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apist who has developed a franchise of rehabilitation centers throughout
western Pennsylvania. He has implemented a management system similar to
the one discussed here. Mr. Cordial notes:5

Success in any business starts with a philosophy. In our case it is a philosophy of
patient care that we provide for our patients a very high intensity, high quality
level of care to help them reach their maximum functional level in the shortest
period of time, cost-effectively. With this philosophy in mind, we have devel-
oped clinical pathways to address patient compliance, number of treatment vis-
its per diagnosis, and aggressiveness of care. Our measurement parameters are
then defined around those goals. This process has made a difference in our
business in two ways: First, the patient receives a very high level of care at a
274 Services Delivery: Taking Care of Business

very cost-effective price. Second, it has made our practice efficient so that we
are able to maintain profitability in this very challenging health care environ-
ment, despite continual pressure on reimbursement rates and treatment visit
Our philosophy of care also matches most third party payer agendas in that
they are continually attempting to decrease their overall case cost and control
the number of physical therapy visits patients are permitted. Large third party
payers actually track our performance and give us a report card. By meeting or
being more cost-effective than their network averages, we become one of their
preferred providers.

Edi Osborne observes:6

Obviously, having a client-centered focus is a given. Although firms know this,
they tend to focus on how they serve the client and not what the client needs.
Delivering a more timely and accurate tax return is important, but understanding
what their client really needs is far more meaningful. That includes knowing
what goals the client has and making sure that everything done for the client,
even if it is just a tax return, moves the client closer to its desired outcome. Be-
yond that, helping clients articulate their goals, and develop strategy to achieve
them, is a much better application of a client-centered focus.

The key issue with vendors is: Are they in a position to give the firm lower
quality products and services at a higher price? If the firm is vulnerable to
its vendors, it must address the problem decisively. Vendor relationships af-
fect everything the firm does. If the firm is able to maximize its margins or
reduce its costs, it gains economic power to reinvest in its business and in the
needs of its clients. But if vendors consume the firm™s resources, the firm
cannot reinvest them. Chapter 16 covers the topic of vendor selection and
management in detail; it is addressed in brief here.
The relationship a firm has with its vendors should be the reverse of the
relationship the firm has with its own clients. The firm should think of itself
as the customer of the vendor, then be proactive in making sure the vendor
knows exactly what it wants. But be aware of vendors that overpromise and
underdeliver. That can be just as expensive as paying too much for a product
or service.
Match purchases with the needs of the firm. For instance, if expensive of-
fice space in a tony financial district is critical to the profile of the firm™s
practice, it has to be there. If such a location is not critical, then do not con-
sume resources on something that will not advance the profile of the firm.
Look instead for less expensive space in more modest locations, and apply
the resources saved to enhance the benefits provided to one of the firm™s
other three constituency segments. For example, if a firm saves money with
Service Delivery

a vendor, it could create performance incentives for its employees, upgrade
its technological capabilities to impact the way it serves its clients, or simply
provide a higher return to the owners.
The owners™ challenge is maximizing the return to their business and ulti-
mately to themselves. They must decide how much capital to reinvest in the
future of the organization and how much capital to take out as a result of
successful operations.

Management Structure
A firm can be strategically managed regardless of whether it has a single
managing partner, an executive committee, or a decentralized management
structure that may assign certain management tasks to people who are not
owners. However, key decision makers must be involved. The manner in
which the firm establishes its value objective is the responsibility of the
management team. The team sets the goals and evaluates progress toward
them. Timely management reports should provide feedback to the team”tell
them how they are performing against the established value objective”and
the management must be committed to keeping the teams involved in the key
decisions that are being made. The more information provided, the better, as
long as it is relevant to the pursuit of the value objective and is not just for
the purpose of filling the office with paper.
It is a common misconception that to be part of the management team in
a professional services firm, you must be an owner. In fact, with today™s ac-
cess to information, people at all levels of the organization can be capable of
making informed decisions for the firm. Nonowner managers, however, must
be educated about how the organization thinks strategically and manages
strategically, as well as taught effective decision-making skills. The result
should be a broader definition of “management team” that includes all indi-
viduals who have significant responsibility for ensuring that the firm reaches
its goals.
Managers are the people who make decisions and supervise other employ-
ees. They are the ones who handle relationships and deal with vendors. All of
their interactions have an impact on the firm™s ability to achieve its value ob-
jective. They are the management team and they work in various layers. The
firm can have a multitiered management structure that incorporates the
contributions of employees from the top to the bottom of the organization,
and all of them can have a strategic impact on the way the business is run.
There is no reason that a firm cannot look at all of those individuals as being
part of its management team.
Today, it is more important for a firm to be interactive than hierarchical.
Exhibit 12.3, which depicts an organization that is ostensibly hierarchical,
shows that successful organizations include all staff levels in running their
business”from the owners who set the vision, to the management team
276 Services Delivery: Taking Care of Business

50,000 Set the value objectives Owners/
feet “grow by 20%, profitability” shareholders

35,000 Performance areas Leadership
feet client “centered” services team

Factors critical
25,000 Department
to success of each
feet managers
performance area element

5,000 Key measurement standards Supervisors/
feet “current versus future state” team leaders

Eye Strategic change Front line
level initiatives/activities personnel

Exhibit 12.3 Top-Down Strategic Management Objectives

responsible for establishing the value objectives, to the front line people who
are responsible for carrying out instructions, all the way down to the support
group whose job it is to help the firm determine how to work more effec-
tively and efficiently with clients. There is more integration and more top-to-
bottom involvement in management today than there has ever been before,
even in hierarchical firms.

