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Practice Development Strategies
Practice Development Strategies(6.1)
  Generally two aspects of professional work create special management challenges to the professional service firm. First, professional services involve a high degree of customization in their work. Professional firms must manage customized activities where nothing can be reliably made routine.
  Second, most professional services have a strong component of face-to-face interaction with the client. This implies that definitions of quality and service take on special meanings and must be managed carefully, and that very special skills are required of top performers.
  Both of these characteristics (customization and client contact) demand that the firm attract (and retain) highly skilled individuals.
  The Mission of most professional firms is:
  To deliver outstanding client service, to provide fulfilling careers and professional satisfaction for our people and to achieve financial success so that we can reward ourselves and grow.
  Simply put every professional firm must satisfy these three goals of "service, satisfaction, and success" if it is to survive. Management of a professional firm requires a delicate balancing act between the demands of the client marketplace, the realities of the people marketplace (the market for staff) and the firm's economic ambitions.
Leverage and the Client Marketplace
  The required shape of the organization (the relative mix of juniors, managers and seniors) is primarily determined by the skill requirements of client work, the mix of senior-level middle-level and junior-level tasks involved in the projects that the firm undertakes.
Segmentation of Service
  Consider where the client's problem is at the forefront of professional or technical knowledge, or of extreme complexity. Then the key elements of this type of professional service are creativity, innovation and pioneering of new approaches, concepts or techniques.
  This usually involves highly skilled and highly paid professionals. Few procedures are routine in nature. The opportunities for leveraging the top professionals with juniors are relatively limited. Consequently, the ration of junior time to middle-level and senior time tends to be low.
  Consider where projects may require a highly customized output in meeting the clients' needs involve a lesser degree of innovation and creativity in the actual performance of the work. General nature of the problem to be addressed is not unfamiliar and the activities necessary to complete the project may be similar to those performed on other projects. Clients seek out firms with experience in their particular type of problem. The firm sells its knowledge, its experience and its judgement.
  Since the problems to be addressed are somewhat more familiar, at least some of the tasks to be performed (particularly the early ones) are known in advance and can be specified and delegated. The opportunity is thus provided to employ more juniors to accomplish these tasks.
  Apart from above a third type of project, the Procedure Project usually involves a well-recognized and familiar type of problem. While there is still a need to customize to some degree, the steps necessary to accomplish this are somewhat programmatic. The client may have the ability and resources to perform the work itself, but turns to the professional firms because the firm can perform the service more efficiently, because the firm is an outsider or because the client's own staff capabilities to perform the activity are somewhat constrained and are better used elsewhere. In essence the professional firm is selling its procedure, its efficiency and its availability. Procedures projects usually involve the highest proportion of junior time relative to senior time.
Leverage and the People Marketplace
  The connection between a firm's leverage structure (its ration of junior to senior professional staff) and the people marketplace can be captured in a single sentence - " People do not join professional firms for jobs, but for careers". They have strong expectations of progressing through the organization at same pace agreed to (explicitly or implicitly) in advance.
  While the pace of progress may not be a rigid one ('up or out in five Years'), both the individual and the organization usually share strong norms about what constitutes a reasonable period of time for each stage of the career path. Individuals who are not promoted within this period will seek greener pastures elsewhere, either by their own choice or career ambitions or at the strong suggestion of the firm.
Leverage and Profitability
  The professional service firm's leverage is also central to its economics. The "rewards of partnership" (the high levels of compensation attained by senior partners) come only in part from the high hourly (or daily) rates that the top professionals can charge for their own time. Profits also come, in large part, from the firm's ability, through its project team structure, to leverage the professional skills of the seniors with the efforts of juniors.
  The successful leveraging of top professionals is at the heart of the success of the professional firm. By leveraging its high-cost seniors with low-cost juniors, the professional firm can lower its effective hourly rate and thus reduce its cost to clients while simultaneously generating additional profit for the partners.
Profitability and Growth
  It is interesting to note that, in the formula for profitability, growth and size do not appear. It is essential that professional firms grow in order to motivate and retain the firm's best staff. Without growth, much of the dynamism of the practice will be lost and morale will suffer.
  For example, a firm successfully grew the practice by 25 per cent in a given year, but grew it in such a way that (a) the mix of business (and hence the realized fee rates) remained the same and (b) the firm's method of serving that additional volume of business used the same staff-to-partner ratio currently existing. In this scenario, the firm would needed 25 per cent more partners to handle that volume, and if the realization rates were the same as the firms existing business, the net profit per partner would remain the same.
  Growing by 25 per cent and adding 25 per cent more partners is not a bad result but it does not further the goal of improving profit per partner. To do that, we must break one of the two conditions imposed; either bring in work that has higher fee levels than the firm's current average, or find ways to service the firm's work with higher leverage. This is the same conclusion as that reached before. Only increased fee levels or leverage move the firm forward. It is the nature of the work brought in, not just its volume, that contributes to profit health.
  This is not how most firms control their practice development efforts. Many firms are revenue driven or top-line oriented, taking the view that any new business is good business.
  In large part, the lack of a good profitability reporting system that allows them to know which work is truly profitable and which is not. Never measure profitability at the engagement level (or do so with misleading indicators such as margin or realization alone). It is hard to guide and reward partners practice development activities properly. If profits are to improve, this will only be done by improving how profitably engagements are run proper staffing, proper delegation and efficient use of people's time. Project leaders should be held accountable for engagement success considering revenues and the cost of resources consumed (including the costs of partner time).
 
