the firm will be possessive about clients because they will not understand how they will benefit from pursuing the good of the organization. Individualistic attitudes- This is my client as opposed to This is the firms client -are still too prevalent in professional services firms. That attitude undermines the long-term health of the organization. It reduces the firm to a mere collection of professionals who have rented space together and are sharing common overhead. In a highly competitive, professional services-based economy, sole practitioners or small, loosely organized firms are at a distinct disadvantage. Every professional in a firm must learn to think, Our firm is our best and most important client.

Clients/Customers/Consumers

The key question for this group is: Can we provide a better service at a lower cost? An absolutely critical element of a strategically managed practice is the focus on the customer. It is essential that we understand what the customer needs and expects to develop successful services that add real value.

The key issue that a firm must address with its customers is whether they are in a position to demand higher quality services at a lower cost from the firm. If they are, the firm must respond both internally and externally.

This evaluation should start with every professional services firm asking this question: What do our clients really want from us? If a firm has not had focused discussions with potential clients, if it has not conducted surveys of the marketplace, if it has not taken a look at what its competition is doing and how they are packaging their services, or if it does not know the key indicators of what the marketplace is ultimately saying it desires, then the firm will not be able to design services around the expectations of the constituency it wants to serve. The firm is going to be disappointed by the market share that it gets. It will be disappointed by the value the marketplace is willing to pay for the services that it provides, and it will be distressed that its competition is far more successful. Success with clients depends on how well the firm satisfies their needs.

Dale Cordial, CEO of the PT Group, is a highly successful physical therapist who has developed a franchise of rehabilitation centers throughout western Pennsylvania. He has implemented a management system similar to the one discussed here. Mr. Cordial notes:5

Success in any business starts with a philosophy. In our case it is a philosophy of patient care that we provide for our patients a very high intensity, high quality level of care to help them reach their maximum functional level in the shortest period of time, cost-effectively. With this philosophy in mind, we have developed clinical pathways to address patient compliance, number of treatment visits per diagnosis, and aggressiveness of care. Our measurement parameters are then defined around those goals. This process has made a difference in our business in two ways: First, the patient receives a very high level of care at a

very cost-effective price. Second, it has made our practice efficient so that we are able to maintain profitability in this very challenging health care environment, despite continual pressure on reimbursement rates and treatment visit limitations.

Our philosophy of care also matches most third party payer agendas in that they are continually attempting to decrease their overall case cost and control the number of physical therapy visits patients are permitted. Large third party payers actually track our performance and give us a report card. By meeting or being more cost-effective than their network averages, we become one of their preferred providers.

Edi Osborne observes:6

Obviously, having a client-centered focus is a given. Although firms know this, they tend to focus on how they serve the client and not what the client needs. Delivering a more timely and accurate tax return is important, but understanding what their client really needs is far more meaningful. That includes knowing what goals the client has and making sure that everything done for the client, even if it is just a tax return, moves the client closer to its desired outcome. Beyond that, helping clients articulate their goals, and develop strategy to achieve them, is a much better application of a client-centered focus.

Vendors/Suppliers

The key issue with vendors is: Are they in a position to give the firm lower quality products and services at a higher price? If the firm is vulnerable to its vendors, it must address the problem decisively. Vendor relationships affect everything the firm does. If the firm is able to maximize its margins or reduce its costs, it gains economic power to reinvest in its business and in the needs of its clients. But if vendors consume the firms resources, the firm cannot reinvest them. Chapter 16 covers the topic of vendor selection and management in detail; it is addressed in brief here.

The relationship a firm has with its vendors should be the reverse of the relationship the firm has with its own clients. The firm should think of itself as the customer of the vendor, then be proactive in making sure the vendor knows exactly what it wants. But be aware of vendors that overpromise and underdeliver. That can be just as expensive as paying too much for a product or service.

Match purchases with the needs of the firm. For instance, if expensive office space in a tony financial district is critical to the profile of the firms practice, it has to be there. If such a location is not critical, then do not consume resources on something that will not advance the profile of the firm. Look instead for less expensive space in more modest locations, and apply the resources saved to enhance the benefits provided to one of the firms other three constituency segments. For example, if a firm saves money with

a vendor, it could create performance incentives for its employees, upgrade its technological capabilities to impact the way it serves its clients, or simply provide a higher return to the owners.

The owners challenge is maximizing the return to their business and ultimately to themselves. They must decide how much capital to reinvest in the future of the organization and how much capital to take out as a result of successful operations.

Management Structure

A firm can be strategically managed regardless of whether it has a single managing partner, an executive committee, or a decentralized management structure that may assign certain management tasks to people who are not owners. However, key decision makers must be involved. The manner in which the firm establishes its value objective is the responsibility of the management team. The team sets the goals and evaluates progress toward them. Timely management reports should provide feedback to the team-tell them how they are performing against the established value objective-and the management must be committed to keeping the teams involved in the key decisions that are being made. The more information provided, the better, as long as it is relevant to the pursuit of the value objective and is not just for the purpose of filling the office with paper.

It is a common misconception that to be part of the management team in a professional services firm, you must be an owner. In fact, with todays access to information, people at all levels of the organization can be capable of making informed decisions for the firm. Nonowner managers, however, must be educated about how the organization thinks strategically and manages strategically, as well as taught effective decision-making skills. The result should be a broader definition of management team that includes all individuals who have significant responsibility for ensuring that the firm reaches its goals.

Managers are the people who make decisions and supervise other employees. They are the ones who handle relationships and deal with vendors. All of their interactions have an impact on the firms ability to achieve its value objective. They are the management team and they work in various layers. The firm can have a multitiered management structure that incorporates the contributions of employees from the top to the bottom of the organization, and all of them can have a strategic impact on the way the business is run. There is no reason that a firm cannot look at all of those individuals as being part of its management team.

Today, it is more important for a firm to be interactive than hierarchical. Exhibit 12.3, which depicts an organization that is ostensibly hierarchical, shows that successful organizations include all staff levels in running their business-from the owners who set the vision, to the management team