Professional Services Firms Must Change

April 30, 1998

The emerging landscape

Professional services firms have traditionally been able to thrive in virtually any market conditions with clients remaining steadfastly loyal to the advisers they know and trust, and who deliver an acceptable quality of advice at a price they can afford. Firms themselves have been sheltered from harsh commercial realities by their robust and proven business models, loyal workforces, and the degree of protection that strict regulation afforded them against new competitive entrants. This environment has allowed professional services firms to be consistently successful for several decades – without ever needing to re-examine or change their basic operating model.

However, throughout that time clients have been experiencing relentless and fundamental change. Professional services organisations must now face the very same process if they are to survive.

New demands, new pressures

The break with the past is clear. Clients are increasingly demanding new ways of working geared to meeting their own needs, rather than those of the advisers themselves. They want ‘whole business’ solutions, crossing traditional disciplines and departments, and involving different professional advisers working together in a unified team. And they are willing to break their long-standing professional relationships when they get a better offer – whether that offer comes from a traditional provider in the same field, or from a new entrant willing to meet their changing needs.

Firms are also facing internal pressures, not least in the escalating war for talent. The global shortage of top-class professional skills has enabled employees to become much more demanding. This has resulted in greater staff mobility, and has pushed up the levels of remuneration and reward required if key people are to stay around.

New entrants to the professional services marketplace are adding to the pressure on both fronts. Free of the cultural and organisational legacy borne by traditional firms, they often bring with them a fresh and highly commercial approach, together with more efficient systems, and lower, often fixed-price, charging structures. Equally threatening is the fact that they may affect clients’ willingness to continue to pay a premium for professional services advice elsewhere.

The scale of the challenge

These emerging threats to traditional business models in professional services, and the relative lack of preparedness among the traditional incumbents, are highlighted by a recent survey by PA Consulting Group of the Top 100 law firms in the UK. The responses indicate that while firms have seen the danger coming, they are not yet taking an integrated approach to implementing the wide-ranging and sweeping change that is clearly needed:

  • the vast majority of respondent law firms have seen new competitors entering the legal arena from other professional service firms, and believe this will drive them to accept a higher proportion of fixed fee work and deliver work at lower cost
  • despite most firms (80%) realising they have to deliver work at a lower cost, three-quarters of the firms surveyed have no firm-wide operating procedures to tackle the problem of how to reduce delivery costs
  • although almost all firms claim to have a clear business vision, many of these do not believe the vision has been communicated to their staff – as a result, staff reward and incentive schemes are not fully aligned with business objectives
  • firm-wide processes and technology supporting the firm’s business objectives either do not exist, or are fragmented. The measurement of commercial value, or other key indicators of business performance, is not carried out consistently.

Not all these findings may apply to all professional services firms – but some of them surely will. So how should an organisation respond?

Beginning the transformation

In PA’s experience, any professional services firm in today’s marketplace needs to get even better at what it already does. The firm can do this by achieving excellence in three key areas:

  • Managing delivery of client value
  • Managing people
  • Managing the firm.

These areas cannot be addressed in isolation. The only way to tackle them successfully is through an integrated, firm-wide approach that reflects the close interrelation between these three critical aspects of professional services management. Equally crucially, the change programme – that will include business principles, processes and ultimately technology – can only succeed if it has total commitment from the top of the firm.

Managing delivery of client value

Clients today are looking to infuse and inspire their own businesses with attributes such as customer focus, responsiveness, flexibility and a commitment to value. They are looking for exactly the same from their professional advisers.

It is no coincidence that the firms who are leaders in client management are those that ensure they constantly listen to – and deliver exceptional value to – the client. They do this by adapting to innovative and flexible ways of working, providing the client with insight and experience from across the firm, and constantly thinking ahead for the client’s business.

This approach enables them to surprise and delight the client by coming up with options and recommendations wider than their brief, and service and responsiveness beyond the usual call of duty.

But does every firm do this? Our research suggests it probably doesn’t. We found that only 47 per cent of respondents benchmarked the delivery of each of their client matters in terms of quality, time and cost. And measurement is key to improvement – since there is no other way of ascertaining where the firm is, or how far it has come.