Level No Target Utilization Target Billable hours Billing Rate Fees Salary per Individual Total Salaries
Senior 4 60% 4,800 750 3,600,000    
Middle 8 60% 9,600 400 3,840,000 180,000 1,440,000
Junior 20 80% 32,000 250 8,000,000 36,000 720,000
Total 32       15440000   2160000
 
Fees 15,440,000
Salaries 2,160,000
Contributions 13,280,000
Overhead 4,632,000
Partner Profits 8,648,000
Per Partner 2,162,000
Professional Firm Life Cycle
  In any professional service there are three key benefits that clients seek - expertise, experience, and efficiency. However, even within the same practice area, the relative priority that a given client places on these elements can vary dramatically. A client with a large, complex, high-risk, and unusual problem will appropriately seek out the most creative, talented or innovative individual or firm he can find at almost any cost. Prior experience in the clients' industry or past exposure to problems of a similar type, may be useful but are secondary to the client's need for skilled expertise.
  While many professionals would like to believe that all client needs fall into this category, such clients represent only a small proportion of the aggregate fees spent in any given practice area. A much larger client base exists for which different approaches to practice is required. These types of client recognize their problems have probably been faced and dealt with by other companies, require less complete customization and are probably not crisis issues. Accordingly, they will be shopping less for the sheer brainpower of critical individuals and more for an organization that can bring past experience to bear in solving these problems. A high level of expertise is still required, and efficiency is not irrelevant, but extensive experience with similar problems is worth more to the client than an extra degree of intellect or extra savings.
  There will also exist within the same practice area third group of clients, who have problems that they know can be handled competently by a broad range of firms. Rather than looking for the highest possible expertise or the most prior experience, these clients will be seeking out a professional firm that can meet their needs for a prompt start, quick disposition and low cost. They will seek the efficient firm.
  Since clients of each of these types exist within every practice area, it would be tempting for a practice group to try and respond to all of these various needs, particularly in these competitive days when professional firms are hungry for increased revenues. However, accommodating the varying needs of these different types of clients within a single practice group is an almost impossible task. A group that wishes to attract the "high expertise" engagements must organize its affairs and methods of doing business in such a way that will make it an unlikely candidature to be chosen by a client who places most emphasis on efficiency and, of course, vice versa.
  Rather than distinct categories, the expertise, experience and efficiency labels are obviously meant to describe only points along a spectrum of practice. Every aspect of a practice group's affairs, from practice development to hiring, from economic structure to governance, will be affected by its relative positioning on its spectrum. Increasingly, firms will have to decide which type of client need they are attempting to serve and organise their affairs appropriately.
Types of Practices
The Expertise Practice
  Imagine a professional practice group (or firm) that focuses its attentions on serving the needs of clients with innovation problems. How would you run such a practice?
  True to the professions traditional self-image of being elite practitioners, the staffing requirements of this "expertise-based" practice would be such that the firm would need to seek out and attract only the top grade graduates from the best schools, in order to generate top-notch professionals who could meet the quality needs of the frontier practice. Training would best be accomplished through an informal apprenticeship system and since standards would be high a rigorous up-or-out promotion system would ensure that the firm retained only the best and the brightest.
  While some large-scale engagements, might require large numbers of junior professionals to draft documents, perform analyses, or conduct client interviews, most expertise engagements would tend to require a high percentage of senior professional time, due to the high diagnostic component in the work. Accordingly, we would expect the expertise practice areas to be relatively unleveraged, with low, fixed costs and high margins. The firm would make its profits through high billing rates or some form of value billing, justifiable and sustainable because of the criticality, complexity and risk in the client engagement.
  Since few clients would have regular ongoing needs for top-flight critical expertise, the client mix professionals practicing in this area would tend to be diverse, and constantly shifting. With relatively low leverage and an up-or-our system the internal pressure for growth would be less than in other practice area types and (appropriately) growth would not be a major goal for the firm.
The Experience based Practice
