Managing Professional Services Firms

Transcription

1 Managing Professional Services Firms Individual Report Tim Joslyn EMBA: September 2010 Date: April 2012 Word Count: 1,476 excluding diagrams Page 1 of 6

2 My Personal Reflection Introduction Must Scale Revenues must not be linked to an individual s time or effort Conclusions and the Future 5 Appendix A My PSF s Timeline 6 Page 2 of 6

3 My Personal Reflection 1.1 Introduction It was not that long ago (2008) that after working in professional services for over 7 years and spending over 5 years of those founding and building a multi million pound IT consultancy, I exited my business, turned my back on professional services and vowed never to return again. Not even 4 years later I now find myself in a recruitment discussions with three different major PSFs (professional service firm) and attending the Managing Professional Services Firms course. This appears to be a major shift in my thinking and this paper allows me the opportunity to explore the apparent change in my behaviour as well as investigate and challenge my preconceptions using the knowledge and key learning s that I took away from the course. A good way to explain my outlook in 2008 is to refer to some notes I made at the time. These were the result of a brainstorming session where I was exploring what to do next following my exit, the types of opportunities that interested me and some key criteria that I would apply. The following is a direct extract of notes I made scribbled under the heading Must : Must be able to scale. Revenues must not be exclusively linked to an individual s time or effort e.g. consultancy. These statements were made in reaction to challenges that I found whilst running my own PSF and that to me at the time represented flaws with PSF models as a whole. Within this paper I will investigate these statements in detail, expanding upon my experiences and how my outlook has or has not changed as a result from attending the Managing PSF course. To provide some context for this paper, the timeline below gives an overview of the PSF that I founded and will be used as the basis for discussion (included in large format in Appendix A): 1.2 Must Scale I would describe my PSF as a boutique consultancy, having a relatively flat organisational structure with relatively standard charge out rates across all staff. This meant that nearly every consultant had to hit their utilisation targets in order for the business to be profitable. When all consultants were busy the business had significant income, however this could quickly change with a small drop in utilisation and therefore each consultant could have a direct impact on profitability. This led expansion being slow and cumbersome as recruitment had to be carefully considered in order to both avoid mistakes and a potential future drop in demand. Page 3 of 6

4 In addition due to the flat structure there was not a formal career progression track for staff to follow and this became a critical point around 2007 when staff who had been with the company for a number of years started to leave in order to progress their careers elsewhere, again impacting the business s ability to scale. A key moment in the course for me was the studying of material from Maister 1 and the discussion of concepts such as the professional pyramid and the balanced PSF. Whilst conceptually I was aware of pyramid type models I had never thought of it in economic terms or leverage ratios. I can now appreciate how some of my challenges arose from running what could be considered an unbalanced PSF (slow recruitment, unwanted departures) and how the pyramid approach could help mitigate some of these challenges, namely: De risk the firm economics by establishing cover for profits through leverage and increased use of junior staff. Offer staff a career path through progression up the pyramid. De risk recruitment through carrying out the majority of external recruitment at the junior levels. Mistakes are cheaper to resolve at this level and overall financial impact and risk on the firm is less. This does of course assume that the client services being carried out can be adapted to the pyramid model and that junior staff can have a role to play. In the case of my PSF I believe this would have been possible, however in cases such as Kingsley Lord, the pyramid model is hard (potentially impossible) to implement due to the nature of services being delivered which requires senior staff. 1.3 Revenues must not be linked to an individual s time or effort My PSF generated fees based on time and materials (T&M) and whilst all projects were different they consisted of common components, representing therefore of a mix of repetitive and ad hoc service delivery. Charge out rates were justified on the basis that the individuals that clients paid for were experienced and has delivered similar types of solutions in the past. This created two challenges, firstly experience and knowledge became centred within individuals who could leave the firm at any point taking that knowledge with them. Secondly consultants had to be experienced in order to be able to offer the clients value. This meant they needed to be more senior resources that in turn were more expensive and difficult to recruit. With the benefit of hindsight and recent study I can appreciate that a lot of this experience could and should have been codified through a formal knowledge management strategy. Elements of the services being offered would have been suitable for codification. Whilst this would have had an effect on utilisation (codifying knowledge would create an overhead), it would have allowed the use of junior staff (supporting a pyramid organisational structure) to deliver solutions and generate revenues facilitating reuse economics 2. The organisation would have been able to strategically focus on adaptation of ready solutions 3 as experience could be partially replaced with codified methodologies, processes and templates of previous solutions. In turn this would allow these junior staff to appear as an expert making them valuable and improving the economic model. In addition the codification of knowledge would have helped to mitigate the impact of individuals leaving as elements of their knowledge would have been accessible to the rest of the firm. It would have also facilitated recruitment and on boarding through an improvement in knowledge handover, removing what was an exclusive reliance upon the more senior staff. 1 D.H. Maister,1982, Balancing the Professional Service Firm, Sloan Management Review 2 M.T. Hansen, N. Nohria and T. Tierney, 1999, What s Your Strategy for Managing Knowledge, Harvard Business Review 3 Lowendahl. B.,2005, Strategic Management of Professional Service Firms Ch 5, Copenhagen Business School Press Page 4 of 6

5 I recognise that not all of the knowledge could have been codified, some of the work carried out required tacit knowledge and this is where the more senior staff would have been used in conjunction with junior staff, at the same time facilitating knowledge handover through observation. This would have represented a move away from individual capability to organisational capability, in turn building intellectual property for the firm thereby increasing its value. 1.4 Conclusions and the Future Despite all of my misgivings and reservations about professional services, I have ultimately found myself drawn back to the PSF. After my exit I had a break, undertook my MBA and performed some long term assignments for different businesses and now understand a lot more about myself and what motivates me professionally: I thrive on change; routine bores me and causes me to typically end assignments after 12 months. I miss the feeling of building and belonging to a team that I had during my time in consultancy. I miss the respect and authority that being a consultant brings. By this I do not mean that I desire to be a power crazy individual, rather being a consultant brings with a certain degree of authority. The fact that somebody is paying you for your advice means that you are typically seen as an expert and therefore an authority within your field. In any other context I would not feel it appropriate to express the sentiments above. My perception is that some of them are typically seen as negative characteristics and it was therefore refreshing to see them discussed within the course as typical traits of members of PSFs. This realisation is ultimately what has led me back to professional services and to an environment where my natural desires and behaviour can be accommodated rather than discouraged. Would I now start another PSF myself? 4 Years ago the answer would have been a resounding no, now the answer is most probably. Founding, growing and running my business was one of the most rewarding periods of my life. It was created through intuition rather than economic models and grew through trial and error rather than desired strategy. Ultimately I got frustrated with the challenges, some of which I have outlined here. However, if I had to summarise my key take away from the Managing PSF module, it is that it has allowed me to see beyond those challenges, shifting my perception and equipping me with approaches and strategies that I could use to build a better business in the future. Page 5 of 6

6 Appendix A My PSF s Timeline Page 6 of 6