Professional Service Firm: The Manager's Guide to Maximising Profit and Value - Softcover

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Mark C. Scott is Executive Vice President of Lake Capital Management, a principal investment group specialising in investing in professional service firms. He formerly held the same position at Lighthouse Global Network, a global marketing services group. He was previously an Operations Director at WPP Group plc and prior to this has worked for a number of years as a management consultant in Europe and the USA. He received his MBA from Harvard Business School and was educated at Oxford and Cambridge Universities. He is the author of Value Drivers and Reinspiring the Corporation.

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"This is a terrific book and the best I have read on the subject. Scott covers the economics and management issues in professional services with great authority and insight." Peter Doyle, Professor of Marketing, Warwick Business School

"What I find generally so praiseworthy is the balance of theory and practical application that runs throughout the book. Clearly, Mark Scott is someone well versed in the whole range of management sciences, yet able to ground this perspective in the world of real experience. This book accomplishes this in a natural, coherent and very readable way." John Zweig, CEO Specialist Communications Businesses, WPP Group USA Inc.

Spanning a diverse range of activities from accountancy to marketing communications, the professional services industry now accounts for up to 17% of employment in the Western economies and had worldwide revenues in 1999 of around $800 billion. It is continuing to experience one of the most spectacular growth rates of any Western-dominated industry and is progressively cornering an ever larger share of industrial value added.
Yet, it remains one of the most unanalysed and undocumented areas of business acitivity. It has been subjected to little scrutiny and received minimal attention from the capital markets. This book aims to change all that!

The Professional Services Firm is intended for three key audiences:
* managers and owners of professional services firms who want to understand the strategic options they face and how to improve their financial performance.
* investors who want to understand how they can exploit the largely untapped and misunderstood opportunity the industry holds.
* managers in industrial and service sectors who want to understand how to emulate the two critical skills mastered by PSFs - hiring, developing and retaining the best intellectual talent available and exploiting collective knowledge to achieve differentiation and to-die-for margins.
This seminal book provides not only the first real insight into the structure, strategy and economics of this huge and prosperous industry but also an excellent guide to understanding the challenges and opportunities it faces. Mark C. Scott's analysis of the professional services industry is an indispensible guide for anyone involved in these types of companies wishing to maximize performance and profitability.

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"This is a terrific book and the best I have read on the subject. Scott covers the economics and management issues in professional services with great authority and insight." Peter Doyle, Professor of Marketing, Warwick Business School

"What I find generally so praiseworthy is the balance of theory and practical application that runs throughout the book. Clearly, Mark Scott is someone well versed in the whole range of management sciences, yet able to ground this perspective in the world of real experience. This book accomplishes this in a natural, coherent and very readable way." John Zweig, CEO Specialist Communications Businesses, WPP Group USA Inc.

Spanning a diverse range of activities from accountancy to marketing communications, the professional services industry now accounts for up to 17% of employment in the Western economies and had worldwide revenues in 1999 of around $800 billion. It is continuing to experience one of the most spectacular growth rates of any Western-dominated industry and is progressively cornering an ever larger share of industrial value added.
Yet, it remains one of the most unanalysed and undocumented areas of business acitivity. It has been subjected to little scrutiny and received minimal attention from the capital markets. This book aims to change all that!

The Professional Services Firm is intended for three key audiences:
* managers and owners of professional services firms who want to understand the strategic options they face and how to improve their financial performance.
* investors who want to understand how they can exploit the largely untapped and misunderstood opportunity the industry holds.
* managers in industrial and service sectors who want to understand how to emulate the two critical skills mastered by PSFs - hiring, developing and retaining the best intellectual talent available and exploiting collective knowledge to achieve differentiation and to-die-for margins.
This seminal book provides not only the first real insight into the structure, strategy and economics of this huge and prosperous industry but also an excellent guide to understanding the challenges and opportunities it faces. Mark C. Scott's analysis of the professional services industry is an indispensible guide for anyone involved in these types of companies wishing to maximize performance and profitability.

