Professional Services Organizations

Understanding How They Work

Professional services firms face unique challenges.

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What type of organization sells no products, and yet charges some of the highest prices anywhere? Where can the 'items' a company sells simply walk out the door? And what kind of company finds it almost impossible to achieve economies of scale on the 'cost of goods sold'?

The answer: professional services firms. The unique nature of these organizations creates management and leadership challenges that many other companies do not have to deal with.

In this article, we look at some of the characteristics of professional services firms – and some of the common management challenges they face.

The Typical Work Model

Professional services firms exist in many different industries. They include lawyers, advertising professionals, architects, accountants, financial advisers, engineers, and consultants, among others. Basically, they can be any organization or profession that offers customized, knowledge-based services to clients.

In his influential book "Managing the Professional Service Firm," David Maister compares the professional services organization to a medieval craftsman's shop. Today, just as in the Middle Ages, there are "apprentices" (junior managers or new hires), "journeymen" (mid-level managers or experienced professionals), and "master craftsmen" (senior partners or upper management). Some call these levels the "grinders," "minders," and "finders" of a firm, respectively.

Most professional services firms use a leveraging system to maximize profitability. For instance, junior employees usually earn a relatively low salary. They accept lower pay because they want to gain experience, and have the opportunity to work closely with senior partners ("finders") to acquire their valuable knowledge.

When clients hire a firm, they generally do so because of that firm's credibility and reputation. But clients don't necessarily get the direct expertise of the senior managers. It's the lower-paid juniors who often perform most of the hands-on work. Clients then meet for a limited time with higher-paid senior managers, who oversee quality and offer advice. This allows the firm to charge a high fee to clients, and still keep a high profit margin. This way of working is typical of the partnership model, where the senior professionals are managers as well as producers. Not all professional services organizations operate this way, but many – particularly the larger firms – do.

The Unique Challenges of Intangible Products

Unlike other types of organizations, professional services firms sell knowledge and expertise – not tangible, physical products. So these firms have different needs, and face different challenges.

For example, consider a manufacturing plant. Once a product has been designed, mass production can create units 24 hours a day on machinery that's monitored by low-wage workers. Manufacturing managers emphasize the importance of standardization, quality, and productivity in their teams.

But how does this compare with an accounting firm? While managers should still stress quality and productivity, they can't standardize or 'mass-produce' their services. Their profitability comes from 'face time,' or billing hours, with clients – all of whom have different needs and demands. If team members don't meet with clients or work on specific projects, they don't earn money for the firm.

If you're a manager at a professional services firm, it can be difficult to balance high productivity, personalized service, and knowledge management. And one of your primary tasks is to maintain your 'human capital' – in other words, keep your staff motivated and productive. Manufacturing plants spend a lot of effort maintaining their machinery and warehouses. Services firms must spend time and energy coaching their teams – and actively ensuring that the most talented workers stay with them (more on this below). Without expert professionals and a strong reputation, the firm may fail.

This is a simplistic comparison, but it shows just how different professional services firms are from other types of businesses – and why managing these firms needs a different approach in order to succeed.

Staff Motivation

Motivation can be a major problem, especially for a team of junior professionals, and it's becoming tougher for many firms to retain their top talent.

In the past, the goal of most junior managers was to become a partner. This usually created a competitive environment that, in turn, led to high-quality work. As time passed, the 'stars,' or strongest workers, were promoted – and the weaker team members either left or gave up.

These days, however, partnership is not always the ultimate reward. Younger professionals sometimes question whether the extra work is worth it. Long hours, heavy workloads, and difficult clients are often unappealing to people who are seeking work-life balance.

And today, young professionals in the services industries have far more options than they used to. It's no longer considered unethical for a young lawyer or financial adviser to change firms every few years in pursuit of better opportunities.

Because of this motivation challenge, professional services firms must create ways to attract – and keep – the best and brightest workers. After all, their people are what they sell. So if those people aren't fully motivated and producing top-quality work, then the firm is at a competitive disadvantage.

Scheduling and Billing

Professional services firms are profitable only when their team members bill hours to clients. Therefore, new work is often assigned to the person who's currently not working billable hours. Although this maximizes revenue in the short term, it can often lead to a decline in quality and client service.

For example, imagine that your law firm has a 'superstar' who is particularly skilled at tax fraud cases. If the firm gets a new tax fraud case, and your superstar is involved in another case, then chances are high that the new case will be assigned to someone who isn't busy. Keeping everyone productive, billing their time to clients, is extremely important. But if you don't schedule people in the right way, it can have a negative impact on client satisfaction.

The future holds even more challenges for professional services firms. Due to the impact of retiring older professionals, and an increasing number of younger professionals choosing work-life balance, firms will have to compete more to keep the best staff. Because their 'human assets' are limited, these firms must develop strategies to attract, motivate, and retain key talent.

Key Points

Professional services firms have many unique challenges. They must focus on creative ways to keep staff motivation and morale high, and they should develop strategies to attract – and keep – the best and brightest professionals. Without talented human capital, firms are not likely to survive in this competitive field.

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Comments (5)
  • Yolande wrote Over a month ago
    Hi matoaka

    Thanks for sharing this with us and welcome to the forums - glad to see you here! Please let me know if there is anything I can help you with. We look forward to chatting to you some more on the forums!

    Kind regards
    Yolandé
  • matoaka wrote Over a month ago
    The genius of Maister is that he acknowledges : I have nothing that someone hasn't given me. His insight into the human condition is biblical - which to me is important, and he knows that professionals can only accomplish proper goals when they submit to the idea that it is not about "me".
  • Midgie wrote Over a month ago
    Hi Rasach,
    You make an excellent point in regards to the key to keeping staff motivated is to ensure they are aligned with the organizational goals, and that they have clear career goals with a plan on how they are going to achieve those goals.

    This plan then needs to be supported by the organization as there is nothing worst (having experienced this one myself!!) of having a personal development plan that was approved during an annual performance appraisal, and then never given the approval to attend the courses (even if they were outlined in the plan!).

    Midgie
  • rasach wrote Over a month ago
    Good Article,

    I have been a part of professional service organization for most of my career, raising from junior member of the team to the managerial level position. I certainly agree with you point that it is becoming a real challenge to keep the employee motivated.

    Unfortunately, the organization i used to work for lost their 40% senior talent in a single year because of lake of motivation and organization changes.

    I believe following stuff would be some help in the professional organization.
    - Periodic staff meeting to review organization goal
    - Frequent meeting between manager / coach / HR and employee to set their career goals (this is a big one i think)
    - Rewards programs - support higher education / career growth path / incentive based on project performance (different than yearly incentive)

    Good thing about Prof services organization is that as a junior member you get very good experience and can provide you good career growth opportunities.


    Thank you for this nice article.

    -R
  • Midgie wrote Over a month ago
    Interesting article touching on key issues related to professional services organizations related to motivation of staff and billing hours.

    From my experiences one of the ways a large multi-national professional services organization maintained motivation was to have a senior person mentor a junior person. Although the junior person did the work, they regularly met with the senior person to talk through what they were doing and to gain advice and guidance.

    That seemed to work well. Saying that, I did notice (as I was leaving the firm) the younger people coming in were less inclined do to the long hours that was previously the norm ... so, I'd be curious to know what it's like now!!

    Midgie

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