Understanding organizations expectations

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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 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.