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tent face to clients throughout the entire sales/service cycle. All professional
and administrative staff, though they may not have direct customer inter-
action, are a part of these processes, and, regardless of which specific model
is used, organizational structure must ref lect, support and sustain this.
Firms must develop integrative systems that aid in this process. This is true
regardless of which organization model a firm chooses.
There are other key components of all effective firm organization models.
Because they, in essence, sell knowledge and expertise, firms must be learn-
ing organizations. Because they must be able to balance increasing client de-
mand for specialized knowledge with need to develop generalists and
maintain high levels of employee utilization and productivity, firms must
create structured processes and methodologies to transfer knowledge and
expertise throughout the enterprise. Because by their nature, they need cre-
ative, intelligent, individualistic people. They must create structures that at-
tract and retain talent. Because the most successful professional services
employees tend to be people who may not respond well to rigid bureaucratic
200 Attracting and Retaining the Best Professionals

structures, firms must systematically use other methods, such as compensa-
tion tactics, to change cultural attitudes and motivate behavior.


Organization Structure
The choice of organizational governance and structure has critical implica-
tions for professional services firms. In a typical corporate enterprise, roles
and responsibilities are highly defined. But that model will not work in pro-
fessional services firms where the key constituencies”owners, managers,
and employees”are often overlapping groups of people. Senior people,
generally partners, are not only the owners of the business and the leaders
of the business but also the salesforce and the administrative leaders. Even
employees with less seniority must be f lexible and able to take on multiple
roles. Generally, only the most junior staff members are focused exclusively
on specific job content and delivery. Almost immediately, job responsibili-
ties begin to expand to include managing client projects, identifying and
developing important client relationships and opportunities, and taking on
more and more responsibility for internal firm management. From an early
point in their career, staff must begin to learn how to coordinate marketing
efforts, as well, to present a unified face to clients. These topics are also ad-
dressed in Chapters 3 and 11, which should be read in conjunction with
this chapter.
The organization model must provide the freedom to allow people to take
on more and more responsibilities. While guidelines and standards are
needed to keep the firm on track, it™s important not to constrain profes-
sional staff with artificial boundaries. They must understand their roles and
responsibilities, but they also need the freedom to explore and push their
boundaries a little bit. This is best done by broadly defining roles and re-
sponsibilities, rather than narrowly defining specific jobs. Because it is
counterproductive to limit individual potential, promotion of staff from one
level to the next must focus around core competencies or skills that, once
mastered, indicate readiness for the next level. That requires the firm to de-
velop a clear path with explicit requirements and competencies for each
level of promotion. Booz Allen, for example, has defined a set of core com-
petencies and behaviors that professional staff are expected to master at
each specific level. This gives them a benchmark for their current place
within the firm, based on their capabilities, as well as clearly defining what
will be expected of them at the next level and beyond.
The clear definition of roles and responsibilities is a business imperative
as well. Process responsibility, or the explicit definition of roles, is critical to
ensuring that all firm resources are harnessed and efficiently coordinated to
best respond to the requirements of the enterprise and its clients.
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Organization Structure

Because professional services are knowledge businesses, training is a criti-
cal piece of the organizational structure that requires ongoing commitment
and investment. Most firms give inadequate attention to staff training, and
training can easily be viewed as an expense rather than a necessary organiza-
tional investment. This is a mistake because good training across the firm and
from new level employees through senior partners reinforces and supports the
firm™s organization. It introduces the corporate culture and customer-facing
approach to new employees. It develops intellectual capital among senior pro-
fessionals. And it keeps the firm competitive by helping members keep cur-
rent with new technologies, industry trends, and client issues. Chapter 11
discusses both career tracks and professional development in detail.
Another consideration when determining a firm™s organization is that
ownership and governance decisions, which determine the incentive struc-
ture and set the organization™s “cultural tone,” have a significant impact on
the firm™s ability to recruit and retain talent. Chapter 3 discusses the con-
cepts of partnership structures and governance in detail.
There are four main organization models common to professional services
firms: practice, functional, hybrid, and geographic. Each has its strengths and
weaknesses, and choosing between them requires trade-offs primarily be-
tween economies of scale and degree of delivery staff involvement in cus-
tomer relationships. On top of those four models, there are two types of
ownership structure. Partnerships are the most common, although some pro-
fessional services firms are publicly owned.