  Now consider a firm whose practice-mix was made up predominantly of clients who, rather than needing the profession's most creative talent, wanted to find a firm that had accumulated experience in handling certain types of problems and would not take an expensive "start with a blank" approach to the problem. Rather than relying on individual talents, the firm would need to create more of an institutional reputation, based not only on the talent of key individuals but on the ability of the firm to bring to bear its collective knowledge derived from past engagements.
  For such firms, practice development would involve identifying documenting and promoting their specialized knowledge, through brochures describing previous engagements, clients newsletters or special seminars on topics related to the firm's particular areas of experience. Experience based practice areas would tend to have a more clearly focussed and stable mix of clients, with steady relationships becoming increasingly important.
  In contrast to the "frontier practitioners", the work content of the typical engagement would require less time spent on diagnosis and more on executing increasingly predictable (if till technically demanding) tasks. Accordingly, the ratio of junior to senior professional time would increase, with profits from increased leverage offsetting the generally lower billing rates. It is in this middle experience stage of practice area maturity that time and expenses billing practices would be (and are) most relevant and common in all professions.
  The firm's hiring needs would expand to include a major role for less skilled professionals and more trainee professionals, since the increased structuring of familiar engagement types would allow the firm to employ an increasing degree of systems and procedures and hence require less mature talent. Training approaches would become increasingly formal with greater use of out-of-hours classroom sessions and practice manuals.
The Efficiency based Practice
  Let us consider a practice area that had high preponderance of clients who were mostly interested in the efficiency with which the firm dealt with low-risk, familiar types of problems. The firm would be squarely in the business of demonstrating that it had established systems and procedures to handle specific types of problems. Cost, reliability, speed and other such characteristics would come to the fore. The client mix in such practices would tend to be focused around a core of high volume clients.
  Client fee sensitivity would require that engagements be staffed at the most junior level possible, including maximum possible use of trainee professionals and increasing use of technology to substitute for professional labour. Fee pressure would be offset by increasing use of staff and technology leverage and pricing would increasingly become a matter of fixed price contracts or bids.
  Efficiency practices, with their relatively high fixed cost structure and many juniors, would need to take a more studied, planned approach to growth in order to capture the volume necessary to offset lower margins. The needs for both management and administration would increase, in order to devise optimum ways of dealing with familiar engagement types and to monitor and supervise the project teams to ensure that the best procedure is indeed being followed. Rather than the heavy use of judgement employment in expertise-based practices, efficiency practices have high needs for short-interval measurement systems both for quality assurance and productivity. Rather than inspirational leadership styles, efficiency based practices would need managers who are disciplined, organized and detail oriented.
Strategies for being More Valuable to Clients
Develop an innovative approach to hiring so that we can be more valuable to clients by achieving a higher caliber of staff than the competition.
Train our people better than the competition in a variety of technical or "counseling" skills so that they will be more valuable on the marketplace than their counterparts at other firms.
Develop innovative methodologies for handling our matters or engagements, transactions or projects, so that our delivery of services becomes more thorough or efficient.
Develop systematic ways of helping, encouraging and above all, ensuring that our people are skilled at client counseling in addition to being top technicians.
Become better than our competition at accumulating, disseminating and building on our firm wide expertise and experience, so that each professional becomes more valuable in the marketplace by being empowered with a greater breadth and depth of experience.
Organise and specialize our people in innovative ways, so that they become particularly skilled and valuable to the market because of their focus on a particular market segment's needs.
Become more valuable to our clients by being more systematic and diligent about listening to the market: collecting, analyzing, and absorbing the details of their business than does our competition.
Become more valuable to our clients by investing in research and development on issues of particular interest to them.
Increasing the Firm's Capabilities
Increasing Knowledge of client's industry
 
