Strategy for a professional service firm is all about making
informed choices. It is fundamentally also about saying “No” to projects or
engagements or decisions that are not in alignment with the firm, as much as it
is about asking deep questions about the practice and the way we run it.
Every professional service firm needs to think about
strategy. This would mean having clarity about where is the firm headed, what
is the “business plan” of the firm, how will the firm think about its clients
and service areas, how will the firm embrace technology, respond to changing
economic and business environment, and keep itself relevant in today’s times.
This article is an attempt to provide a road map to develop a
strategic thought process in that direction.
Critical questions that the firm’s
partners need to address are:
1. Have partners and leaders of professional
service firms built the growth blocks (“blocks”) that are necessary to ensure
sustained growth? Some of these vital blocks are:
- Firm’s vision and mission
- Strategy to grow and sustain
- Markets, technology and other functions
And are these blocks being reviewed on a consistent basis?
Are they aligned for growth? Are they aligned to the partners’ vision? Are the
partners aligned to these blocks?
2. To
grow as a firm and to keep it in continuous alignment, strategic choices made
by the partners on various aspects of practice need to be given the highest
priority.
Partners and professional services firms have the fundamental
responsibility of producing and managing. The long-standing dichotomy of the
“Producer Manager” needs to be settled in a manner that is relative to the
firm’s size, stature and evolution in its growth cycle. A small- sized firm
can aspire to become a mid-sized firm and a mid-sized firm can aspire to become
a large firm only if there is a high level of focus on allowing producing
partners to produce and leaving the managing part to those best equipped to
manage. A producing partner over time cannot be expected to be managing the
firm on
all aspects, as both the functions need dedicated time and focus.
3. Specific partners will invariably
have to focus on the managerial functions: client relationships, people
management, marketing, and functional roles such as accounting, compliances, administration,
compliance and alike.This in other words presupposes that partners will have to
take out time to perform management function. But this seldom happens. As a
result, output suffers and so does growth curve of the firm. For decades now,
firms have been suffering from this dichotomy, popularly knownas the “Producer
Manager Dilemma”. For a mid-sized firm to grow, it is very important that
partners decide on their respective functional and technical roles such that
there is no overlapping of the functions and also there is high degree of
harmony, synergy and efficiency in the roles performed.
4. There
could be instances where there is duality in certain roles requiring more than
one partner to partake in decision making.
Example: The firm’s management may recommend two or
three partners to constitute a Compensation Committee, which is entrusted with
the task of deciding on remuneration/bonus to partners, firm wide cost cutting
initiatives, cost of inflation factored determination of increments, HR
performance evaluation and the likes.
5. Then
there are times when people decisions need to be taken such as which campuses
to be selected for potential young talent recruits, pre-qualifications, minimum
standard for all new recruitments, written and verbal tests during hiring
process, background checks and proliferation of ideas and thoughts. As one can
decipher from the above, there is a high degree of correlation between strategy
and partners’ contribution to the firm’s managerial functions.
6. Having
a strategic mindset is not an option. It is critical for partners of
professional service firms to think about the firm and practice areas
constantly, to develop a sense of expertise and a visible perspective
difference in the market place. People retain professionals for the value they
seem to generate from time to time. It is this edge that makes professionals
stand out from amongst their peers. This is seldom looked at as a strategic
asset as it is never widely understood.
7. The Differentiated Firm:
A differentiated firm thinks about strategy in the following
segments:
a) Growth
strategy
b) Markets
strategy
c) People
strategy
d) Operations
strategy
e) Finance
strategy
f) Functional
strategy
Let’s discuss each of these and what its implications are on
the growth and evolution of a firm:
a. Growth
Partners have a fundamental obligation to think about how
should their practice lines individually grow. What is the business plan for
their service line? How should they think about newer ways of improving the
execution, improving efficiencies, and providing a more qualitative product and
output each time. Being process driven is no longer an option; it’s a basic
requirement. Growth comes to practice areas which are led by partners who make
time to think about strategies to compete, strategies to develop a
differentiated product, strategies to develop a sound understanding of what the
client expects in terms of value, and finally a strategy to deliver that
value.The end goal is that the firm should collectively grow, if that practice
area grows.
Strategies to develop a differentiated product include
thinking about and developing a completely new solution to “problem solve” an
existing set of challenges.
