The BS of PS — The Inherent Dysfunctionalities of Professional Services Firms
Culture is at the heart of whether a company is going to succeed or fail. In Part 1 of this two-part episode, we explore the cultural problems that exist inside the unique environments of professional services firms that keep them from reaching their full growth potential.
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Jason Mlicki: You’re telling me a story about McKinsey from the book The Firm, which is the legacy book about McKinsey.
Jeff McKay: Yes, and I recommend it to anyone that lives in the professional services world. It’s by Duff McDonald. It’s an excellent book.
Jason Mlicki: It’s an unbelievable book and it’s a fabulous read, too, because it’s not at all what you would think.
Jeff McKay: I use the book and a story from the book that really resonated with me because it reflected my experience as a marketer in two decades in professional services. The story was how McKinsey’s CEO had fired the head of marketing or communications, whatever the moniker was for the firm, because of an interview in Business Week that was very negative about the firm.
I found it intriguing because marketing is often a scapegoat for problems related to growth or public reputation. McKinsey did not have a marketing problem. They had a cultural problem. That cultural problem poured out into the public market. The problem that McKinsey was having that the then CEO was so obsessed with growth, financial growth and office expansion, that the partners had reached a point where they thought that that growth had cost the firm its soul.
Jason Mlicki: I know you’re not one of the people that’s saying this, but what do they mean by that? What do you think they mean by that? When someone says, “It’s cost us our soul,” what are they even saying?
Jeff McKay: I think every firm at its very heart knows itself. It knows its values, it knows its value to its market, and the individuals know why they want to be a part of that organization. When the organization heads down a direction that deviates from that sense of self, people begin to feel it.
They may not recognize it out of the gate, but they begin to see something’s not right here. There were a lot of other things going on at McKinsey at that time, related to that CEO’s tenure, that ultimately ended up in an indictment of that CEO.
Jason Mlicki: In a court of law?
Jeff McKay: Yes.
Jason Mlicki: Oh, okay. I didn’t know that.
Jeff McKay: But the initial reaction is to blame marketing on the issues, on the messages in the market.
Jason Mlicki: Blame the people that let the story get out, that didn’t throttle the story, versus looking at, “What is wrong here in the first place that people are feeling this way?” And publicly saying these things to journalists, mind you.
Jeff McKay: Exactly. That was pre-social media, as well. So, I think there’s an even more relevant dynamic today, but it helped me coalesce my experience at other firms that had gone through similar life cycles, if you will. I became infatuated with this topic, particularly because I didn’t grow up in professional services. I grew up in a family business. I grew up in the auto parts industry, which is probably the antithesis of the white shoe world of professional services.
I just loved observing how professionals interact with one another and the cultures of these firms that I was either a part of, or that I served as a consultant. I noticed that professional services firms recruit some of the best minds in the world. They come from phenomenal schools, they’re cheerleaders and quarterbacks and top of their class, and just phenomenal human beings that are really driven.
But even with all those qualities, they run into these very human problems when they get together and are pursuing however they define success. You see that in an individual level, you see it at a practice level, and often times at a firm level. I want to understand why could a firm filled with talented people collapse, and one that’s maybe average talent, and I put “average” in air quotes, really succeed.
It really came down to culture. That’s nothing new in and of itself, because Peter Drucker said culture eats strategy for breakfast and Simon Sinek tells everybody to “start with their why.” These aren’t new concepts. But I was fascinated with it in the professional services world. I’ve come to reach this conclusion that professional services firms, by their very nature, because they’re matrixed, because their performance measures are based on billable hours and practice growth, and other decentralized performance metrics, that what they sell is intangible, highly fungible, very competitive environments, that they create very, very one-of-a-kind environments.
How you deal with those issues really dictate whether or not a firm is going to be successful and ultimately, leave a legacy, and being one of the best in fill-in-the-blank.
Jason Mlicki: Let me ask a question. Is the hypothesis of the story that teams beat individuals, that the firm with the most talent may underperform or even fail, and the team with the average talent could outperform its potential or outperform its peers, and succeed greatly by the inherent nature of the team, the way they assemble a team and the way they define their culture? Is that the essence of the …
Jeff McKay: I think team work is part of it but that’s not the totality. It’s a recognition that professional services systems are plagued with two dimensions that I think make them unique. One might argue, “Well, that exists in all of humanity.” But for all intents and purposes, I think it’s unique to professional services.