Study industry magazine/newsletters thoroughly
Attend industry meetings with client
Conduct proprietary studies
Increasing knowledge of client's business
 
Read all clients' brochures, annual reports and other public documents
Ask to see strategic plan
Volunteer to review internal studies
Conduct reverse seminar
Increasing knowledge of client's organization
 
Ask for organization chart
Ask who, the client deals most with?
Ask about the client's boss
Ask about power structure
Arrange to meet other executives
Spend time with client's juniors
Increasing knowledge of client
 
Find out precisely how client is evaluated inside his or her company
Find out what he or she is unhappy wit
CRM - Approach towards Business Growth
  Making the Client Disposed to Use the Firm Again
Going the extra mile on the current engagement
 
Use new business budget to fund extra analysis
Use budget to improve turnaround time, service
Improve quality of presentation
More documentation, explanations, accessibility
Increasing the amount of client contact
 
Telephone regularly
Visit at every opportunity
Schedule business meetings near mealtime
Invite to firm offices
Introduce one's partners
Get firm leaders involved
Building the business relationship
 
Help client with contacts
Put on special seminars for client's staff
Volunteer to attend client's internal meetings
Offer free day of counseling on non-project matters
Send client useful articles
If possible, refer business to client
Building the personal relationship
 
Social activities
Remember personal, family anniversaries
Keep in touch
Provide home telephone number
Offer use of firm's facilities
 
Tactics to enhance Client Value
 
Dictate and transcribe summary of all meetings and significant phone conversations and send copy to client same or next day.
Involve clients in process through - brainstorming sessions, give client tasks to perform.
Give client options and let client choose.
Explain clearly and document what is going to happen, make sure process is understood in advance. If appropriate, develop printed booklet laying this out.
Make meetings more valuable
 
Establish specific Agenda and goals prior to meeting
Send info, reports in advance - save meeting time for discussion, not presentation
Find out attendees in advance, research them
Always establish next steps for both sides
Call afterwards to confirm that goals were met
Make report more valuable
 
Get client to instruct the firm on format, presentation
Provide summary so client can use it internally, without modification
Have all reports read by non-project person prior to delivery to ensure readability, comprehension
Provide all charts, tables and summaries on overheads for internal client use
Write progress summaries in a fashion that client can use internally without modification
Help client use what is delivered
 
Assist client in dealing with others in client organisation
Empower client with reasoning steps
Advise on tactics/politics of how results should be shared inside client organization
Tactics for dealing with the people crisis Productivity Strategies
 
Speed up training process so that costly resources can handle higher value work
Reward partners explicitly for good coaching
Change engagement staffing, so that all are put to "highest and best use"
Use technology to enhance productive capabilities of staff members
Increase expected billable hours from staff
Change pay schemes to reward performance differentials
Reduce Need Strategies
 
