Managing Public and Professional Services

Based on interviews, observations, and study of internal documents, the study discovered that there are three robust ‘recipes’ that guide the success of new practice initiatives. We call them recipes because each has certain required ingredients along with a set of instructions for how to combine them into a successful outcome.


The imperative for new practice development

One point was abundantly clear from both the existing literature on professional firms and from prior work in this area: developing successful new practices is essential for firms’ long-term prosperity and survival. New practices allow professional firms to grow organically and diversify in order to meet ever-changing client needs.

A large and successful practice is often the hallmark of the core competency of a professional firm. In addition to organizing existing expertise, a practice also serves as the vehicle for exploring new markets or adapting to changing competitive circumstances.

Growth and diversification

Professional firms have an inherent imperative for both organic growth and diversification. The ‘up-or-out’ tournament system by which juniors are promoted to partner creates an endogenous bias for organic growth (Galanter and Palay 1991). For the firm to be viable, newly promoted partners must develop reputations in the client marketplace through which they can attract work and then deploy junior professionals to execute this work (Gilson and Mnookin 1989; Morris and Pinnington 1998).

The continued profitability of a professional firm rests on partners’ ability to leverage theirreputation by deploying increasing numbers of junior staff (Maister 1993). Beyond this, professional firms have an imperative to diversify, in order to hedge against possible shrinkage in their client markets and exploit underutilized firm resources (Hitt et al. 2001). The diversified structure also allows the firm to spread the collective risk of its partners efficiently (Gilson and Mnookin 1985). Consequently a firm seeks to develop multiple groups of professionals who work within different areas of expertise or ‘practices’ as they are conventionally termed.

Challenges surrounding practice portfolio reconfiguration

We also know from existing research that professional firms face a number of challenges in renewing their configuration of practices. Partners’ desire for autonomy in the conduct of their professional tasks and their control of client relationships produce a dispersed distribution of power within the professional firm (Hall 1968). This dispersion limits the ability of the top management of partnership (as opposed to that of a corporation) to exercise absolute control over strategic initiatives concerning diversification and organic growth.

Such strategic decisions are likely to be undertaken at a relatively decentralized level by individual partners since they are most aware of opportunities in their client markets (Hinings, Brown, and Greenwood 1991). However, the lack of a legitimate central planning authority or the absence of an appropriate strategic planning process often leads to internal disputes over the boundaries between practices. A change in a firm’s service offering often results in external clashes, as well.

Suddaby and Greenwood (2001), for example, study the creation of new lines of business in the Big Five accounting firms. They argue that as management knowledge ‘commodifies’ over time firms try to colonize new knowledge territories. The resulting expansion in their scope of activities provokes jurisdictional disputes with other professional communities as firms strive to legitimize certain actors and de-legitimize competitors.

With thorough analysis of how practices are actually built and developed, we found a surprising insight. Underlying these myths are three robust recipes for creating a successful new practice. Our findings show that relying on a single champion is not enough to ensure success, that the market alone is not a sufficient guide, and that placing faith in the magic of serendipity is not always required. In creating successful new practices, there are clear paths that can be followed.

Source:
Morris, T., New Practice Development: Recipes for Success, Oxford Univ, 2006