Strategy in professional services firms. What to do (or not do?)

by Nyree McKenzie

Heading to Harvard – Lessons Shared from Harvard Business School’s “Leading Professional Services Firms“ program.


With limited resources, strategy is as much about what you won’t do as much as what you choose to do.

When firms are faced with the classic firm equity model where management (or partners) are voted in to their roles as opposed to being board appointments, it’s difficult to reach consensus about firm strategy. This is because on a day to day basis, the professional services manager is faced with operational decisions around:

  • Which clients to serve?
  • Which projects to take?
  • How to price the engagements?
  • When to “make an investment” in a client?

Even more common is the difficulty that firms face in implementing the agreed-upon strategy (if and when they do finally reach consensus!).  Why? It’s grounded by the high level autonomy and personal choices made by professionals on a day to day basis.  Strategy in this space is typically implemented one client at a time, one project at a time. Further, any intellectual property developed is actually difficult to protect and use for sustained competitive advantage (as opposed to say, organisations with tangible products).

Yet innovation is still important as a means of differentiation. Just to complicate things further is the challenges in building a brand for the firm and its individuals. While the top three management consulting firms do this very well via thought leadership and attaching expertise to the person, it also comes from creating impact by attracting the best people, doing the best work, and servicing the best clients. In professional services, often the best ideas are generated as a consequence of direct client experience.

Knowledge management is also critical because it turns individual capabilities into firm-wide capabilities. From junior to senior manager all the lessons learned become an asset of the firm and extends the firm’s capabilities. While traditionally knowledge management has been largely practice-based repositories of information (seldom indexed or tagged properly!), it is now evolving into more strategic client-facing IT system exercises which reflect back on the firm in terms of innovation and value adding.  Examples include wiki-based technology that encourages real time collaboration and the creation of communities to involve people across and outside the firm.

People. Don’t run away from them (you love your job but don’t love it to the detriment of those around you). While the old adage of ‘your people are your most important asset’ may sound cliché, it’s true that you need to choose and manage your talent, and get people “on board”. If you observe the most successful firms like McKinsey & Company, it’s absolutely true that if you win the war on talent, you can win the war on clients. When you build capability, you build capacity.  So sustain it, and build in formal mechanisms at the system level such as professional evaluations, compensation and career pathways.

Your second most important asset is your clients (or market) – so choose and manage them well and know when to just “say no”.  This is where capacity comes from – having the “right type” of clients. Interestingly, why do we find it so hard to say “no” when we are so discerning on staff selection?  Are you guilty of making excuses like, “I’m a little short on budget this month so I will say no next time?…”). Day to day, from a revenue and strategic point of view, this is probably the biggest challenge for professional services practitioners.

Does your firm have mechanisms in place for client selection (price, values)?  In short, you really need the people and a very clear idea on what clients you want to attract. Pick your foundation clients well (the clients that will give you the lion’s share of business for say, the next two to three years).

Profitability is always a strategic issue and is a function of pricing structure which is very hard to change. Yet firms have long been stuck on fixed fees and time based fees. Few firms have succeeded with value based pricing (performance based fees are concept probably better understood and accepted by clients), but there are other ways to decouple the firm from the standard rate formula which can make enormous impact on profitability.

To differentiate, Harvard Business School suggests considering whether either of these alternative business models (ABMs) could be relevant to your firm strategy:

1.     Technology based model using reusable software (asset) tools: these codify firm-wide knowledge and makes it available to clients on different pricing structures such as pay per use or subscription. This enables the firm to sell it into other markets.

2.     Human capital based model: For example low cost labour (ig. India, Greece) or ustilising networks of experts at variable cost who could be located anywhere on projects on an as needs basis.  Typically, this scenario draws upon groups of boutique consultants who are at the top of their game. This collective intelligence supplements the traditional hierarchy but meets work/life needs. While software developers have long practiced this method, it is also an emerging trend in other sectors such as legal services with the rise of the contract lawyer (the author’s company Thought Bubble has also been built on this model).

Lessons learned

A clear strategy is critical to professional services firm success because it keeps the line of sight focused when the day to day casts clouds of uncertainty and distraction. In turbulent times (both good and bad), strategy helps to identify the best opportunities and avoid potholes. It keeps independent partners moving in the same direction, and helps the firm’s leaders make choices and not give in to pressure from one partner or office.

It involves meshing personal goals of partners aligned with the talent and capabilities of the firm.  Importantly, it provides clear firm external identity to your clients. And this in turn helps you to match them against the firm’s internal identity. The flow on effect is that in the eyes of clients, you want to surpass or at least match your competitor’s offerings.

While all of this makes logical sense, perhaps even a bigger challenge to setting a strategic agenda to identify what hurdles you need to overcome to bring about the strategic change.

This is the second article in the series: Heading to Harvard – Lessons Shared from Harvard Business School’s “Leading Professional Services Firms“, a week-long intensive Executive Education program that provides the latest thinking on developing, governing, and growing a profitable professional services firm.

When professionals have to manage: what becomes of the ‘producing manager’?

On boarding: Aligning the stars

The opportunity would not have been made possible without the wonderful support of Queensland University of Technology’s Fostering Executive Women Program (an Alumni Group of the QUT Graduate School of Business) and the generous sponsorship from St.George Bank.