Withdraw from some services and markets that cannot support new salary levels
Drop " up-or-out" system to reduce turnover
Rethink fast growth strategies
Emphasize profitability more, volume of fees less
Substitution Strategies
 
Use more Trainee professionals
Use technology to substitute for labor
Hire "non-traditional" candidates and offset by training
Hire people for "jobs" instead of "careers"
Accommodate part-time, flextime, alternate "life- style" workers
Tactics for improving profitabilit (In descending order of impact on profit health)
  One: Raise Prices (i.e. Fee Levels)
 
Earn higher fees through specialization, innovation, adding more value
Use marketing knowledge to get "better" work
Speed up skill-building process in staff
Invest in new (higher- value) services
  Two: Lower Variable Costs (Delivery Cost for each Engagement)
 
Improve engagement management performance
Increase leverage in the delivery of services
Make greater use of Trainee professionals
Develop methodologies to avoid duplication of effort
  Three: Fix Under Performers
  Apart from above a third type of project, the Procedure Project usually involves a well-recognized and familiar type of problem. While there is still a need to customize to some degree, the steps necessary to accomplish this are somewhat programmatic. The client may have the ability and resources to perform the work itself, but turns to the professional firms because the firm can perform the service more efficiently, because the firm is an outsider or because the client's own staff capabilities to perform the activity are somewhat constrained and are better used elsewhere. In essence the professional firm is selling its procedure, its efficiency and its availability. Procedures projects usually involve the highest proportion of junior time relative to senior time.
Deal with under performers
Drop non-remunerative services
Drop non-remunerative clients
  Four: Increase Volume
  Increase utilization (billable hours per person)
  Five: Lower Overhead Costs
  Leverage and Profitability
Improve speed of billing
Improve speed of collections
Reduce space and equipment costs
Reduce support staff costs
Lessons for Individual Professionals
  Lesson One
  What you know now and are able to do now, what your current success is built on, will unavoidably depreciate in value unless you actively work on learning new things and building new skills. Continual professional development is a lifelong requirement, not an option. There may have been a time when once you got good at something, may be "made partner", you could live off that for the rest of your career. If those times ever existed, they are gone now. The minute you start thinking you know how things work, you are dead.
  Lesson Two
  The health of your career is not dependent so much on the volume of business you do, but the type of work you do (whether or not it helps you learn, grow, and develop) and who you do it for (whether or not you are increasingly earning the trust of some key clients). In any profession, the pattern of assignments you work on is the professional development process - you just have to learn how to manage it.
  Lesson Three
  No matter how busy you are, you still owe it to yourself and to your career to get involved with and take charge of your own practice development activities (marketing and selling). If you let others in your firm generate the business you work on, you are putting your career development in other people's hands - a risky move at best. If you rely on business flowing to you unsolicited, then, with high probability, it is going to be "asset milking" rather than "asset building". What marketing and selling are about is truly practice development: Influencing the qualitative nature of what you work on, so that you use your work experience to continue to build your career.
  Lesson Four
  Since asset building is about managing your affairs for the long-term health of your career, you would better take charge of it yourself. Do not wait for your firm to establish formal policies to reflect concern about the balance sheet as well as the income statement. It probably should, but whether it does or not, it is in your own interest to get started yourself.
  Lesson Five
  Also you cannot automatically assume that what your firm "asks you to do" will always be the right thing to build your asset. For example, if you are already experienced in a certain area, chances are that others in the firm will turn to you every time an issue comes up in that area. If you don't take charge, others will exploit your asset. You have got to be a good corporate citizen, but you have also got to learn to balance that with what makes sense for your own development.
  Lesson Six
  Among the worst mistakes a professional can make is under investing in marketing to existing clients. Existing clients are not only more likely to give you new business, but the business they will give you (if you work to earn) is likely to promote the value both of your skill asset and your client relationships asset.
 

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