Ownership and Governance
Partnership, where firm management is the responsibility of senior partners
and practice leaders, is the dominant ownership model in the professional
services arena. This model has numerous benefits. For one, potential part-
nership is a big incentive for junior employees. This ensures employee buy-in
regarding firm development, as they will reap the rewards of a strong, suc-
cessful firm when they earn a partnership stake. In addition, in partnerships,
managerial decisions are made by customer-facing staff, which facilitates
more rapid decision making and engenders less bureaucracy. These are all
good reasons for the dominance of the partnership model.
However, partnerships have some significant challenges. Whenever own-
ers are also managers, whether in a family-owned business, a start-up, or a
professional services firm, there is the risk that leadership won™t have the
skill set or knowledge to maximize the firm™s potential. In partnerships, each
new partner generally moves up through the ranks and has their own ideas
about how things have been done and should be done. It can be difficult to
step outside preconceived notions about the firm to remain f lexible. Another
202 Attracting and Retaining the Best Professionals

challenge for partnerships is that partners feel they have a proprietary stake
in the firm, which can hamper their ability to be efficient and equitable man-
agers. In addition, partners report to, and are appraised by, other partners,
which clashes with the underlying concept of equal ownership by peers.
To overcome these risks requires a conscious effort to incorporate effec-
tive checks and balances into the organization model. One place to start is to
look at some of the good lessons learned from corporations about gover-
nance. For example, partnerships often have outside boards that can help by
playing the role that shareholders would play in a publicly owned company. A
good outside board can help keep a firm on track, keep it from becoming too
insular and provide objective, third-party advice that is in the best interests
of the entity. It is a good idea to include members of the firm™s leadership
team on the board. Booz Allen has an outside board that includes internal
members from across the company. The internal leadership team, which
meets regularly on operational matters, also has membership on the board.
The external board helps to keep individuals or small groups from wielding
disproportionate power over critical firm decisions, and provides invaluable
outside guidance and direction setting.
In most partnerships, it is also the case that there are differing levels of
partner “rank.” For example, Booz Allen has established three levels of part-
nership: entry level, lead partners, and senior partners. Partners progress
based on how they perform against a set of pre-defined, agreed-upon part-
nership characteristics, as well as how much business they develop or facili-
tate for the firm. Senior-level partners have a higher equity stake than junior
partners. That provides a further series of checks and balances and provides
an increasing level of reward for seniority and performance, even within the
partnership.
If a partnership has concerns about having equal partners appraising each
other, it can overcome those concerns by making sure that the appraisals are
based on wide input. The best kind of feedback for such evaluations is 360-
degree feedback, with seniors, peers, and juniors who have interacted with
the subject over time. Chapter 11 discusses the topic of appraisals as part of
an overall professional development program.
Another challenge is that partners must devote intensive, nonbillable hours
to management activities including mentoring, training, and business develop-
ment, as well as leading client engagements. At the most junior staff levels,
the goal is for each person to be 100 percent billable. At the senior partner
level, however, a partner ™s billable time may represent 50 percent or less of
total hours because the need to focus on business activities”including mar-
keting and sales”becomes more imperative than delivering on specific en-
gagements. Some partnerships put excessive pressure on their uppermost
levels of management for billable hours. That quickly becomes an issue for
that firm, leading to a vicious cycle of engagements followed by troughs be-
tween projects while partners try to generate new work for their firm. It is
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Organization Structure