The first one is the structural dimension. You don’t normally see matrix organizations anywhere else but in professional services. It’s not-
Jason Mlicki: Let’s define what we mean by a matrix organization. I’ve seen ’em lots of places I think, so define what we mean by a matrix organization.
Jeff McKay: A matrix organization in the professional services world is normally overlapping P&Ls and management responsibilities for individuals, so that you’re serving multiple masters at once. You can be part of a geography, you could be part of a practice, you could be part of an industry, all at one time. You might be part of multiple industries, or drawn into other geographies to serve a particular type of client as well. Those are-
Jason Mlicki: That’s the classic “I have a dotted line to” syndrome, right?
Speaker 3: Yes.
Jason Mlicki: I report to Bill, but I have a dotted line to Lisa. Okay, what does the dotted line mean? We’ve had lots of clients with that and I always laugh as I say, “What does a dotted line mean?” Nobody really knows.
Jeff McKay: A dotted line means lots of confusion, politics, and trying to balance a lot of attributes in a world of relationships and realizing my own definition of success. So, that is unique I think in professional services, and when you mix in that structure with the human attribute that are personalities that are attracted to professionals services, they’re normally really smart, they’re individuals that are used to being successful in high school and college, academically and perhaps athletically, or in other performance measures.
Jason Mlicki: There’s more structural dimensions to that, though. I mean, I know you’ll be shocked, I did read the whole eBook, but the … ‘Cause you threw out more and I think there’s more that are also meaningful to touch on before you go to the human attributes. You threw out, the two that jumped to me that you threw out was one, just the at times myopic focus on billability, right? The intense pressure there is to deliver a certain utilization level in terms of billability, that sometimes governs the whole firm. Actually, sometimes it consumes the firm, right?
Jeff McKay: Mm-hmm (affirmative).
Jason Mlicki: The other one you threw out that I liked a lot was inefficient resource allocation which doesn’t seem unique to professional services, really. I suppose almost every company I’ve ever dealt with you see that, right? Because I think the argument you make in the eBook which is a really good one, is that too often resources are allocated based on maybe scale of a practice, or the personality of the leader of that practice versus the growth potential of the practice, and that’s inefficient. Not sort of, that’s completely inefficient. Are there any other structural dimensions that are worth noting I guess was the question?
Jeff McKay: A really important one is the nature of partnerships. Not all professional services anymore are partnerships. You see these in other structures, but there’s still the overarching structure of, “I’ve been here, I’ve paid my dues, I have a certain amount of equity, however that equity is distributed.” That creates again, that human dynamic of live and let live, a lot of backroom deals and negotiating, building up constituencies in order to effect change.
Jason Mlicki: There certainly is more requirement for leaders to establish consensus than in any other typical business. We see a lot of, I mean a lot of A&E firms are ESOPs or employee owned entities, or they’re very diversified ownership groups, so 17, 18, 25 owners or more, or whatever, right? On some level, even if there is a CEO or a firm leader, they’re bound by building consensus on any meaningful decision. Sometimes I’m sure you’ve seen this too, sometimes there’s rotating CEOs. Have you ever seen that, where they should have established a figurehead who’s the leader, and they rotate them out every two years on a structured cycle?
Jeff McKay: Mm-hmm (affirmative).
Jason Mlicki: Which seems odd. I mean, at the end of the day, if you’ve got 20 partners, whatever the number is doesn’t matter, wouldn’t you want to pick the one who’s the best leader, the one who has the best ability to lead the firm forward wherever it’s going to go and let ’em run their course for 5 years, 8 years, 10 years? Versus rotate ’em out ’cause their time is done. Anyway. Those are some of the structural dimensions that are unique to professional services firms to some extent, right?
Jeff McKay: Mm-hmm (affirmative). I think the other one that you’ve alluded to there is this path of least resistance. Professional services firms, and I think this leads as a result to the decentralization, is firms are political, and partners like to keep their powder dry. So, sometimes it’s just a lot easier to go along to get along.
Jason Mlicki: Can I pick at the metaphor real quick? When we say powder dry, what are you saying? What does that mean? You’re saying that they have gunpowder that they’re not using in a gunfight?
Jeff McKay: Yes. It’s a military expression.
Jason Mlicki: That’s a really healthy metaphor to have for your business, that it’s not a collaborative discussion about where we’re going, it’s a gunfight in the back of the conference room between some partners. Some guys you don’t want to shoot. Keep going, I’m sorry.
