It's Not All Good News
Of course, not all professional service firms are successful or wonderful places. Similar to other businesses, the vast majority of firms do not survive beyond their founders, growth is challenging, and some are just plain unpleasant and dysfunctional places to work. And just as the broader business world definitely could learn some lessons from professional services, the industry likewise needs to learn a thing or two from its clients. Some of the most notable lessons we observed in our research revolve around innovation, long-term strategic planning and investment, process efficiency, and marketing—or, more precisely, the lack thereof:
- Change is slow. The professional service industry is slow to evolve. Although service offerings have changed over time to adapt to changing client needs, competition has intensified—as one interviewee complained, "It's just not as gentlemanly as it used to be"—and mergers and acquisitions have altered the landscape for many segments. Technology has made managing the business and serving clients more efficient. Occasionally an event or disruption occurs in the market—such as the Sarbanes-Oxley Act in the accounting world, the rise of digital media in the advertising business, and the banking crisis for financial services—that forces firms to make some significant changes to what they do and how they do it. But basically the underlying structures and business models have not changed much in the past century.
- Professional service firms are shortsighted. Unlike product-based businesses, which have concrete deliverables, predictable production and sales cycles, and standard performance metrics, professional services is oriented toward the short term. Work traditionally is project-based and typically short-lived; clients come and go, making the sales pipeline unpredictable; and most professionals rarely stay in one firm for their entire career. Keeping busy short-term-oriented professionals focused on the big picture and a long-term strategy is a challenge to firm leaders. Plus, in a partnership structure, most of the firm's annual profits are distributed to the firm owners every year. Firm leaders lament the fact that it is often difficult to find funding for long-term strategic investment in new ideas and projects, because this involves reallocating partner earnings.
- Process improvement is low on the agenda. In general, process efficiency and improvement have not been a top management focus for professional service firms. Particularly in the bill-by-the-hour segments, there is little incentive to improve the underlying process of how work gets done. There is a general belief in the industry that each assignment is unique and therefore few processes can be made routine. Independent professionals like to run their own show and are resistant to the concept of standardization. Firms that offer more repeatable solutions, such as in the outsourcing and systems integration businesses, are much further down the path of understanding and managing their cost structures and revenue drivers.
- Marketing and sales are evolving. Marketing and sales, with a few notable exceptions, are relatively unsophisticated to nonexistent in professional services. The concept of brand is understood and carefully protected in the successful firms we studied, but most do not know how to strategically target and expand their markets or systematically sell their services and manage pipelines. For many professionals, marketing and sales are still mysterious and somewhat distasteful activities.
- Diversity is just a concept. As in most of the corporate world, diversity has not reached the upper ranks of professional service firms. Of our more than 130 interviewees, only four women and one non-Caucasian male held the top positions in their organizations. Green shoots of diversity programs surfaced throughout our interviews, and quite a few firms have invested time and resources to attract and retain women and minorities. But the truth is, it is primarily a white male world in the leadership ranks, and it will be quite some time before this fact changes significantly.