The way in which Partnerships in the Professional Services Sector are structured creates unique challenges when it comes to creating and implementing strategic plans. This article looks at some of the reasons for this and forms the basis for future discussion on how we might go about building effective strategic plans for partnerships in the professional services sector.
The reason for this is that each partner has an equity stake in the business and is effectively running their own business under the umbrella of a company, normally a Limited Liability Partnership (LLP). In fact, may of these partners are self-employed for tax purposes so they are legally running their own business. The best analogy that I can find to describe the way that these firms operate is like a co-operative where a number of businesses come together to form an entity that has greater buying and selling power than they would have individually.
This means that the governance of a professional firm is different to a traditional business where owners and shareholders tend to be a different group of people from those entrusted with running the business (the directors and managers), who are different from those who create the product or deliver the service. In partnerships the roles of these different groups of people tend to overlap combining the roles of owner, manager and producer. This structure is problematic not only because of the potential conflict of interest but also because while most are skilled practitioners in their particular field, they lack the skills and experience required to run a business.
This situation is further complicated when there are a large number of partners – it is, for example, not uncommon for even medium sized firms to have over 30 partners, each of whom have a say in the strategic direction of the business, as well as the routing management decision making. This can make day-to-day running of the business very difficult to say the least!
It will come as no surprise that this structure makes creating and implementing a strategic plan for the business as a whole very challenging, if not impossible. This is because the individual partners can be so focused on their own objectives for their clients and building their own part of the business that they have little or no interest in the development of the firm as a whole. This has clear implications for the development of a shared vision for the firm which then makes it difficult to create any coherent firm-wide strategic plan. For some ideas on how this structure might be improved, ready our article “Creating A Better Business Structure for Professional Partnerships“.
The main area where there is a common purpose among partners is in remuneration since the profit generated by the firm as a whole is normally divided among the partners on a regular basis. In this regard, the firm is effectively running as a not-for-profit organisation as no profit is retained within the business.
One would think that the fact that the better they partners perform as a group, the more money they will make would give them sufficient motivation to work together for the greater good as this will ultimately comeback to reward them individually. The fact is that this is rarely the case as some partners will be naturally better at client development and will bring in more money than others who are content to sit back and reap the rewards. This creates friction and resentment within the firm and leads to people being more and more protective of their own business, leading to less focus on the firm as a whole. In addition, while financial reward is a motivator for some it is not a motivator for everyone and there will always come a point where money is no longer important so basing a strategy around remuneration is destined to fail.
Consequently, we need to find ways to identify and/or create a vision for the firm that the majority of partners will support in order to develop an effective strategic plan for the firm. Having worked in and with professional service firms over many years I understand that developing and implementing a strategic plan is not an easy task. It requires commitment and open minded thinking on the part of the partners in the firm, as well as strong and often charismatic leadership from the senior partners – those tasked by the other partners with running the firm.
We have found that involving the partners in the strategic planning process can be very effective as it ensures that each partner has their say in the future direction of the firm. This means that they feel that their views have been listened to and their own goals and aspirations have been taken into account in the planning process. This not only creates a robust strategic plan that is grounded in reality but also acts as a catalyst for positive change and improvement in the business, thereby increasing the likelihood that the strategic plans will succeed.