PA has found that most high-performing professional service firms tend to concentrate on four key activities:

  • understanding which clients are the most valuable to focus on – and then targeting effort on the 20% of clients who deliver 80% of their profitable revenue
  • offering innovative ways of working which offer clients added value whilst also making the firm easy to do business with
  • managing and sharing information seamlessly across the firm, and using it to review and refresh their products and services on a continual basis. The key requirement is to meet client needs as they are now – not as they were last month or last year
  • eliciting and capturing feedback from clients both during and after each engagement, and using this to refine the firm’s approach to sustaining and improving client satisfaction.

Managing People

Firms that manage their people well reap clear benefits. PA’s experience shows these organisations can attract and retain premium quality staff, deliver higher value generation per employee, and build a strong, cohesive core culture throughout the organisation.

All these benefits combine to create competitive advantage in the marketplace – leading directly to improved client service, a rising reputation and increasing profitability.

The first base of good people management is to let them know what the organisation wants from them, and reward them for delivering it. Employees need measurable objectives that are achievable at the personal level – such as maintaining and improving profitability, building closer client relationships and managing costs down. They need to have a broad view of their part in the firm’s overall success. And they need to feel recognised and rewarded when they play that part especially well.

Keys to managing people – incentivising the individual

PA’s research suggests most professional services firms are falling down in this regard. Only 60% of respondents say their staff have personal objectives linked to the success of the firm, and only 54% of firms reward all professional staff on the basis of their individual contribution to profitability.

The most successful professional services firms are doing all this and more. Typically they possess:

  • principles and processes which align individuals’ personal objectives with those of the organisation, and reward them according to their own performance and that of the firm as a whole
  • a culture that is about quality and client focus, underpinned by a reward structure aligned with these values. This ensures that staff – including support personnel – value and are motivated by client service
  • an HR function which plays a central and active role in the firm’s strategy formation and planning, and which can demonstrate clearly how its activities are adding value to the bottom-line.

Managing the Firm

Like any of its clients, a professional services firm can be managed exceptionally well or exceptionally badly.

Excellent commercial management of a firm underpins everything else it does. It drives down the costs of routine activities whilst providing a platform for higher efficiency, greater flexibility and increased profitability across all client services.

PA’s recent research shows this is a change that firms know they have to make. Some 60% of respondent firms believe that they will be doing more fixed fee work in future and 80% of firms know they must deliver work at lower cost. In an industry facing such a dramatic upheaval, good commercial management is not just important, but a prerequisite for survival.

Committed to commercial success

In PA’s experience, achieving excellence in the management of a professional services firm requires the following commitments:

  • making commercial management transparent – and focusing on profitability before any other consideration
  • introducing a pervasive ‘projects culture,’ under which the scope, financing and timescale of specific activities are always clearly defined and measured. This type of project-based thinking is the way forward, because it enables the firm to manage clients’ expectations that solutions will managed and delivered efficiently in project form – namely with a beginning and end, milestones and deliverables throughout, and clear costings related to each element. This tighter commercial focus not only opens the way to transparent benchmarking of every activity, but also to more effective and rigorous management of internal change programmes;
  • investing in technology – to provide the seamless access now needed to the best and most timely information from across the firm, as well as automating client-facing processes and driving down administration costs.

Managing an Integrated Approach

The firm, clients and people all stand to benefit from the ‘best practice’ management principles outlined for each of these groups. But one more element is needed – integration.

None of the strategies mentioned will deliver the desired results in isolation. Far from being separate entities with distinct interests, clients, people and firm are inextricably interrelated – and a change in approach to one will inevitably have an impact on the others.

This means that the actions taken and changes made in each area must be integrated and aligned across all three, on a firm-wide basis. The change programme must be driven by top management, which has to be openly, whole-heartedly and unanimously committed to it. And every initiative must be focused on what the firm is trying to achieve – with those changes most central to the delivery of the firm’s strategy being accorded the top priority.

If the organisation succeeds in making this commitment, then the firm, its clients and its people will all see the difference. Each will benefit from greater expertise, delivered by highly committed and well-rewarded people, who add real value to their clients’ business, and can charge a suitable premium for doing so.

John Kay is a member of PA Consulting Group’s Management Group. For further information, please contact Caroline Meares on 020 7312 4636 or