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veterinarians, architects, engineers, land surveyors, landscape architects, ac-
countants, and claims adjusters. A profession is a vocation founded upon pro-
longed and specialized intellectual training which enables a particular service to
be rendered. The word “professional” implies professed attainments in special
knowledge as distinguished from mere skill.

Governments, industries, businesses, and people use different definitions
for professional services depending on the situation. They include or exclude
different vocations in the definition. For the purposes of this book, profes-
sional services are businesses in which professionals are providing a service
not based on a tangible product. In our definition, we include accountants,
appraisers, attorneys, business consultants, technical consultants, political
consultants, architects, engineers, physicians, advertising agents, real estate
brokers, and insurance agents. These types of occupations must deal with
similar issues in delivering specific and specialized services through people.
While the types of services delivered to clients are diverse, many of the
mechanisms and operations of all professional services firms are similar. For
example, a medical practice and a commercial real estate brokerage firm are
very different in the services they provide. However, for much of their oper-
ational decision making, they have similarities”for instance, both firms
might analyze whether they should promote a professional staff member to
be a full partner in the practice/firm. The thought process and the decision
framework for analyzing this question are very similar for both. How much
profit will the new partner add to the practice? How dilutive will the new
partner be to existing partners? Will the new partner have voting rights?
Many other operating aspects are similar for the firms as well (e.g., utiliza-
tion, profit per employee, invoicing, record keeping).
Because of the comprehensive treatment of the business of managing
a professional services firm, this book addresses major operational and
Managing the Firm

business issues that affect almost every firm manager, partner, or owner on a
daily basis.
The approximate number of U.S. firms in each professional service cate-
gory is shown in the following table:
Approximate U.S. Firms
Segment (Thousands)
Health care 35
Business consulting 35
Insurance 30
Legal 25
Financial services 25
Real estate 20
Counseling 15
Architecture 5
Political advisory 5
Marketing 5
Staffing services 5
Education 5

The first six segments are covered in depth in this book. We underscore,
however, that the concepts can be applied to most professional services firms.

What Is Covered in This Book?
The intent of The Professional Services Firm Bible is to help professional ser-
vices firm executives turn their companies into highly productive organiza-
tions, help readers become better managers of their firms, and solve many of
the problems alluded to earlier. The book provides sharply defined, specific
policies, practices, and tools for each important aspect of managing the pro-
fessional services firm, from sales and marketing, to human resources (HR),
to operations, to risk management. The approaches facilitate the assessment
of current operations and the development of a step-by-step improvement
plan designed to improve current firm management and provide measurable
productivity improvements. The book will help firm management improve
the financial performance of their practice by managing costs, getting the
most from external vendors, and improving revenues.
Each chapter in the book is devoted to a key operational area of managing
the firm, such as marketing, finance, HR, and risk management. Topics and
features include:

• Identifying the main management areas of a successful professional ser-
vices firm
8 Managing and Governing the Professional Services Firm

• Understanding the scope and key success factors in each management
• Identifying approaches for auditing current performance by area
• Understanding the main sources of waste
• Identifying industry average spending and investment commitments by
area and professional services type
• Distinguishing the “business” of managing the firm from the delivery of
professional services
• Identifying symptoms and sources of professional services firm ineffi-
• Finding critical improvement steps in each of the main management
• Making better decisions in firm strategy and direction setting, hiring
practices, operations, technology, marketing, and overall management
• Achieving higher utilization from existing professional services assets/
• Achieving higher return on investment (ROI) from capital and operating

Specific cases and anecdotes from actual departments and consulting en-
gagements illuminate and further explain the material. Quotes and advice
from well-known practitioners in each of the service areas are included.
The book has five sections. Section I, Managing and Governing the Profes-
sional Services Firm, focuses on understanding the difference between the
business aspects of operating a professional services firm and the actual de-
livery of the services. Additionally, the contrast between front office (sales
and marketing) activities versus back office (operations) activities is drawn.
The section presents benchmarking research by functional area (HR, infor-
mation technology [IT], finance), by professional services firm type (law,
medical, etc.), and by size for spending and focus on each area. The section
explains why the topic is important for the professional services firm manager
and discusses what key operations, sales, and marketing processes all profes-
sional services firms have in common. Case studies and cautionary tales about
failures of professional services firm initiatives or businesses where the fun-
damental business pieces were not well executed emphasize the importance
of the topic. The section also covers the effective senior level management
and decision-making structure for the professional services firm and topics
such as partnership management and legal governance structure.
Section II, The Front Office: Driving Sales and Growth, covers the topic
of sales and marketing. While most professional services providers are highly
proficient in delivering their actual services, a common shortcoming for many
Managing the Firm

is the often uncomfortable subject of effective selling. This section addresses
the key marketing and sales issues for service providers, with specific tips
and approaches for ensuring that the front office efforts are consistent with
the specific market and industry under consideration. Key topics in this sec-
tion include: sales management and tracking, marketing, service-line cre-
ation, qualifications and reference management, proposals and bids, strategic
partnering, and intellectual capital development and protection.
Section III, The Organization: Attracting and Retaining the Best Profes-
sionals, discusses human resources and related topics. One of the top drivers
of client satisfaction and successful delivery in the services industry is the
quality of the professionals within the practice; we devote an entire section
of the book to achieving world-class recruiting and retention. This section
covers the topic in depth, including organization structure, career paths for
professional and internal staff, training and professional development pro-
grams, recruiting, and on-boarding new employees.
Section IV, Services Delivery: Taking Care of Business, focuses on delivery
of service to clients. While the services delivered in professional providers
differ widely, many of the core approaches to successful management apply.
These approaches include service delivery (planning, building, and managing),
project management, resource (bench) management, risk management, and
project P&L management.
Section V, The Back Office: Efficient Firm Operations, covers all the ac-
tivities that support the operations of the firm. The back office section out-
lines the specific back office operations that must operate smoothly to
ensure that the professional services firm operates efficiently. Topics include
finance, accounting, HR, purchasing and procurement, asset management,
IT, vendor management, real estate/facilities, legal, and office management.

