Giving speeches
• Gathering market intelligence on new needs by, for example, attending client industry conferences
• Community involvement and networking

The health of your career is not dependent so much on the volume of business you do, but the type of work you do (whether or not it helps you learn, grow, and develop), and who you do it for (whether or not you are increasingly earning the trust of some key clients).

This is also a mindset. I knew people who worked 5+ years in a job and didn’t know much. People with the right mindset and 6 months of experience produced more value.

However, you can rely too much on “random” experience as a teacher. To learn well, you have to set out to learn some specific something.

n.c.

I have learned that the (seemingly “low-level”) tasks of diligently reading my clients’ industry trade magazines, newsletters, trade association materials, every single month without fail, has made me a better professional in their eyes.

aka. domain-knowledge

“The trouble is that some people have five years’ experience, and other people have one year’s experience five times.”

Here’s a quote to something I said above.

In what way are you personally more valuable on the marketplace than last year? What are your plans to make yourself more valuable on 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, say, the next three years? What can you do to make yourself (even more) special on the market in the near future? What, precisely, is it that you want to be famous for?

n.c.

Every Monday morning all professional staff, senior and junior, attend a one-hour meeting. At each session one staff member presents a case his team has worked on and describes how they handled it, what new approaches were attempted, how they dealt with client problems, and so on.

I love this idea. We had internal workshops but more on techniques and less on case studies.

Subtle misrepresentations during the recruiting process (about workloads, variety of work, extent of client contact, the degree of counseling, or any of a number of issues of concern to young professionals) may serve to bring more people (bodies?) on board, but will quickly work against the firm’s interests as new recruits discover the realities of the practice: a prime example of how to demotivate.

Honesty.

From these observations flow some simple rules for maintaining motivation among professionals. You must provide clear goals; give prompt feedback and reward performance quickly; treat them like winners, involving them in decision-making and seeking their opinion often; give them autonomy in their work, but hold them strictly accountable for results; be tolerant of their impatience, and provide variety in their work experiences, always keeping the next challenging goal out front.

How to deal with (young) professionals in a nutshell.

One does not motivate a professional by being the “good guy” and lessening the pressure: rather one does it by helping that individual accept the pressure as a challenge to his or her professional pride.

Yep, boredom is a bigger killer than overwhelming problems.

A manager’s time can be divided into five categories:
• Administrative and financial matters
• Doing professional (billable) work
• Personal marketing and selling
• General client relations
• Dealing and talking with senior professionals and staff

n.c.

If there has been one major theme in this book, it is that the key to ensuring any professional firm’s future is wise management of its two key assets: a. Its inventory of skills, talents, knowledge, and ability b. The strength of its client relations and reputation

n.c.

There is perhaps no more valuable asset that a firm has than the satisfaction of its clients.

Write a Comment

Comment