Example: Data analytics tool: Can the auditor provide
a data analytics service to a client by using technology? If you can tell an
eCommerce company promoter that he is losing repeat customers because of, say,
quality of finishing of product, sub-optimal service experience or delivery
issues, the company will consider this as a priceless piece of input. And they
will be willing to pay for it. That’s where the audit world may need to focus
some of its energies on, going forward.
So what are the ways to think about strategy? One of the best
ways to do so is to ask specific questions related to the service line and then
the firm needs to develop its responses by way of partners coming together,
providing their inputs and working for a common purpose.
Some of these questions are:
- What is the market for the service line in
terms of total revenues?
- What is our current market share?
- What can we reasonably aim at achieving, if
the firm were to provide all the underlying infrastructure, people, tools and
technology?
- To achieve the budgeted revenues, do we have
an adequate team?
- Do we provide adequate resources and
infrastructure to our teams to perform?
- Are our teams armed with the tools they need
to perform their professional obligations – example: do they have access to
online research libraries, databases, books, periodicals, journals, knowledge networks,
knowledge sharing societies/groups/clubs? Do we measure them on such access and
their proficiency?
- What is the firm’s policy with respect to
using the existing clientele base for cross-selling the firm’s other service
offerings? How is the value proposition made known to clients? Are these
included in KPIs of the firm’s partners and senior managers?
- How is respective service line growth
evaluated? For instance, it may not be appropriate to conclude that a 40% YoY
growth in advisory services is a greater success than a 25% YoY growth in audit
services.What are the contours of this growth – recurring vs. non-recurring,
quality of the deliverable, the relationship being developed etc.
- Has the firm developed a framework for
evaluating which service lines (either existing or completely new) will
shape the firm’s growth trajectory? Does this framework consider the firm’s
existing capabilities as well as the capabilities capable of being developed
inorganically? What is the periodicity of such an evaluation?
- How does the firm identify trigger-events
which can have long-term implications on a firm’s growth trajectory?
- How often is ‘growth’ discussed in partner
meetings?
Responses to the above questions
will lead to a strategy to grow the practice. The form and shape of such a
strategy is not as relevant as its substance and the process used to arrive at
the conclusions. Thereafter, what is left is periodic monitoring and course
correction.
b. Markets
The questions below have to be thought through within the
contours of code of ethics of the regulating body of the profession, the ICAI.
The idea here was to merely bring out that marketing of professional services
is more about projecting the capabilities to the right audiences, while
following the code of ethics and code of conduct prescribed by ICAI in form and
spirit. With this context, here are some questions to think through:
- Does the firm have a ‘curated profile’ which
summarises its offerings?
- What is the firm best at? Why should a
client work with you?
- What is the firm’s unique differentiator? Be
it in product, quality, service, reliability, timeliness/responsiveness or
similar.
- Does the firm have a focused ‘meeting/events
calendar’which portrays the networking events the partners can participate in?
How are the partners nominated to attend such events, in a way that costs are
within budget and the best possible impact is envisaged?
- How are the follow-ups conducted post networking
sessions? Are the leads profiled? Are meetings sought and held?
- Does the firm publish thought-leadership
articles? Do the partners participate as speakers in relevant events? How is
the firm’s expertise depicted outside the four walls of the firm?
- How does the firm sustain, manage and
improve client relationships? Is there a documented process which is adhered to
in this regard?
- Has the firm evaluated the need for a CRM
software to better cater to its needs?
- How are the efforts and the outcome
measured?
- Does the firm have an internal process in
place which ensures that the firm does not violate the applicable regulations,
ethical guidelines or the relevant pronouncements of the regulatory bodies, in
its marketing endeavours?
Marketing professional services is not an easy thing to do.
It needs conviction, confidence and a strategy. The questions above should get
you started. Firms should keep refining their marketing strategy based on the
outcome and the measurement of the efforts.
c. People
To attract the best people and thereafter to retain them to
ensure that they grow is yet another fundamental responsibility of the
partners. And strategy to provide a career roadmap is again a critical aspect
that partners need to align themselves to, such that the key performers are
retained.
- How involved are the partners in the
recruitment drives?
- Do the partners give sufficient freedom to
the managers to interview and hire candidates? Remember, the managers have to deal
with the new recruits more than the partner group, and by extension, the
managers deserve a say in the decision of whom to recruit and whom not to.
- How are the interview technical tests
determined? Are these tests closely in sync with the job-description?
- How does the firm ensure cross-team
interaction?
