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What’s A Professional Firm?

post # 257 — December 8, 2006 — a General, Strategy post

I just received an email from Atta-ur Rehman in Pakistan, who writes:

Many times in your podcasts you refer to “Professional Firms”. I’ve not been able to understand what exactly you mean by the term. Aren’t all businesses like professional firms? Could you please clarify it for me or refer to me some definition that you might already have on your website?

Great question, Atta. I had a stronger opinion twenty years ago what the term meant, but nowadays I’m not so sure.

Of course, many years ago, the term “profession” or “professional” had a sociological, cultural or class meaning — there were only a certain number of ‘learned’ professions (medicine, the law, the religious ministry). A lot of effort went into defending membership in this privileged group — doctors, lawyers and priests were special (they claimed) but everyone else was in BUSINESS (Yuck!) or were a lesser breed (nurses, for example).

Part of their claim was that they had a superior commitment to service instead of commerce, but very few people believe that any more. Nevertheless, a great deal of time and money has been spent by other industries trying to get recognized as ‘real’ professions.

When I began my work in the early eighties, I used the term “professional service firm” to mean businesses that (mostly) gave advice — not only law, medicine and priests, but including consulting, accounting, advertising, public relations, engineering, executive search, financial advisors of all kinds.

The central thing that these industries have in common is that (in principle) they do CUSTOMIZED work — they do not sell the result of standardized processes. They hire “knowledge workers” (although not everybody thinks that’s synonymous with professional workers) to apply education and training to create different outcomes for different clients.

However, even this definition gets “fuzzy.” What happens when so-called professional firms start taking a process-intensive approach and create customized outputs with a standard process? At the commodity end of many professions, it doesn’t take an advanced degree to produce really valuable outputs — just some good systems, databases, training and a high-school degree. Is that still a professional service?

Then comes the challenge that you hint at, Atta. Many of us think that being a professional has nothing to do with what degrees you have, what industry you are in, or what position you hold. Maybe the REAL meaning of professionalism is close to what the priests, doctors and lawyers were SUPPOSED to have, except that it applies to ALL of us in all industries: a moral commitment to be of service and to run our organizations to high standards based on unwavering values.

Viewed this way, maybe Atta is right. Aren’t ALL industries like professional firms? Does the term professional business mean anything anymore? Does it mean anything to say some people are to be categorized as professionals and some as something else?

What do the rest of you think? Have we outlived the usefulness of “professional service firm” or “professional business” as a helpful categorization?


Jennifer said:

Having been in a professional firm and now a corporate, they are very different animals. That said, a fund manager (where I have also worked) has a bit of both about it, so it’s hard to draw the line.

I often ponder the non professional service firms – builders etc – it seems to me that they should be able to manage themselves on similar lines, but it doesn’t happen in my experience.

posted on December 8, 2006

Bill Peper said:

I do think that the category of “professional services firms” is useful and contines to be relevant for several reasons — although, as an attorney, I make no pretense at objectivity on such topics.

Given the special responsibilities that they undertake, governmental agencies regulate these professions much closer than general businesses. In many cases, the professions enjoy a specal privilege from divulging information shared excpt under rare circustances.

These professions have an explicit, mandatory higher standards of conduct and ethics. If violated on a serious matter, the individual is no longer allowed to serve in these capacities. I think of Bill Clinton as a perfect example. The Senate allowed him to remain President of the USA for lying under oath and obstructing a legal proceeding, but he had to surrender his Arkansas law licence for the same actions to avoid being disbarred (and that would have happned.) The government checks the criminal background and character of every licenced professional.

While all businesses should adhere to the higher ethical standards of the professions, they certainly do not have to do so. That make a huge difference.

On a practical level, professional firms gerally operate as a traditional partnership irrespective of technical legal classification. Many of the issues faced are different — how to inspire workers, lack expertise on routine business practices, and an aversion to overseeing another professional much worse than in the non-professional sector).

I have had the privilege of serving in many different sectors during my career. I have practiced law, served a general counsel to a large non-profit, held a senior administrative position at a prestigious law school, ran my own business, acted as a consultant, and I currently work as a business consutant for General Motors. Having encountered thousands of organizations in various capacities, I can attest to the fact that a professional service firm is a unique entity. I think the classification is still important.

posted on December 8, 2006

Mike said:

I would suggest ‘professional services organization’. Any group that delivers services or experiences (as opposed to commodities or products) will benefit from the management strategies and techniques you teach. Bill is right that a law firm is quite different from an interior design firm, but the secrets to successful management remain largely the same.

posted on December 8, 2006

david foster said:

I question whether professional organizations are generally subjected to more government regulation than other busineses, and whether they generally have higher ethical standards. Airlines and pharmaceutical companies, for example, are heavily regulated. Management consultants are not regulated at all, except to the extent that they are involved in financial reporting.

Regarding ethics, I think it’s clear that excessive litigation is doing considerable harm to our economy and society, and it doesn’t seem that ethical concerns are acting as much of a damper on this.

posted on December 9, 2006

Tom "Bald Dog" varjan said:

I believe in today’s market we can call professional service firms as advisory service firms. After all, a plumber’s company also fulfils all the criteria in the “professional service firm” name. The plumber is a professional (properly licensed, many of them with engineering degrees). (Besides a full-blown engineer doesn’t even come close to the relevant expertise and experience of a 2nd year apprentice.) They provide services. And as business entities they fulfil the “firm” criterion too.

In my opinion, what differentiates advisory service firms is that this is the only business model that dispenses customised intellectual property in collaborative relationships. Plumbers perform services for clients. Advisory professionals collaborate with clients, empowering and enabling them to solve their own problems. They work with clients not for clients. Advisory professionals deliver certain values but it’s their clients’ responsibility to integrate that delivered value into their businesses and turn them into lasting results.

I believe, that’s why paying for results for advisory services is unethical.

Firms that sell off-the-shelf standardised processes are really contract labourers performing tasks clients’ people could perform if they knew the process. And many of these firms make their money on sending out armies of “temporary labourers” at competitive hourly fees to perform these tasks.

Real consulting is when one consultant comes in and facilitates the process for the client’s people. This is also a better form of knowledge sharing.

posted on December 9, 2006