The Anatomy of a Consulting Firm 01 - Leverage Structure

By David Maister

The consulting firm may be viewed as the modern embodiment of the medieval craftsman’s shop, with its apprentices, journeymen and master craftsmen. The early years of an individual’s association with a consulting firm are, indeed, usually viewed as an apprenticeship, and the relation between juniors and seniors is the same: the senior craftsmen repay the hard work and assistance of the juniors by teaching them their craft.

Every consulting project (and hence every consulting firm) has its own appropriate mix of three kinds of people. By tradition, these are called “finders, minders and grinders.” This refers to the three main activities that make up consulting work. Finders (usually the most senior level) are responsible for bringing in the business, scoping and designing the projects, and engaging in the high-level client relations necessary during the work. The main responsibility of minders is to manage the projects and the team of people working on it. Grinders (the lowest level) perform the analytical tasks. Naturally, this is an idealized structure and, depending on the firm, all may participate in analysis and/or junior people may be delegated tasks associated in the ideal model with higher levels.

The required shape of the organization (the relative mix of juniors, middle-level staff and seniors) is usually described as its leverage structure, and is primarily determined by the (aggregate) skill requirements of its work: the mix of senior-level, middle-level and junior-level tasks involved in the projects that the firm undertakes.

Getting the leverage structure right is key to the consulting firm’s success. If a firm brings in a mix of client work that requires more juniors, and fewer seniors, than the firm has in place, higher-priced people will end up performing lower-value tasks (probably at lower fees), and there will be an underutilization of senior personnel. The firm will make less money than it should be making. The opposite problem is no less real. If a firm brings in work that has skill requirements of a higher percentage of seniors and a lesser percentage of juniors, the consequences will be (at least) equally adverse: a shortfall of qualified staff to perform the tasks and a consequent quality risk. Matching the skills required by the work to the skills available in the firm (i.e., managing the leverage structure) is central to keeping the firm in balance.

The One-Firm Firm Revisited

by David Maister & Jack Walker 2006

In 1985, one of us (David Maister) wrote an article for the Sloan Management Review called “The One-Firm Firm.” It identified a strategy common to leading firms across a broad array of professions — creating institutional loyalty and team focus.

The firms named in that article were McKinsey, Goldman Sachs, Arthur Andersen, Hewitt Associates, and Latham & Watkins, where Jack Walker became managing partner three years later.

If one is prepared to accept the argument that Accenture (formerly Andersen Consulting) is the legacy firm of Arthur Andersen, and not the defunct audit-based business, then that 1985 list of one-firm firms stacks up remarkably well as a predictor of subsequent success. These are still preeminent and immensely successful firms.

The marketplace for professional services has changed in ways that were unimaginable in 1985. Clients and client relationships have become dynamic at best and fickle at worst. Shortages and mobility of talent have affected every profession. As a result, the five named firms — and their main competitors — have adapted by making dramatic and often risky changes.

For example, of those five firms, Goldman, Accenture, and Hewitt have become publicly held companies — most have acquired other firms with varying degrees of success, and all have grown, become global, and (except perhaps in the case of McKinsey) have profoundly diversified their service offerings. Yet each has maintained or improved its competitive position as one of the most admired and profitable firms in its industry or profession.

In this article, we will address the issue of whether the one-firm firm principles identified in 1985 are still relevant to the continued, sustained success of these five firms. We will focus on what has been maintained, adapted, and abandoned in their management since 1985.

As we shall see, one-firm firm principles do indeed continue to drive success for these firms, even as their specific practices have been adapted and modified for changing market conditions.

Read more at: http://davidmaister.com/articles/1/101/

Results and Rewards in the Multi-Group Firm

by David Maister 1994

This article first appeared in the September 1994 Supplement to International Law Firm Management. A revised version appeared in First Among Equals (2002) by McKenna and Maister.

Among professional firms there exists a wide array of systems for measuring and rewarding partners who operate in different locations or different practice groups.

At one extreme, some firms operate their separate locations or practice groups as distinct profit centers with minimal sharing of profits.

At the other extreme are firms who try to avoid creating intergroup competition by treating office or group results as irrelevant. Some avoid even calculating office and group results for this reason.

