Why Partnerships hold Businesses back
Partnership structures are familiar in many business sectors, from start-up co-founders to the largest of Australia's professional services firms. But how appropriate is this traditional organisational arrangement in today's commercial environment?
When profitable and sustainable growth is the goal, partnerships often prevent a business from reacting quickly to market changes, losing the advantage of new opportunities and falling behind increased competition.
As business coaches with specific experience in top and mid-tier accounting and legal firms, we know that partnerships rarely fulfil the potential of their employees or maximise the commercial potential of the business. And fault lies with the nature of the partnership structure. In functional terms, the more people who become partners the less efficient the collaborative process.
We've all heard the joke about it taking 35 partners to decide on the office coffee machine. It's a joke that's close to the bone in many Australian partnerships, where partner meetings invariably have agendas that are light on planning and full of day-to-day administrative issues. With partners in professional services billing out their time at anything up to $600 an hour, how does this make sense?
Let Go to Grow
If a business is going to maximise its growth it needs to ensure its people resources are focussed on completing tasks commensurate with their skills and pay rate. Starting at partner level, this means releasing the need to be involved with all decisions. Much better (more efficient and more practical) to define the key roles that are needed to run the business, and then put the people, with the right skills, in the right jobs.
While many firms already have some kind of management team in place, much of that team's focus is on the back office work, at the expense of the strategic projects that create profitable growth.
For the majority of mid-tier firms, a team of two or three individuals taking on these responsibilities is ample to drive the business effectively:
- A general or practice manager, who runs back office and business support
- An operations manager, to oversee revenue generation functions (for larger practices), and
- A chief executive officer (CEO) to co-ordinate the two, while also concentrating on developing business strategies.
This leaner team shifts the balance of power back to the interests of the firm and out of individuals' hands and personal day-to-day agendas. The CEO, who may or may not be a partner, is still answerable to a board, which represents shareholders' (equity partners') interests, but the decision-making process and day-to-day running of the business becomes faster and more transparent.
In turn, this results in a board that is free to be more strategic in its thinking, and allows high fee-earning leaders to concentrate on their core skills. One firm with which we have worked, conducted research amongst its team leaders after going through this process and found that, as a group, this more efficient structure released 63 hours for the team leaders per month. In fees terms, that has the potential to add $350,000 direct to the topline revenue without increasing resources or costs.
Aspirations of Control
Yet rising through the ranks of your firm, achieving equity and partnership, was always the coveted goal of talented professionals. And being a partner always meant being part of the decision making process - even if those decisions only related to routine cost management issues.
By its very nature, functionality at executive level can be a sensitive issue, but there needs to be an understanding that positions are just functional roles, not hierarchical aspirations, and there is no glory or prestige attached to them. It must not be seen as a reward, say for length of service, as usually happens in organisations within the professional service sector.
Leading a firm requires a broad range of strategic, communication, and general leadership skills. In many mid-tier firms no single individual partner may be available to fulfil the desired criteria. In these circumstances, consideration of an external CEO or Chair, who can act as a mentor to the partner CEO and board, is appropriate.
If a firm is struggling to assign roles to members of their executive team, then bring in an external, independent adviser who can identify the strategic activities needed to deliver business growth, and look objectively at the most appropriate people to take on specific responsibilities at an executive level.
To help balance partners' need for control in mid-tier firms, we recommend that firms hold facilitated annual strategic sessions involving the full partner and management group, at which performance and the strategic direction of the firm can be reviewed and, if necessary, reset.
This provides the management team and board with its mandate for the year, leaving partners with comfort that they have had their say as shareholders and can return to their focus of driving revenue growth.
Changing Culture
Another concept that needs to be built into the culture of the organisation is that time for strategic activities has to be incorporated into the normal working week. We recently worked with a professional services firm that recognised the need to re-structure its client profile - that is, identifying which type of clients generated the most profit and which were unprofitable, in order to develop a program that attracts more of the former and resigns the latter. We identified the person who was most skilled to write the strategy paper and the executive team had to recognise that this task would take 20 per cent of his time, a day a week over several months, when he would not be charging out his normal hourly rate.
In many Australian businesses, reducing one partner's targets is unthinkable. This either means strategic planning happens after hours or, much more commonly, not at all. In that client's case, the resulting research and strategy development identified that the firm could free up 10 fee earners and take on an additional $4 million worth of work, again without increasing resources. Was that worth a few months of lower fees from a single individual?
When you are used to working in an industry that equates success with being a partner and generating fees on an individual basis, it requires courage and new ways of thinking to change and focus on the collective interests of the company. A simple exercise in establishing in which direction your cultural compass points is to ask yourself whether you are a part of a firm of great professionals, or a firm of great business owners.
In our book it's the business owners who are embracing change.
Shirlaws helps coach top tier and mid-tier professional services firms around Partnership Issues, Business Strategy, and the transition to a Corporate Structure. Our clients include leading businesses in the fields of Accounting, Law, Financial Planning, and Architecture. If you feel your Partnership could be achieving more, contact Shirlaws to find out how we can help.
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