Strategic Delivery of Professional Services
The strategic delivery of professional services is of paramount concern to
the successful firm. It includes competitive response, results measurement,
pricing, staffing, and managing the work. This section covers the topic of
strategic delivery in detail.

Confront the Competition
In a professional services economy, there are few barriers to entry. Competi-
tors do not need huge amounts of capital to buy manufacturing equipment or
build large facilities. Practically anyone can enter the professional services
marketplace tomorrow.
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When Arthur Andersen, one of the world™s largest accounting and tax
practices, went out of business, its partners did not disappear. They simply
moved to other firms where they again are providing accounting and tax ser-
vices. Their former firm has been broken down into new competitors in the
mid-level marketplace. Accounting firms that did not compete directly with
Andersen now find themselves competing with many of its offspring.
That kind of change in market dynamics can happen rapidly in virtually
any profession. In the health care industry, for example, the evolution of
HMOs has dramatically reshaped the traditional medical practice market,
such that most sole practitioners were forced to join corporate medical
groups to survive.

Ask the Clients
The number of clients a firm has and the revenues they generate are obvi-
ously critical to the firm™s success or failure. Logically, therefore, the most
important source of information for shaping the service objectives and behav-
ior of the firm should be its clients. Professional services firms need constant
client feedback because their services are based on human interaction. Com-
panies that build widgets in a factory and sell them to consumers through dis-
tribution channels do not have the same intimacy with the ultimate users of
widgets. A professional services firm cannot be successful without having in-
tense contact with its clients. Everything the firm does must be focused on
satisfying the clients at the point of encounter. But the firm will not under-
stand what clients need, what they value, what they are looking for, and what
their highest priorities are unless it asks them.
Professionals are often out of touch with their clients™ real concerns. For
example, if asked what their clients need from them or value most, most
CPAs would say that clients want more services at a lower cost. But surveys
of accounting clients reveal that what they expect and demand most from
their accounting firms is concrete business advice that delivers value. If a
firm provides value, price is not a problem. A firm that does not understand
this simple fact is not going to be successful at satisfying its clients.
One option for gathering client input is to put together a focus group of
clients and take them through a process of understanding what the firm
does, what it thinks it is there to do for its clients, how it has designed its ser-
vices, and how it delivers those services. Tell the focus group members what
the firm™s philosophy is about quality and standards; explain how it deals
with vendors, customers, and employees; and explain its philosophy on in-
vesting in its business.
Then ask the focus group for its feedback. It is amazing how much the
firm will learn about itself using this process. A firm that does not do this
will not understand the critical factors affecting its marketplace. But the
process is never ending. Strategic management is a system that supports
278 Services Delivery: Taking Care of Business

constant improvement, introspection, evaluation, analysis, change, and then
analysis, introspection, and change”over and over again.
There are many other ways of measuring your customers™ satisfaction, ex-
pectations, and demands. Mail surveys and face-to-face interviews are just
two examples. However the firm decides to gather data about client satisfac-
tion, the important point is to work from the viewpoint of the client. Firm
personnel need to be gathering information about a client™s experience with
the firm every time they encounter the client. A strategically managed firm
must be willing to accept criticism, input, and suggestions from the market-
place it serves.

Measure, Measure, Measure
A constant process of measurement and evaluation is critical for meeting the
challenges that can break or make a firm.
As Edi Osborne says:7

Strategic measurement is: The identification of activities (and their associated
measures) that are most critical to the implementation of strategies designed to
help companies achieve their goals.
Strategic Management is: The difference between doing things right and
doing the right things.

For example, a strategically oriented employee would handle a customer
complaint very differently than one who is not. The strategically focused em-
ployee would have the information and insight to respond:

• Is this customer in our target market? If not, what is the minimum I can
do to appease the customer? If yes, what is the best thing I can do to
ensure the customer ™s loyalty?
• Depending on the gravity of the error and importance to target cus-
tomers, they would also take the opportunity to “kaizen” (process of
continuous improvement) the product or delivery system to ensure the
error does not repeat.

A not-so-savv y employee would do the minimum in both cases (assuming
they even know who the target customer is) and leave it at that, guaranteeing
that the error would likely repeat itself sometime in the future.
Measurement is critical because it objectifies the behavior. It helps to
identify the specific behaviors that need to be focused. The well-known
80/20 rule applies here. Rather than chasing every issue, measures help us
zero in on the 20 percent that are causing 80 percent of problems.
Additionally, without measurement, managers are left to manage from a
subjective perspective (what they think is going on”rather than really
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knowing). This is problematic because both the manager and employee are
subject to inconsistencies.

Pricing Strategies
In a strategic environment, the first things a firm needs to decide are: “ Why
are we in this business? What do we want out of this? What are our eco-
nomic expectations from this business?” After answering these questions,
the firm can establish a pricing model based on expected volume. Then it
must talk to its clients or prospective clients, research how its competition is
pricing its services, and determine whether it is possible to deliver the de-
sired economic outcome in its particular marketplace at the price estab-
lished. Strategically, the firm has to be willing to go back and reanalyze,
gather more data, make new projections, change its expectations, and so on.
Pricing, no less than any other aspect of firm management, is an evolution-
ary process.
Ideally, the firm should desire an economic outcome that creates a fair
market value for the services it wants to provide. This may mean that people


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