leadership team – David Bailey

Is your bench empty? Unlikely, but would you want it to be anyway? Do you know how populated it is?

When I spend time with services firms, conversation inevitably gets round to profitability and then I start asking about gross margin. Two times out of three, I find that gross margin isn’t understood well and, in particular, the costs of employed delivery resources are not split between chargeable and non-chargeable time. When investigated, the cost of non-chargeable time is often an eye-watering surprise for the firm’s leadership team! Worse, how this non-chargeable time is being spent isn’t understood properly.

We’re running people businesses. If we don’t understand how our people are spending their time then we’re in “cobbler’s children” territory!

When we prepare a budget, we set utilisation levels for each grade of consultant from Partner down to Analyst (Note: how “utilisation” is calculated varies from one firm’s definition to another and is a topic of great debate!). On an ongoing basis, we then need to manage our resources so that the budgeted utilisation level is achieved or even exceeded slightly from time to time….but do we do this?

Step one, therefore, is about assigning our “home team” onto chargeable client work to target utilisation levels. If we’re struggling to do this then we don’t have a high enough level of business overall and so are overstaffed, the work we’re selling isn’t matching with the intended skills mix that we’ve resourced up for, resourcing isn’t controlled tightly enough and delivery is biased too heavily in the direction of associates, or we don’t have sufficient confidence in individual consultants. Whatever the reason, it needs to be identified and addressed.

Step two is to make use of the non-chargeable time. When we do the budgeting exercise, we rarely do anything other than identify the headcount requirement to deliver the volume and types of work that we’re planning to sell and calculate a budgeted cost of employed consultants and external third parties (associates, partner firms etc) associated with this. In addition, we should look at the amount of non-chargeable time that we’ve built our budget around and the skills linked to this and build a plan to use this effectively for the good of both the firm and the consultants.

Topics such as training requirements mostly get picked up via personal development plans – the timing of delivery of training is planned in to fit with periods of expected lower chargeability where possible and I rarely see big issues in this area. I often see Business Development and Proposition Development-related activities, however, being left loose and then suddenly jumped on as useful things to be doing “immediately” whenever the leadership team realises that the bench is looking a bit big and people need to be given something to do. Why?

Most firms these days have resourcing, or wider Professional Services Automation systems, installed and they insert forward client project resourcing needs into them. This is great, and facilitates forward revenue and gross margin projections, especially if weighted “hot Prospects” are shown as well. Many of these systems also allow for different categories of “project” to be entered as well and we can use these to schedule a predicted workload of different non-chargeable activities, even split into types such as Market Research, Marketing, Account Management and Proposition Development. Resourcing discussions can then include debates around the importance of the individual non-chargeable activities as well as client assignments – I accept that the non-chargeable activities will regularly be the ones to “give” in order to satisfy client demand but at least we will know what we’re moving around and we’ll understand the impact on the “list of useful things to do”.

If we plan and manage the use of our resources properly for both chargeable and non-chargeable activity, we’ll achieve higher consultant utilisation, increased opportunities for additional sales, a more likely achievement of internal development plans and more satisfied employees who know that they’re always doing something useful.

When I take on a new client – small, medium-sized or large – our engagement often starts with me asking something along the lines of “What’s the point?” or “What’s the purpose of this business?”. Answers range from people giving me their Vision statement through listing out the key business objectives and financial targets for the Financial Year to explanations of the range of services that they provide to their clients. These are all answers looking in the business rather than on the business.

Unless the leadership team of any business is aligned with regard to overall objectives that the owners have for that business, the focus of the individual leaders will be in different places. Many businesses have to sort out this alignment from the outset, and regularly thereafter, as they have significant funding requirements. Given that most services businesses have a low cost of entry, however, this is not necessarily the case and I meet many firms that were established a number of years ago by a small group of Owner Directors with a desire to service clients better than their previous employer, be their own boss or simply do it for themselves rather than make someone else rich. For a while this is fine since establishing an initial set of service propositions and gaining a first few clients can be done in the absence of a shareholder strategy. Eventually, however, the firm may fall into doing things that aren’t core (e.g. because a client offers a different piece of business to its trusted advisor), investment may be put into the wrong places and the firm may stagnate.

I also spend time with groups of Partners at larger firms, many of whom were not in at the outset of course, and find an interesting mix of people headhunted in for their key client relationships, recruited to establish a new capability for the firm, promoted up through the ranks etc. Their own reasons for being there are personal to them and rarely shared with their fellow Partners. Similar problems can occur regarding direction, where to invest and what to steer away from – a number of Partners then end up spinning the wheels for a few years just to gain enough profit share to fill their bank accounts to a level sufficient to make them financially secure.

There are essentially three pure types of professional services firm – asset growth, income generation and lifestyle. Most firms contain a blend of objectives that cross all three but the proportions vary dramatically from one firm to another. There is no “right answer” but there is a right answer for a particular firm at a particular point in time.

I enjoy taking Owner Directors and Equity Partner teams in my clients through an exercise to identify what the mix of the three is currently and what they believe it should be. Many Executives find that, in order to come up with the answer to the simple question, they need to get into deep and meaningful conversations at home about life aims – something that may not have been looked at since the early days of relationships! Once we have individual desires understood and shared, we then work out an overall answer that each of the owners can subscribe to. From this point, every business decision is made in a context that is understood by the leadership team and is often easier and quicker to make than previously.

Once people get what “the point” is, their business (and often personal) life becomes clearer and more fulfilling!

Tag: leadership team

Are you managing your bench?

What’s the point?