Unique Issues of Professional
Services Firms
Professional services firms are different from other companies because there
is no tangible product to sell. Regardless of how services are billed, the pro-
fessional services firm gets paid for expending labor time on behalf of a
client™s problem or need. The input is time, and the output is thinking or doc-
uments in most cases. Since billings/revenues grow as the input grows (e.g.,
labor time), professional services firms are inherently labor, management, and
HR intensive. This kind of firm may be contrasted with, for example, Ticket-
master, an online provider of tickets to sporting events, concerts, and theater.
At midnight on the U.S. East Coast, while everyone in the firm can be
expected to be away from the job, Ticketmaster is selling hundreds, if not
thousands, of tickets online to people all over the world. One additional ticket
10 Managing and Governing the Professional Services Firm

sold does not equate to any labor input of one of its employees. Ticketmaster
is a business that scales without a tremendous amount of incremental direct
labor. Contrast this to a large law firm. If that law firm wins a new client with
a large case, the law firm must provide enough attorneys to cover the case
sufficiently. In most cases, the law firm will be paid for each hour that one of
its attorney™s bills. As the firm hires additional lawyers, it has to find space,
manage their careers, provide training and tools, and so on. The professional
services firm, more so than any other type of firm, requires the balancing of
a large number of variables. Thus, the trick in scaling a firm is to develop sim-
ple processes, a successful hiring formula, and a recurring sales model, and
strike a balance between customer loyalty and employee satisfaction.
The tendency in most firms is to concentrate on “delivering” the actual
expertise to the client at the expense of all other things. Architects by train-
ing and experience enjoy designing structures. They are not necessarily pro-
ficient at (or even interested in) managing a business. Yet, as the firm grows,
it requires more management time from the principals, causing stress on the
organization. Do the principals continue to bring in revenue at top rates, or
do they spend time on internal management issues?
Not only is more time required on internal management, but also the indi-
viduals need to be “good” at management. For example, we worked with a
graphic design firm several years ago. A principal of the firm called to ask if
we could assist him with a business strategy. He was one of the best graphic
designers in the city, and his firm kept adding more and more clients. He had
around a dozen employees, and while his revenue kept increasing, he was
perplexed about how to manage the business going forward without jeopard-
izing the financial well-being of the firm. He was the primary designer and
the lead sales generator. His firm™s clients included a large airline and promi-
nent sports team. Some near-term steps for improvement included carving
off nonstrategic management items to an administrator, including all infra-
structure, facilities, and operations issues; outsourcing nonstrategic areas
where possible (e.g., payroll); and defining both sales and delivery processes
and roles more clearly so that discrete activities could be delegated to junior
staff more easily.
How balanced is your firm? Here are some questions we ask when trying
to get a quick overview of the status of a firm:

• What is your revenue per professional?
• What is your attrition rate? Do you have any difficulty retaining staff ?
• How long is your sales cycle?
• Who sells and who delivers the service? Are these the same duties or
are they separated? Where is the leverage in the sales cycle?
• What is your annual marketing plan?
Managing the Firm

• What is your firm™s value proposition?
• Why should a client hire you?
• How do you hire professionals? Have you had any difficulty bringing in
experienced people?
• What is your training program?
• What does your organization chart look like?
• What are the levels in your organization?
• What are the career paths by level?
• How many direct reports do you have?
• What is your leverage model?
• How loyal are your customers?
• Do you have sufficient capital to grow?
• What is your growth rate? What is your sustainable growth rate?
• Are your invoices clear and accurate?
• What do your employees and customers have to say about your back
• How satisfied are your employees?
• Where do employees typically go after they leave your firm?

The answers to these questions are covered in subsequent chapters. How-
ever, sitting down and asking yourself these questions should be eye opening
and self-revealing. Areas with ambiguous answers may drive you to a partic-
ular chapter of this book.
Although our complete prescription for fixing or scaling your professional
services firm is covered in this book, we are often asked for the short version
of our program. The following checklist of specific steps across the key areas
will help you think through a growth plan for your company, scale and im-
prove financial performance, and begin reaping the rewards of a productive
1. Make sure the senior management team is following the same plan.
a. If anyone in senior management does not agree to the overall direc-
tion of the company, you can™t be successful. You will need to de-
velop a plan that all can agree to.
b. Make sure everyone on the senior team deserves to be there.
c. If there are any weak senior team members, replace them with
stronger candidates.
2. Fix your organization structure to enable the firm to grow.
a. Figure out the division of labor that allows you to spend the most
time on things you do best.
12 Managing and Governing the Professional Services Firm

b. At most, you probably have three or four levels in your organization.
If you have only one or two, you need to be building and planning
for three or four to allow your firm to gain leverage as it grows by
moving more mundane and routine tasks to less experienced, less
expensive resources.
c. A multilayer organization will help you develop career paths for
employees as well, improving employee retention and attracting
new candidates to the firm.
d. Make sure each direct report is strong and that you have good lieu-
tenants, which will greatly free up more executive time for impor-
tant activities.
e. Determine appropriate standard bill rates for each level of your or-
ganization. This step will help keep you profitable and make you
more disciplined in negotiating with customers when they ask for
pricing or price breaks.
f. Ensure that the variable incentive compensation is set at each level


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