Thoughts on ways to improve the management of professional services firms

Wednesday, May 26, 2010

Concept of sustainable profit

Only five posts this year. Talk about a useless blog!

Over on my personal blog, I have had two posts looking at profits (here and here). In the second post, I talked a little about professional services.

My problems with profits in professional services is two fold.

First, I Have come to feel that the overwhelming focus on profits is simply taking all the fun out of life, as well as creating clashes with our professional roles. Here I was talking to a former senior partner of a major law firm the other day who had decided to exit stage left.

Many things came into that decision. One was his feeling that his share of the profit pool, the attempts to increase the size of that pool and hence the size of his share, simply wasn't worth it. The extra dollars at the margin held little value.

Don't get me wrong, profit remains important. Without it, you can't do things. However, this brings me to my second point.

In thinking about profit, we tend to look to the immediate future. More and more, I think that we need to think about the concept of sustainable profit.

If the aim of the firm is to achieve maximum growth in profits per partner that's fine. However, it also carries costs in terms of life style and also risk. In many cases, a better question is how do we sustain our profit level, perhaps building in some growth, over extended periods?

This involves different strategic choices, as well as different staff management and investment patterns. It is both easier and harder to achieve. Easier in that the pressures are less, harder in that it requires action to insulate the firm to some degree from market changes. Survivability is increased, but at the cost of reduced maximum returns per partner.