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A Special Business
Professional service firms differ from other companies in that they require a high level of customization and have a lot of interaction with clients. Because qualified people are so critical, professional service firms must balance recruiting quality employees while also creating customized work for their clients.
To be successful, businesses need to balance the number of junior employees with the number of senior employees. The type of work that a business does will determine how many people it needs in each category and its “leverage,” or ratio of junior to senior employees. There are three general categories for professional services:
Firms specialize in providing information to their clients. They need specialized knowledge and pay for it. The staff members who collect the information are not involved with those who analyze it, so they don’t interact much with each other.
They provide less specialized work. They have to be more flexible, and they can’t focus on one specific type of work. They typically employ people with less experience than firms that specialize in a particular area.
When a firm has the same projects over and over, it becomes easy to delegate those tasks. It’s also easier for upper level professionals to train junior staff on how to do things. This allows you to accept more work because your employees can handle it easily. The most important thing is matching your in-house talent with the project work you take on so that you don’t waste time or money doing something that requires too much of your employees’ time. The way we categorize people inside companies is similar to how they were categorized in medieval times – as apprentices, journeymen/women and masters (or partners). These titles have changed slightly but the idea remains the same: some people are great at finding new business while others are good at managing existing clients; then there are those who just grind away all day long without getting paid very well for their efforts.
The key to a professional service firm’s profitability is how well it leverages the cost of senior staff. When you bill for a senior partner’s time in combination with billing for the time of lower-cost junior staff members, this combo can reduce your hourly rate while increasing your profits. Since market prices determine what people are willing to pay, firms’ costs depend on developing the proper mix of associate teams. Lower your service costs by using more mid-level staff members to complete projects.
The way that a firm is leveraged affects its promotion policies and growth rates. Firms can use high turnover strategies to find the best people, but they also have to promote them at some point. If firms try to manage this kind of balance among staff levels, be aware that morale plays a key role in professional productivity. When promotional opportunities decline too low, morale and productivity frequently decrease as well. However, if changes in the company’s strategy are called for, the firm’s professionals should plan them with small work groups focused on action rather than objectives.
Practice Development
Organize your professional service firm based on its purpose and market. The three most common structures are the ones that are based on levels of expertise, experience or efficiency.
- Firms with high expertise tend to be very profitable. They have low overhead and a highly trained staff. These firms do not take on projects that are not customized, but they excel at the ones they choose to work on. Therefore, position your firm as having a senior staff made up of experts with strong reputations for doing cutting edge work over long periods of time.
