Managing the professional services firm - end month reflections November 2008

So we come to the end of another month and a rocky month it's been in some ways.

Just to take our mind of current troubles, this poster is from an exhibition by Australia's National Library, Follow the Sun - Australian Travel Posters  1930s to 1950s.

The scene is quite iconic of Australia then (c1930s) and now.

I continue to wonder whether I should merge this blog with Management Perspectives simply because two professional blogs are difficult to maintain.

I have decided not to for the present. To my mind, the two blogs are complimentary.

Management Perspectives provides a vehicle for my writing on economics and broader managements issues extending beyond this blog's focus.

I am better of maintaining both for the present, cross-referencing material as appropriate.   

Managing the professional services firm: a pause for reflection

As I write this post, it is twenty two days since my last post.

There is so much to write about. I have written many posts on other of my blogs, plus I have a large number of part completed posts on this blog. As issues come up, I start a post.

What to do? I have decided to bring up this explanatory post, then back-fill. I really want to maintain the continuity in my thinking and writing.

Updated

Australian law firms retrench

The economic downturn in Australia is clearly biting the legal sector.

A story in today's (28 November) Australian Financial Review - I cannot give you the link because it is behind the pay wall - records that Corrs Chambers Westgarth has retrenched fourteen lawyers to try to fit its business to the new economic landscape. This brings the total number of retrenchments including support staff to something approaching fifty staff.

Last week DLA Phillips Fox confirmed that it had retrenched twenty staff including twelve lawwers at its Sydney and Auckland offices.

A Scottish doctor's reservations about evidence based medicine - measurable vs the immeasurable

In my on-going series on the development of a discipline of practice, see Establishing a Discipline of Practice - stocktake of posts, I discussed the concept and some of the implications of evidence based medicine.

In Real world medicine a Scottish doctor expresses his concerns about the application of evidence based medicine in a UK context. In doing so, he makes a distinction between the measurable and immeasurable, suggesting that blind focus on the measurable

He has a point. Part of the reason for the development of evidence based medicine lay in the need to challenge and test previously accepted medical nostrums. However its blind formalised application can distort practice to just the measurable. This holds especially where application is mandated through formalised Government rules.

The issue of measurable vs immeasurable links to craft vs science.

Any practitioner knows that certain things work from experience even though the results cannot be proved in a rigorous scientific fashion. This is the craft component.

Yet we also know that practitioners, and this is not limited to medicine, apply things from belief independent of real results. Belief stands as a barrier. Evidence based medicine aims to test this. This is the scientific component.

In thinking about the development of a discipline of practice, we need to take explicit account of the importance of the immeasurable. Measurement is not all.

Postscript

A comment from Bob Quiggin on another post really made me laugh:

Just on evidence based Scottish doctors, perhaps the most famous is Sir Arthur Conan Doyle, who used to emphasise the importance of observation and evidence in medicine as a medical lecturer.

One of his favoured tricks was to take a beaker of foul tasting fluid, dip his finger into it, taste it, pull a face and then ask the class to do the same. Only after they had all tasted the fluid did he take them to task for not noticing that he had dipped one finger, but tasted another. Unlike them. :)

Nice story, isn't it!

In Defence of Partnerships

Who would have thought it? I have spent a fair bit of time crtically evaluating partnership structures. Yet now I feel the need to come to their defence!

The reason for this is simple. The best partnerships do tend to focus on their clients on one side, their staff on the other.

Note I say the best partnerships. Too many partnerships actually combine the worst elements of corporate structures on one side with the weaknesses of partnership structures on the other.

A key advantage of partnership structures at a time of economic downturn is that partners as owners can choose to reduce their own incomes in a way that senior managers in corporate structures cannot or will not.

This comes about because to partners as owners, reductions in remuneration flow (a partner loss) can improve capital performance (a partner gain).

I do not think that this detracts from the validity of my previous arguments. However, it does demonstrate the need to take a broad range of issues into account when considering firm structures.

Economics of professional services - surviving recession 5: expanding the business 1

In my third post in the surviving recession series I emphasised the need not to simply freeze all new spending since this was likely to cripple your chances of doing the new things that might be required to survive a downturn. This is especially important if you want to grow the business despite the recession.

Just because the economy has gone into downturn does not mean that you cannot increase billings in your existing practice areas, nor expand into new areas. However, you also need to be aware of the problems involved.

The starting point is to understand your marketplace.

How bad is the contraction in your key areas? If the market is down by a third, and this happened in a number of professional services areas in the Australian economic downturn over 1990 and 1991, then you have to increase your market share by just over fifty per cent to maintain constant fees.

If you are already the market leader, this may in fact be impossible. In this case, you will need to consider new areas if you are to maintain or increase billings.

The next point is to understand your competition. They will be facing the same problems, and may respond quite aggressively. You need to be able to understand this and take it into account.

An example to illustrate.

The 1990 crash meant that all the big shops suddenly started looking for new work to try to cover their fixed costs, in so doing bidding for jobs that they would not have considered before. In the case in question, the firm (the consulting arm of a big consulting firm) had a survey centre whose work had dropped very sharply.

The Australian Department of Defence wanted a capability census carried out of a small but important local sector. This involved identifying and then contacting every industry participant, writing the results up in a standardised way to allow the Department to make judgements about both existing capabilities and capability gaps.

Defence industry was one of our core areas. We really wanted this job, cut our costs as much as we could while putting forward a very detailed methodology. The Defence area in question wanted us to do the job because they thought we would give the best result. However, without giving away information, they indicated that the big shop had come in with a much lower offer, making it very difficult to reject them even though their methodology was not as good. We and the big shop were invited to put in revised offers.

We really agonised over this one, Finally, we told Defence that we could not lower the price further because this would almost certainly risk a cash loss on the job. The assignment went to the big shop.

Later when we found out the tender price (tender results of this type are on the public record) we discovered that our opposition's price was 60 per cent of ours. We knew our costs very well. It seemed clear that they had no idea of the real costs involved. And so it proved. The job took twice as long as expected at a cash out cost on our estimate more than twice the tender amount.

The third point is to understand your clients. In a sense, the starting point in surviving recession is to try to keep what you have.

Now this one may seem self evident. Of course you need to understand your clients. You do, don't you?

The problem is that understanding clients is quite complicated and is actually not well done because it involves interactions at a number of different levels. Many firms are really quite bad at it.

I will look at the detail here in my next post in this series.

Next post. Previous post. Entry post.

Common Management Problems - get the booklet

Some time ago I began the Common Management Problems series as a way of providing nuts and bolts advice that might aid especially professionals entering into management roles to improve their performance. Measured by visits, the series has been quite popular.

I have now turned this into a simple and quite short word document to make it more accessible. To cover processing costs, I have put a small charge on it of $A15 payable through Paypal. Those who do not want the convenience can still access the material through this blog.

If you would like your own copy, please email me at ndarala(at)optusnet(dot)com(dot)au and I will send you the Paypal account.