I was looking for a good book about how a professional services firm operates. There are tons of lame books for “getting started in consulting” or “your first year as a consultant”, but I wanted something that was more geared toward firms. You know, those companies with more than a couple loosely-connected independent contractors? Fortunately David Maister delivered with Managing the Professional Services Firm.
The book is a collection of 32 articles that he published from 1982 to 1995 in such respected industry periodicals as American Lawyer, Sloan Management Review, and the Journal of Management Consulting. Since each chapter was previously an article, each one is easily digestible in a single sitting. In the book the articles are arranged in order so that articles within each of the six sections build on one or more articles earlier in that section. The sections cover consulting firm basics, client matters, employee matters, partnership matters, multi-site issues, and asset management. David covers so many topics that are valuable that here I will pick on what I think are the highlights.
Partners are the key to the professional services firm. Nobody says, “I want to work my way up to be a junior consultant!” Partners are those people, who through experience, hard work, and perseverance have made it to the top of the firm. These are the people that lead exciting projects, bring in work to the firm, and command high bill rates. So a natural focus for the book is measuring partner profitability. Most consultants would agree that, as a profession, we are evaluated primarily on our personal billability, not our overall contribution to the firm (unless you are an independent consultant, and then you ARE the firm!). But who is worth more, a partner who is highly billable and works alone or a partner that keeps six junior consultants working on a project but whose billability is down because of it? So Maister came up with a variation on the DuPont formula that shows three paths to profitability (profits / partners): margin (profits / fees), productivity (fees / staff), and leverage (staff / partners). He also recommends per-project profit measuring. Most firms make 120 percent of their profit on 80 percent of the accounts. The other 20 percent actually lose money! And usually the accounts that lose money are the ones that are seen as “high-profile must win” projects.
After we understand that, then it is time to find out how to satisfy another of our firm’s three stakeholders, the client. Maister draws the distinction between quality work and quality service. Client satisfaction equals perception minus expectation. If the client perceives service at a certain level, but expected something more, you’re in trouble! Notice that this formula mentions nothing about reality. So managing expectations keeps client satisfaction achievable by preventing a letdown. On the flip side, the client must perceive that your work is valuable and of high-quality. This is a challenge in a time when clients are demanding more and competing firms are willing to compete based on price. You may think you compete based on quality, not quantity, but your clients may see the situation differently.
Finally we turn our attention to the remaining stakeholder, the firm’s employees. Employees can be seen in terms similar to financial statements (no I’m not dehumanizing consultants, stick with me for a minute) with a balance sheet and an income statement. An employee’s balance sheet is their accumulated inventory of skills and knowledge and client relationships. As we all know, especially in the software industry, skills and knowledge deteriorate at an alarmingly fast rate. So every employee must continually upgrade their current skills and add news ones in a process of continual learning. This process of continuous improvement is the income statement; what new skills or abilities are learned that can be put on my balance sheet. In a similar manner client relationships are based on how deep they are. What is a deep relationship? A deep client relationship is one where the client will give you projects that they don’t know that you can do. Landing a contract is easy if you have prior experience doing something similar, but you are not going to learn much in the process (since you’ve done it before, right?). A client who trusts you will give you projects that will expand your horizons and challenge your abilities. It’s usually harder work and much more stressful, but it is valuable income that builds your assets, resulting in direct improvements to your balance sheet (which makes it easier to get new work, and so on).
If you work at a consulting company or other professional services firm, you owe it to yourself to read this book. If you are an independent contractor or have started your own consulting company, you owe it to yourself to read most of this book (skipping the partner and multi-site sections). And if you hire consulting firms, this certainly offers a lot of insight into the consulting industry.