Managing the Professional Service Firm

Tom Peters

Thanks to trends toward subcontracting and the onset of the information age, among other factors, professional service firms—law offices, accountancies, ad agencies, market-research firms, software houses, industrial-design outfits, temporary-employment agencies, and management consultancies—are playing an increasingly important role in our economy.

I have spent my professional life in and among such firms, including eight years at McKinsey & Co., arguably the world’s premier general-management consultancy. From first-hand observations and subsequent reflection, here are factors that distinguish the winners from the losers.

PEOPLE. People ought to come first, even before customers, in any organization. But professional service firms are their people. The care and feeding of consultants, accountants, programmers, lawyers, and the increasingly important support staff must be task number one for these concerns.

At McKinsey, for example, people management is an obsession. Busy, client-centered professionals devote endless hours to consulting-staff recruiting. Top consultants, junior and senior, spend several weeks each year on campus recruiting, followed by many more weeks of extensive office interviews. Courtship rituals commonly stretch over many months.

McKinsey also devotes equal time to formal evaluation. More important, continuous coaching occurs on the job, and coaching skill among those aspiring to partnership is a major consideration in promotion. As times and technologies change, formal training must play a more central role. Most professional firms push to book “billable hours,” but not overemphasizing on-the-job training is increasingly perilous.

The hottest debate over people policies, among management consultants and others, revolves around “up or out” versus providing multiple career tracks, and “seasoned” versus “freshcaught” recruiting. McKinsey and The Boston Consulting Group, for example, seek fresh-caught recruits and stick to an “up-or-out” career path. Booz-Allen, A.T. Kearney, A.D. Little, and others snare seasoned professionals and retain contributors who do not attain partner status.

The chief argument for fresh caught is burnout. Many professional service careers are young men’s and women’s games. Travel and client demands abuse body and soul. A 35-year-old recruit, who worked at just one or two sites for one company, may have a tough time with the usual professional service firm tumult. On the other hand, management consultants are notorious for designing brilliant, but non-implementable, schemes. Real-world, first-hand experience is invaluable.

As to “up or out,” professional-service firms simply cannot afford lethargic performance. But to make “up or out” work, the “out” result must be as painless as possible. McKinsey’s senior persons pull every string to assist next-job placement. The firm also painstakingly nurtures its “alumni.” The distinction between “quits” and “outs” among alumni soon fades, replaced by a “once a Marine, always a Marine” ethos.

CUSTOMERS. “Close to the customer” has become a popular, late-80s buzz phrase. “People serving people” may be a useful slogan for an airline or pizza firm—but the plane or the pie is also a big part of the transaction. “People serving people” is all there is in the delivery of professional service!

Nonetheless, some do it much better than others. McKinsey’s exceptional devotion to the client has been the key to its sustained success in the face of changing times and an ever-changing cast of worthy competitors.

I chuckled when the term “relationship management” came into vogue, with outfits such as IBM held up as paragons. Nurturing customer relationships over time, much like courtship and marriage, is the sine qua non for every successful professional service firm. Yet too much emphasis on relationship management can deteriorate into realization of the old consultant joke: “They borrow your watch, then tell you what time it is, and charge you an arm and a leg for the privilege of having them do so.”

Becoming close to the customer in professional service firms requires that the “engagement” (a common term for the contracted client-service task) is the be-all and end-all. At a McKinsey, performance on the engagement means professional life or death—period.

QUALITY. “Quality first, profit as a derivative” is the hallmark of the best firms in any industry, from Digital Equipment to Disney and Herman Miller. Yet too few firms adopt this formula. In professional service, it is essential. The top accountancies and law firms live to provide client-centered excellence, and let profit follow—a long way behind. As a young consultant at McKinsey, I was oblivious to profit in my early “associate” years, and hardly obsessed by it in subsequent management roles.

Client-service excellence means, for example, that a firm must redo a job, fast and for free, if anything at all goes wrong. Some professional service firms that are obsessed with “billable hours” and “utilization” have succeeded. But the sustaining stars sublimate such variables—and profit—and instead engender a reputation for demonstrated overkill when it comes to client-service quality.

Next week, a look at organization, leadership, and demands for innovation and technological excellence in the changing professional service firm landscape.