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Introduction

The professional services industry is not usually thought of as an industry at all. It is usually dismissed as a ragbag of asset-less firms employing unmanageable primadonnas. Few professional service firms are quoted on international markets. It is not an industry which is subjected to much market analysis. You would be hard pressed to find reliable statistics about the key areas of the industry, from advertising through to investment banking. The few firms that get covered by analysts tend to be blended into larger sectors. The quoted advertising agencies, for example, get lumped in with general media firms even though it is a fundamentally different business. There are virtually no market research reports on major sectors of the professional services industry and even basic numbers are not available on the standard company information databases. This so-called industry is one big blur of obfuscation and obscurity. All that can be said about it by most observers is that it is broadly identifiable as a collection of people businesses.

So why give it much thought? Simple. Size and growth! The professional services industry accounts for approximately 17% of all employment in the mature markets of Europe and the USA. In total it had revenues of about $700 billion worldwide in 1997, with growth around 15% per annum. Not only has the growth of professional services been dramatic but it continues to drive at rates far in excess of the general rate of GDP growth in the mature economies. The consulting sector, for one, projects ongoing growth at 20% through the next ten years off an estimated base of $60 billion in 1997. Some of the better-known firms, from McKinsey in management consulting to Goldman Sachs in investment banking, have quietly evolved to become some of the most influential institutions on the planet.

Professional services cover a vast territory of activities, from advertising through to legal work and software consulting. These different markets tend to vary dramatically in terms of their competitive as does the structure of the firms competing in them. However, all PSFs are united by one common characteristic - their assets walk out the door every evening and their livelihood is founded on fragile client relationships. Like the film business, their key competence is the management of talent. They therefore share a similar set of imperatives - the need to hire, train and motivate a set of talented individuals in order to foster and maintain good relationships with their clients. Their basis of competitiveness is starkly simple - how clever are your people?

Given the size and importance of the professional services industry, the absence of interest shown in it by the academic and consulting community is extraordinary. The industry has yet to be subjected to the same level of scrutiny as almost any industrial sector you care to mention. Despite its absolute growth, it should not therefore be surprising that the PSF industry has shown one of the lowest rates productivity improvement of the past decade. What is even more surprising is that the vast and high-quality investment opportunity this sector represents has also been largely overlooked by the financial community. The PSF industry is characterised by high margins, high growth and impressive free cash flow generation - a recipe that would get investors salivating in almost any asset-based business. But this has strangely not been the case with professional services, with one novel exception - Internet service and research firms where the pendulum has swung to the opposite extreme. The PSF industry is a diamond so large that everyone seems to have overlooked it!

This book is written for those people who want to understand how to maximize returns from professional services, either as investors, proprietors or managers. Because little consulting or academic attention has been given to PSFs, the level of scrutiny to which most PSFs subject their own operations is also low. Most professional service firms have plenty of margin for improvement. TQM, process analysis and strategic analysis are fairly alien concepts for PSFs. Because of the lack of information and the prevalence of self-financing, the role of venture capital and other financial investors in the professional services area is also low. The balance sheets of PSFs are largely virgin territory for the corporate finance community!

As a result, the professional services market holds great opportunities for shareholders as they strive to improve the efficiency of their operations and hence their ability to generate free cash flow. It also represents a great opportunity for financial investors as long as the risks and opportunities are properly understood. The objective of this short book is to expose the value potential of the PSF industry and flesh out strategies for how it can be tapped.

There is also a benefit to be gained from PSFs for firms and managers who have no intention of getting involved in the industry. Most industrial firms have plenty to learn from professional service organizations. Professional service firms tend to do two things outstandingly well: the first is to hire, train and maintain high-calibre minds; the second is to share collective knowledge at high speed and with great efficiency. In the world economy of the next millennium it is these two skills which will be the primary competitive differentiators in almost all industries. PSFs are also masters of customization and relationship marketing. As the mass-market paradigm which has dominated thinking for the past century gives way to customer responsiveness and targeting, all industrials have a lot to learn from the small firms to which they usually delegate this responsibility and who have refined it over time to an art form. The PSF is the model of the firm of the future; that is why even firms as powerful as IBM are pouring resource into developing their consulting arm rather than focusing solely on manufacturing. Most firms will gradually become more like PSFs.