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Lessons From Professional Services Firms
Lessons From Professional Services Firms
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NEWS
Summary
Professional services firms like McKinsey and Andersen Consulting are
increasingly held up as a model for other businesses - but according to
Laura Empson the picture is more complex. In this article she describes how
such firms operate and how they are organised. She explains the key
concept of "leverage" which not only underpins their knowledge
management strategies but drives profitability. And she argues that they
need to be particularly adept at managing market perceptions - "seeming"
knowledgeable may be more important than "being" knowledgeable. There is
much diversity within the sector; the fact that these firms account for 17 per
cent of all employment in the US and Europe indicates that they are an
important phenomenon in their own right.
In his recently published book, The Intellect Industry, Mark Scott boldly
states: "the professional services firm is the model of the firm of the future".
Whereas the "excellent" companies of the early 1980s were usually drawn
from manufacturing and retailing, professional services firms like McKinsey
and Andersen Consulting are regularly cited as models of best practice by
current management writers. This raises a number of questions. What
exactly are professional services firms? How do they work? What can we
really learn from them? Is it correct to think of them as role models for best
practice now or in the future?
One term, many meanings
Before we can accept that the professional services firm presents a model
for all companies in the future, we need a clear definition of what a
professional services firm is.
This is no simple task. Surprisingly there is no consensus about the
meaning of the terms "profession" and "professional".
While many people like to refer to themselves as professionals (after all the
term does imply high status and high rewards), the number of individuals
who qualify according to the formal definition of the term is relatively small.
Strictly speaking, a professional is someone who has won the right to
membership of a professional association by completing an accredited
programme of training and examinations. This definition represents a very
narrow group of organisations - accountanting, law, architecture and
engineering practises.
But Mark Scott does not mean to imply that all companies should model
themselves on legal practices. In common with other important writers in this
field, like David Maister, Mats Alvesson and Bente Lowendahl, he uses the
term more broadly to include organisations like consulting firms, advertising
agencies and investment banks.
According to this broader perspective, a professional services firm is any
firm that uses the specialist technical knowledge of its personnel to create
customised solutions to clients.
What distinguishes these kinds of companies from the broader concept of
the knowledge-intensive firm, or knowledge-based organisation, is the
emphasis on customisation.
Thus pharmaceutical companies and software companies can justifiably
claim to be knowledge-based organisations, but they are clearly not
professional services firms.
The difference is that once a drug or software company has created a
physical product to resolve a specific problem, it can exploit the innovation
by selling it to multiple consumers.
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Figure 1
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Figure 2
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This trust is derived from two primary sources: (1) the relationship that
develops between the individual client and the professional during the sales
process or through previous experience of working together, and (2) the
reputation which the individual professional and the firm as a whole has
developed in the external market.
Typically professional services firms have been quite discreet in their
marketing activities and secretive about the internal operations of the firm.
The recent trend for major professional services firms to launch high profile
marketing campaigns and to allow academics to conduct research into their
organisations can be seen as an attempt to disseminate the image of
professionalism to a wider audience.
In the early stage of a firm's development, high quality clients confer status
on it. If the firm succeeds in developing a high quality reputation, it can
return the favour by conferring status on its clients. A corporate
headquarters building designed by the Richard Rogers Partnership for
example, carries cachet and prestige far beyond that which can be
explained purely by the physical structure of the building.
So when management writers cite McKinsey and Andersen Consulting as
models of best practice, they are making an incalculable contribution to the
revenue of these firms by advancing their mystique and reputation in the
marketplace.
The positive benefits feed through to the market for professional staff and to
the market for professional services. It is no accident that year after year
these firms feature among the most popular potential employers for
undergraduate applicants.
Professional vs. commercial
For some years, writers have speculated that the drive for commercialisation
among accounting and law firms may be undermining some of the
underlying principles of professionalism.
Professionalism implies a dedication to the delivery of high quality client
service and careful management of client relationships.
This is not inherently inconsistent with the concept of commercialism.
However, professionalism also implies that the individual remains dedicated
to maintaining professional norms over and above the demands of the
employing organisation and the ability to pursue work that is intellectually
satisfying or socially beneficial, rather than merely profit maximising.
Professionalism has also typically been associated with the concept of
partnership, though this organisational form is by no means universal among
professional services firms. In a partnership, a group of senior professionals
combine the roles of owners, managers and core producers. They also
share unlimited personal liability for each other's actions. This engenders
mutual trust and collaboration among senior colleagues. In this respect also
professional services firms can be taken as models for organisations in
general.
On the downside, the partnership model implies a slow and potentially
risk-averse approach to strategic decision making because of the need to
build consensus within a diffuse authority structure.
Partly for this reason, professional services firms are increasingly
abandoning the partnership form of governance, or are seeking to
accommodate more conventional managerial structures within the
partnership form. It is ironic that, at a time when manufacturing and retail
companies are being encouraged to emulate professional services firms,
many professional firms are starting to adopt management practices more
often associated with manufacturing and retail service firms.
A future role model
Professional services firms embody many of the qualities which
organisations in general are encouraged to emulate. In theory at least they
are relatively efficient mechanisms for developing and disseminating
knowledge; they create an environment in which highly motivated individuals
can enjoy a reasonable degree of autonomy; and they place dedication to
client service above all other considerations. All this occurrs within a
non-bureaucratic organisational environment , which enshrines mutual trust
and collaboration within the professed value system.
It is important, though, not to confuse rhetoric with reality.
While professional services firms may aspire to achieve all of these
qualities, the extent to which they succeed varies widely. By fastening upon
the professional services firm as an ideal archetype, management writers
risk overlooking the considerable diversity within the sector and the threat to
traditional professional practices posed by increasing commercial
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pressures.
Professional services firms now represent a large and rapidly expanding
segment within most industrialised economies.
According to statistics from the Organisation for Economic Co-operation
and development, the professional services sector accounts for 17 per cent
of all employment in the US and major western European countries. The
sector has enjoyed annual growth of 15 per cent in revenue terms over
recent years. PwC, the accountancy firm for example, is now the single
largest recruiter from UK universities. With 155,000 professional staff
worldwide and annual revenues of Dollars 15bn, PwC, if publicly quoted,
would qualify as a Fortune 100 company.
To focus on the professional services firm as a model for organisations in
general is to lose sight of the fact that they are now an important
phenomenon in their own right.
Copyright (C) Financial Times Ltd, 1982-1997
Further reading:
Alvesson, M. Management of Knowledge-Intensive Companies, Berlin:
Walter de Gruyter, (1995). Lowendahl, B. Strategic Management of
Professional Services Firms, Copenhagen: Handelshjskolens Forlag,
(1997).
Maister, D. Managing the Professional Service Firm, New York: The Free
Press, (1993).
Additional reading may be found at www.ftmastering.com.
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