critical to put metrics in place that do not penalize partners for spending
time on business development and sales activities. Rather, senior staff needs
to be free to be only partially billable on assignments, using other time to
feed the engagement pipeline. At Booz Allen, this is accomplished by assign-
ing the lowest billability targets to the most senior people. While clients de-
mand that senior people be involved with their projects, it is generally not a
full-time requirement and has a fair amount of f lexibility in arrangement.
They understand very well that there is a team structure, with the most sen-
ior (and most expensive in terms of hourly rate) leveraged as counselors
around specific issues, while actual delivery of services is performed by an
expert working team that is thinking about the clients issues full time. Gen-
erally, clients demand a senior person on the case full time only if they are
not comfortable with the underlying team. If that is the case, the firm has al-
ready damaged its relationship with the client, possibly irreparably and there
are a variety of other issues that must be addressed.
While most professional services firms are structured as partnerships,
some are publicly owned, and may be organized like a typical corporation.
The benefits of this model include having a CEO and a COO to oversee op-
erations, strategy, and other corporate functions so senior staff can focus ex-
clusively on delivery and business development. In addition, a publicly
owned firm can leverage capital markets to finance growth. Also, because
the employees are not necessarily owners (except through stock purchases),
systems and processes may be more efficiently managed, and there can be a
perception that they are more objective. With public ownership, there is also
a ready-made mechanism for checks and balances because of the more rigid
structure, the reporting requirements, legal mandates for certain disclosures
and shareholder pressure.
All of the benefits of public ownership can also be drawbacks. Public
ownership can lead to increased bureaucracy, which hampers a firm™s ability
to respond with agility to changes in the market or business environment.
Lack of partnership as an incentive can make it more difficult to attract and
retain top employees. Employees may even feel less committed to developing
the firm because they cannot aspire to ownership. Given that people are its
most valuable resource and that a professional services firm grows by adding
people, publicly owned firms need to be very careful that their ownership
model doesn™t hamper necessary staff growth because shareholders are too
focused on revenues and profits. During the late 1990s dot-com craze, for
example, Sapient and Scient Corp. could drive growth by adding people”an
expensive but necessary proposition”but their shareholders were apply-
ing increasing pressure for profits. It put them in a difficult dilemma. A
privately owned company can be more insulated from the roller coaster of
public markets and the accompanying outside pressures. Partners tend to be
much more tolerant and understanding of business cycles than distant share-
holders, who are focused primarily on financial returns.
204 Attracting and Retaining the Best Professionals

Organizational Model Options
Professional services firms typically follow one of three generic business mod-
els: the practice model, the functional model, or the hybrid model. Exhibit 9.1
outlines the characteristics of the three models for organizing the professional
services firm. Figure 9.2 summarizes the pros and cons of these models. A
fourth model, the geographic model, which can take the form of any of the
previous models but on a regional basis, is also appropriate for larger firms
with multiple geographies, particularly international offices. Within each
model, most organizations employ matrix structures, which are aligned against
various dimensions, including industry, geography, and service line.
Regardless of model used, successful firms create mechanisms that avoid
silos and eliminate as many boundaries and walls as possible. Intellectual
capital is developed and made available to the whole firm, and avenues of in-
formation exchange exist across the entire firm structure. Leadership en-
courages transparency by creating mechanisms to ensure that everyone is
aware of what projects the firm is working on and what large deals are due to
start in the near term. There must also be mechanism for tracking profes-
sional staff assigned to projects and overall professional staff availability.
This encourages professional staff to work together on projects and opportu-
nities regardless of their spot in the overall organization and provides a
tracking mechanism to indicate when somebody is involved either too much
or not enough. Many firms use an interlocking series of meetings to ensure
effective information exchange. For example, there might be weekly practice
meetings, biweekly cross-practice meetings, and monthly leadership meet-
ings. Cross-practice announcements of new projects that include discussions
of engagements, details of how the firm made the win, and suggestions for
cross-selling opportunities can aid in achieving firmwide transparency. Be-
cause it can be all too easy for staff to become so involved in specific proj-
ects that the overall needs and goals of the firm are ignored, these key
concepts must be built into any professional services firm organization struc-
ture. Resource and “bench management” are concepts covered in more de-
tail in Chapter 13.
Transparency and organizational knowledge-sharing ensure lessons from
previous experience are leveraged and inculcated to improve future perfor-
mance. They also allow firms to create standard toolkits, methods and pro-
cedures to create scalable, lower cost solutions. They facilitate sharing of
best practices for revenue growth and cost improvement. Finally, they help
the firm leverage knowledge management platforms to enable broader
cross-staffing, reduce rework, and maintain its knowledge base despite
turnover. The organization model adopted by a firm will have one of the
largest single impacts on how well the firm will share information and be
able to take full advantages of the firms internal capabilities, knowledge
and expertise.
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Organization Structure


What does it mean to be practice-based?
Professional services organizations typically follow one of three business models
Three generic models
Role Functional model Hybrid practice model Practice model
New business
development/
A B C
Sales/business development
sales
Relationship
management
A B C
Delivery
A B C
A B C
Product
management/
service
Product management A B C
development
marketing
Shared services Support services Support services
HR/Ops/Etc.

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