- Does the firm have an in-house
bulletin/intranet which ensures that the communication flow within the firm
isn’t hindered? Such initiatives ensure that the employees are closely knit.
- Is the process of compensation – especially,
bonus and incentives, transparent and not arbitrary? Does an employee know
beforehand how his bonus would be determined?
- How are the team-bonding exercises
undertaken? What is the frequency of these exercises?
- Is there an anonymous grievance portal
operating within the firm?
- Is the career roadmap customised for every
employee?
- Do the partners follow an ‘open cabin’
policy?
- Do the partners have ‘no-agenda’ meetings
with the employees?
- Are the employees encouraged to maintain a
knowledge repository? Is a service line over dependent on a single employee?
Does the firm conduct a scenario analysis to assess the aftermath if that
particular employee resigns?
- Is there a mechanism which ensures that even
the most junior employee has a medium to express his/her ideas or suggestions
directly to the partners, bypassing the reporting hierarchy?
- Are exit interviews documented, archived and
acted upon?
- Does the firm have a recognised alumni
association of the past employees?
d. Operations
- What are the key operational metrics of the
firm that are relevant?
- What is the per partner billing?
- What is the per FTE billing (FTE – full time
equivalent)?
- What is the yield per billable hour (Total
billing of a person divided by his billable hours) – Example: INR 1 Crore of
revenues / 1,000 billable hours = billable rate of INR 10,000 per hour. If a
large firm’s partner bills INR 5 Crores for the same 1,000 billable hours, his
billable rate is INR 50,000 per hour. Can that be aspired for? How does one get
there? How does one create the visible expertise that’s necessary to command
higher rates? Does the firm provide the necessary tools and the environment
that allows such expertise to be built and billed?
- What is the profitability per partner? What
is the profitability per FTE?
- How many clients are serviced by each
partner? What is the average billing per client? Does this provide good data
about the type of practice/segmentation of each partner and their teams?
e. Finance
- What is meaningful MIS to the partners? What
reports are relevant? Do we have the in-house talent group to achieve this?
- Has the firm developed a balanced scorecard
framework?
- Is there a practice of maintaining, updating
and circulating finance trackers and dashboards internally? Does the firm use
practice management tools and softwares to automate the information flow to
ensure that rich data is generated for the partner group to take decisions?
- Is there a mechanism to identify which
areas/teams/personnel can any delay be attributed to? This can help in devising
better preventive and corrective strategies.
- Does the firm have a designated function of
a CFO/Controller?
- Is a cash flow budget made periodically?How
are the partners’ drawing limits determined? Are the drawings consistent?
- How are receivables monitored? Have all the
partners concurred on a common line of thinking with respect to actions to be
taken if the previous receivables aren’t settled? A zero-tolerance policy for
bad debts isn’t necessarily a negative attribute to have, barring exceptions.
The finance function in professional
services firms has to be responsible for ensuring that meaningful data is provided
for the leadership group to take the right decisions.
f. Functional
A lot of professional service firms do not necessarily spend
sufficient time on functions such as Admin, Technology, HR, Finance and
Marketing. Some aspects to think about are:
- What are the various functional areas that
the firm’s resources needed to be expensed upon, and what are the results?
- Is every function led or overlooked by a
designated partner? What say do the other partners have for a function not
personally managed by them?
- How is functional efficiency adjudged? Which
evaluation steps are in place to ensure zero redundancy of functional areas?
- How is cross-functional integration,
interlink and inter-dependence evaluated?
- What are the fall-back options in case a
function fails or is temporarily unavailable?
- Do each of the functions maintain a process
and knowledge repository?
Call to Action
The call to action here is:
1. To
achieve a working strategy document for your firm. And, for this purpose, it is
for the partners to make time to think through the above questions, and develop
a discussion paper.
2. Next
step will be to discuss the finer aspects of the plan and fine tune it.
3. Thereafter,
roll out the plan to the larger partner group and key people in the firm (who
are the identified future leaders).
4. Once
the plan is rolled out, partners have to focus on execution and be the best
they can be and inspire and lead their teams with energy and enthusiasm.
5. Every
quarter, the strategy needs to be then reviewed for efficacy.
6. Finally,
the managing partner or the leadership group within the partners should take
care of periodic course corrections to keep the strategy in alignment.
Partners will do well to do this in right earnest. That’s the
way to develop your firm’s credentials, attract and retain talent, generate and
service clients and build a sustainable growing firm.
