Professional Services Leadership Handbook

How to Lead a Professional Services Firm in a New Age of Competitive Disruption

Nigel Clark, Ben Kent, Alastair Beddow, Adrian Furner

• Publisher: Kogan Page
• Year: 2017
• ISBN:
  9780749477356
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

Professional services firms - from the legal sector to accountancy, consulting and beyond - face increased disruption. Service delivery models are under pressure to adapt to changing client expectations. Technology offers new ways of working with clients, but changes the skills profile required of professionals, and threatens the traditional people-centred business model. The Professional Services Leadership Handbook equips leaders, and aspiring leaders, with tools and insights both to tackle these long-term disruptive trends and to maximise their firm's profitability today.Leaders of professional services firms find themselves with a daunting, but exciting, range of challenges ahead. Using practical insights drawn from experienced professional services leaders, the Professional Services Leadership Handbook explores new models and working practices to address four components of strategic leadership: clients, business, people and self leadership. It offers clear-sighted analysis of common pain points, and provides innovative solutions for dealing with them. This practical guide is designed for everyone involved in leadership decisions, whether that be a practice area, sector group, business function, or even firm-wide leadership role. It will help readers to focus their attention on the activities that will really make a difference to the success of their firm.

PART ONE

Business Leadership

Every new leader has an opportunity to inject energy and vision into their firm at the outset of their tenure. It is important to seize this moment by creating a sense of urgency, a burning platform, a compelling reason for changing the status quo.

TIM DIXON-PHILLIP, CO-FOUNDER OF SERVICE REALITY, AND FORMER SALES AND MARKETING DIRECTOR AT EY

Without a clear sense of vision firms lose their way. Yet vision alone is not enough: leaders who are very strong on strategy but very poor on delivery must surround themselves with able implementers in order to make their vision a reality.

NICK HOLT, PARTNER AT SR SEARCH, AND FORMER MANAGING PARTNER AT KLEGAL

The more complicated firms make their strategic plans, the less likely those plans are to be used in the way that they should be. The most able leaders recognize that strategic plans should be referred to on an almost daily basis, as a living and working tool to set goals and targets, and to ensure that progress can be properly and regularly monitored and evaluated.

PHILIP GEORGE, FORMER MANAGING PARTNER AT BIRKETT LONG

Being a great leader of a professional firm requires effective business leadership. Traditionally, this meant keeping one eye on cash flows, ensuring that colleagues were sufficiently busy and that clients were billed regularly to avoid work in progress (WIP) becoming too high. However, professional services firms today are more complex businesses than ever before: they are more global, with more diverse operating models and operate in an ecosystem where the pace of change is incredibly fast. This complexity requires a new type of business leadership.

Though demand for professional services remains strong, and in many areas continues to increase, it is becoming harder for firms to make money simply by doing what they have always done. PricewaterhouseCooper’s (PwC) annual study of the legal sector in the UK reveals that between 2010 and 2016 average profit margins for all but the top 10 UK law firms remained stagnant or had declined. Law firms in the ‘squeezed middle’ – those ranked 26 to 50 by turn-over – have suffered most, with an average drop in margins from 27.2 per cent to 23.1 per cent. Across firms of all types and sizes, profit margin per chargeable hour has been on a downward trend over the last seven years (PwC, 2016).

As regulatory barriers to entry have broken down, competition in professional services has boomed. Competitors that look and operate very differently from the traditional pyramidal professional services firm have gained a foothold in the market over the last decade. Disruptors use technology or alternative resourcing models to meet client needs in totally new ways. Many of these new breeds of competitor have thrived; for example, Axiom, a provider of technology-enabled legal services, has grown on average 45 per cent each year since its inception in 2000 (Axiom, 2016). But it is not only the competitive landscape and new technologies that have fundamentally changed the way professional services firms operate as businesses. The nature of the advice they provide to clients and the kind of services they offer have evolved significantly as well.

Traditionally, clients had a problem and professionals advised: the decision, action and risk remained the clients’ prerogative. Yet the rise of process-automation and self-service precedents has meant that it is more difficult for firms to make good money on their ‘bread and butter’ services. Profit margins are being slashed for all but the highest-value premium advice. Innovative professional services firms are exploring opportunities to turn a profit by having more skin in the game with their clients and taking responsibility for implementing their own advice in collaboration with clients. There may be more money to be made by the firms that take the risk of implementation away from their clients, but this requires a remodelling of the client-professional relationship and pricing structures that reflect this new way of working. The implication of these various business changes for leaders in professional services firms is profound. Leaders need to have a long-term vision for how they will respond to structural changes in the market while maintaining healthy levels of profitability. They also need to be more agile and opportunistic to take advantage of the faster pace of change. As a leader, how do you transform your firm and challenge the boundaries of the traditional professional services operating model? What kind of risk profile do you need to tolerate to retain competitive advantage, deepen client relationships and grow market share in light of disruptive competitors?

01

Vision: how to create and implement a robust strategic plan

Jon Randall, COO at accountancy firm Moore Stephens, achieved his first leadership position when he was still in his thirties. He learnt that devising a strategy for professional services firms is a subtle skill that requires time and investment:

To devise an effective strategy you have to listen more than you talk. Start with some fundamental questions: What markets do we want to break into? What clients do we want to work with? What kind of money do we want to make? Only when you have answered those questions does the work begin to persuade your staff and partners that your vision for the firm will deliver what they want. The simpler the picture of the strategy you can paint, the more consensus there will be that the firm is charting the right course to success.

Creating a strategy is one of the most important tasks for a newly appointed leader. A strategic review may occur once or twice in any leader’s tenure but will often determine whether an individual’s leadership is viewed as a success or failure by colleagues.

Most corporates have formal, well-established strategic planning processes. By contrast, professional services firms typically take a more ad hoc and less evidence-based approach to strategy development. Professionals will often be rigorous when solving their clients’ issues but will take an informal approach to their own firm’s strategy. Accountability for results and the rigorous review of progress against agreed targets are not often enforced within professional services firms. This holds back many firms from taking transformative decisions about their future strategic direction.

In our experience there is a simple seven step process that leaders can follow to develop, communicate and implement a strategic vision for their firm. We call this approach the Bow Tie process (see Figure 1.1). At its heart is a concise summary of the firm’s strategic plan that all members of a firm can understand and buy into. This approach works equally well when developing a strategic plan for a team, department or sector group.

Figure 1.1 The Bow Tie process

The Bow Tie process

Our Bow Tie process is based on a few very simple principles. First, strategic planning is an evolving process that needs to be regularly reviewed and tweaked rather than a one-off exercise that quickly atrophies into irrelevance. Second, any strategy must be based on facts about a firm’s clients and markets but overloading on information can lead to analysis paralysis. Third, engaging staff and partners in the process is crucial but leaders also need to make firm decisions and learn to say ‘no’ sometimes. And fourth, maintaining momentum by cascading and implementing the strategy through the firm is an often-overlooked driver of success.

Step 1: analyse your clients and markets

All too often strategy in professional services firms is based solely on partner opinions, gut feelings or hunches, and not on the reality of clients and the market. Even the biggest professional services firms can fail to look upwards and outwards. The tendency for leaders is to look backwards and within for guidance. If a strategy is put together solely for internal reasons, to keep things ticking over, or is too risk-averse, it will fail to inspire and will not give sufficient impetus for change.

On the other hand, it is tempting to spend lots of time looking at data, forecasts and market reports trying to create a perfect plan. So how do you build the evidence base you need without becoming overwhelmed?

A helpful starting point is the ‘Decision Grid’, a framewo...