Organizational Model Options

Professional services firms typically follow one of three generic business models: the practice model, the functional model, or the hybrid model. Exhibit 9.1 outlines the characteristics of the three models for organizing the professional services firm. Figure 9.2 summarizes the pros and cons of these models. A fourth model, the geographic model, which can take the form of any of the previous models but on a regional basis, is also appropriate for larger firms with multiple geographies, particularly international offices. Within each model, most organizations employ matrix structures, which are aligned against various dimensions, including industry, geography, and service line.

Regardless of model used, successful firms create mechanisms that avoid silos and eliminate as many boundaries and walls as possible. Intellectual capital is developed and made available to the whole firm, and avenues of information exchange exist across the entire firm structure. Leadership encourages transparency by creating mechanisms to ensure that everyone is aware of what projects the firm is working on and what large deals are due to start in the near term. There must also be mechanism for tracking professional staff assigned to projects and overall professional staff availability. This encourages professional staff to work together on projects and opportunities regardless of their spot in the overall organization and provides a tracking mechanism to indicate when somebody is involved either too much or not enough. Many firms use an interlocking series of meetings to ensure effective information exchange. For example, there might be weekly practice meetings, biweekly cross-practice meetings, and monthly leadership meetings. Cross-practice announcements of new projects that include discussions of engagements, details of how the firm made the win, and suggestions for cross-selling opportunities can aid in achieving firmwide transparency. Because it can be all too easy for staff to become so involved in specific projects that the overall needs and goals of the firm are ignored, these key concepts must be built into any professional services firm organization structure. Resource and bench management are concepts covered in more detail in Chapter 13.

Transparency and organizational knowledge-sharing ensure lessons from previous experience are leveraged and inculcated to improve future performance. They also allow firms to create standard toolkits, methods and procedures to create scalable, lower cost solutions. They facilitate sharing of best practices for revenue growth and cost improvement. Finally, they help the firm leverage knowledge management platforms to enable broader cross-staffing, reduce rework, and maintain its knowledge base despite turnover. The organization model adopted by a firm will have one of the largest single impacts on how well the firm will share information and be able to take full advantages of the firms internal capabilities, knowledge and expertise.

Exhibit 9.1 Three Professional Services Organization Models

Each organization model has its strengths and weaknesses. Which is best for a particular firm depends on the type of firm, what kind of services it provides, and how it chooses to leverage its staff. Choosing between them requires trade-offs primarily between economies of scale and degree of delivery staff involvement in customer relationship. Making the wrong choice can have dire consequences, the worst of which is that the firm becomes non-competitive. A firm cannot deliver what its clients need at the right cost point if it chooses the wrong organization structure. The organization model defines staffing structure, numbers of staff skill sets, and the cost and leverage model of staff, and drives hiring and promotion practices. If a firms business involves large-scale technology implementation, for example, or requires large numbers of staff to work at the clients site for an extended time period, it is illogical for the majority of employees to be senior staff with bill-able rates. Instead, it is more practical and cost effective to have a smaller number of senior staff to strategize, design, and oversee projects supported by a large pool of staff with lower level people with commensurately lower

billable rates who can perform the implementations-an example of a high-leverage firm. Chapter 2, professional services firm benchmarking addresses this issue in detail.

A firm that focuses on strategy requires a senior team that has the brainpower to perform analyses, think through strategy, and design customized, innovative business solutions for clients. For that firm, a smaller number of recent undergraduates to assist with research and delivery is more cost effective. Choosing the right staffing model allows a firm to be more competitive and dictates the arena in which the staff can play successfully.

Practice Model

The practice model, a group of self-contained practices, each with a single team of individuals sharing delivery, business development, and service development roles, is most commonly seen in management or technology consulting firms, or professional services firms that provide services across a broad set of industries and, in some cases, focus on more strategic issues. Within each practice, a pyramid of people, senior and junior, have a specific understanding of an industry or function. This makes it easier to create effective specialist teams, while offering the option of going outside the practice to other practices for specialists in other functions or industries when needed. Essentially, practices are smaller speciality firms within the larger company while still being governed by overall firm guidelines that are imposed across the organization.

Specific definitions of practice groups vary across firms and industries. They might be divided by substantive area, service line, or function. In consulting, for example, functions might include operations, strategy, IT, HR, change management, and business process management. In law firms, they might include labor and employment, corporate, tax, securities, and mergers and acquisitions. Other firms divide their practices by industry or client group, such as technology, financial services, media, telecommunications, and health care. Limited support functions such as finance, staffing, marketing, report production, research, and so on may be provided as shared services across practices. Chapter 20 on office management discusses categories of shared services that should be considered by the professional services firm in more detail.

Firms choose a practice group structure because it has the potential to attract a higher value of work and higher volumes of work from better clients. Practice groups can most easily achieve superior market recognition of expertise in particular industries or functions, and more easily create innovative intellectual capital and service lines. They also create cohesive units across offices to better target and develop existing and prospective clients. In addition, they can encourage and support the creation of cutting-edge