The vast majority of firms operate between these two extremes. The results of the group to which the partner belongs are usually treated as an influence (or a contributing factor) in assessing performance and awarding compensation, but they are rarely determinative.

It is a difficult juggling act to examine group results without giving off the dysfunctional signal that only local group results are important, thereby destroying intergroup cooperation.

However, I believe that it can be done and that it is important to examine group results, whether groups are defined by location, discipline or industry. (It is wise to examine the results of all three types of groups.)

Without such analysis intergroup cooperation is hard to encourage, and a firm must understand its economics at levels below that of the whole firm.

Read more at: http://davidmaister.com/articles/1/79/

The Laws of Service Businesses

by D. Daryl Wyckoff and David H. Maister 1984

Professor Daryl Wyckoff was one of my mentors at the Harvard Business School, and we coauthored three books together. Before his untimely passing in 1985, he and I planned to write a book called “The Laws of Service.” Together, we compiled the following epigrams. Not all of them were original to us, since many were derived from case studies in the School’s Service Management course, which we taught along with (at various times) Professors W. Earl Sasser (who originated the course), James L. Heskett and Robert H. Hayes. I recently rediscovered our preliminary listing, and wanted to post it here in memory of Daryl, a wonderful teacher and a profoundly good person.

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Are Law Firms Manageable?

by David Maister 2006

This article was first published in the April 2006 issue of The American Lawyer.

After spending 25 years saying that all professions are similar and can learn from each other, I’m now ready to make a concession: Law firms are different.

The ways of thinking and behaving that help lawyers excel in their profession may be the very things that limit what they can achieve as firms. Management challenges occur not in spite of lawyers’ intelligence and training, but because of them.

Among the ways that legal training and practice keep lawyers from effectively functioning in groups are:

• problems with trust;
• difficulties with ideology, values, and principles;
• professional detachment;
• and unusual approaches to decision making.
• If firms cannot overcome these inherent tendencies, they may not be able to deliver on the goals and strategies they say they pursue.

Read more at: http://davidmaister.com/articles/4/92/

Creating Value Through People

by David Maister 2002

The financial performance of a business is not something you can or should directly control. It is achieved by providing superior value to the marketplace.

Marketplace value is a consequence of energizing and focusing employees to create and deliver value.

To make money, managers should not spend all their time managing money, but should instead devote their efforts to the things that produce the money: the enthusiasm, commitment, and drive of the labor force. Don’t manage money. Manage people.

Read more at: http://davidmaister.com/articles/1/22/

The Courage to Manage

by David Maister 2001

A version of this article appeared as the last chapter in Practice What You Preach, Free Press, 2001.

In my experience, the single biggest barrier to implementing strategy is courage. What makes superstar managers so impressive is not what they are doing but the fact that they are doing it all.

Many people (and firms) lack the guts to stick with the plans and goals they have set for themselves. They lack the courage of their own convictions.

I first learned how hard it was to stick to one’s own strategy some time ago, when I set for myself the goal of trying to become a strategic advisor to international professional firms. Shortly thereafter a firm asked me to accept a project conducting sales and marketing training courses for their people.

Read more at: http://davidmaister.com/articles/4/88/

The Anatomy of a Consulting Firm

By David Maister 2004

This is chapter two of The Advice Business: Essential Tools and Models for Managing Consulting (Pearson Prentice Hall, 2004) edited by Charles J. Fombrun and Mark D. Nevis. It has been adapted (with permission) from material contained in David H. Maister’s Managing the Professional Service Firm (Free Press, 1997) and True Professionalism (The Free Press, 1993).

The structure and management of consulting firms is driven primarily by two key factors: the degree of customization in the firm’s work activities and the extent of face-to-face interaction with the client. Both of these characteristics (customization and client contact) imply that the value of the firm is often embedded less in the properties of the firm and more in the specific talents of highly skilled individuals. The consulting firm must therefore compete actively in two markets simultaneously: the “output” market for its services, and the “input” market for its productive resources, the professional workforce. It is the need to balance the often conflicting demands and constraints imposed by these two markets that creates the special challenge of structuring and managing the consulting firm.

Read more at: http://davidmaister.com/articles/4/2/