Jeff McKay: You might say they choose their battles. What they end up doing is saying, “Hey, go do whatever you’re going to do. If it doesn’t impact me, I don’t care.” As a result, everybody’s running in their own direction doing their own thing. That’s hard to scale.
Jason Mlicki: Yes, very hard to scale.
Jeff McKay: A lot of firms ultimately really aren’t one-firm firms. They’re just a bunch of individuals running around under some umbrella brand that is so, I don’t know, all encompassing. It means nothing to anybody, whether that’s externally or internally.
Jason Mlicki: We’re going to leak out of this for a second. I remember we built this website for this engineering firm and it’s been over a decade now, 10 or 11 years ago, and in the process we’d gone through a whole bunch of repositioning work and rebranding work and just a lot of deep thought about where the firm was going to compete, why they were competing where they were competing, and how we wanted to tell that story.
We get to the 11th hour to launch this site, and there’s this guy that’s got this tiny little practice that’s way outside the wheelhouse of everything we’ve talked about, way off to the side, there’s no plans to grow this practice, there’s no marketing or business development resources put towards this practice. There’s really, he’s managing a couple of accounts that are healthy and profitable and he’s doing his thing and everything’s fine.
The 11th hour of a web launch, we have to sandwich this guy’s whole practice into the model because we didn’t want to upset him and I was just taken aback, ’cause I’m saying, “Well, we have no plans to grow this practice. We have no marketing resources to grow this practice, we have no business development resources to grow this practice. Why do we need to do this?” And your answer is exactly what you just said, was like, we, need to appease that person ’cause their ego has been damaged. It was really crazy.
Jeff McKay: That happens every day in professional services. Where one person can say, “Hey, I’m a product, put me up there, I need to see that.” I think that is the most obvious illustration of the path of least resistance, and it is a good segue into the second attribute, the human attribute that is unique in professional services.
Jason Mlicki: Before we go there, though, can we summarize a little bit about the structural dimensions? ‘Cause it seems to me that the structural dimensions collectively, all these things together, the matrix organization, the billability, the partnership model, or the employee owned model, creates this path of least resistance. It all bundles up together to say that this is something that’s really hard to scale for all of these complexities. Is that the summation of those things?
Jeff McKay: Yes, but.
Jason Mlicki: Yes, but, okay.
Jeff McKay: It is scalable. It is scalable and the firms that scale well recognize these structural defects, these roadblocks that create this function and take them head on. Those that don’t take the path of least resistance, like you just described, in terms of, “Oh, here’s a partner or a potential partner, needs a book of business, put his moniker out on the website and write him a brochure and do a webinar for him” or whatever.
It just siphons off resources that could really drive growth, and that happens every day. But the path of least resistance really begins to manifest itself culturally, because partners want to keep their powder dry or choose their battles, often live and let live, and when you get bad behaviors, whether that’s ethical bad behavior, managerial bad behavior, business development bad behavior, client service bad behavior, you’re less inclined to confront and correct that behavior of another partner.
That sends out reverberations throughout the firm that then begin really cause negative effects across the firm and real dysfunction. All of those structural things are important, but they lead to this path of least resistance, let’s just let ’em do what they’re going to do and we’ll get on with it. Like, it’s an ostrich head in the sand, it will self-correct, and it just doesn’t.
Jason Mlicki: All right, so let’s talk about the second dimension then. The first dimension is all these structural issues that make it hard to scale, that put our heads in the sand and we hope will correct themselves. The second group is the human attributes of any organization, right? So, let’s talk about that. You said, “Hey, we have really smart people. They’re used to success, they’re used to lots of success.” What else is beneath that?
Jeff McKay: They are used to lots of success, but they are often very insecure, and we see this … I mean, there’s even been studies on it that talk about how experts see themselves. Those that think that their skills are actually more expert than they are are those that are more expert than people want to actually own. It’s illustrated so directly in professional services because our product is our thoughts, is our ideas, is our results.
Human beings want to be a part of something, they want to be part of the group, but they also want to be recognized as different, better, give me a trophy, recognize me in front of my peers as being exceptional. Those are really important types of dimensions.
But human beings are human beings and we are all motivated by some fear. I don’t care if it is the most beautiful girl in high school who thinks she’s unattractive, it’s the valedictorian who thinks he’s not smart enough, it is the athlete that thinks he doesn’t run fast enough, far enough, hit hard enough, score enough goals, whatever the case may be, their success is driven by their insecurity of their fear.
When we see that type of behavior manifest, it looks like an inability to say either to a client or to my team, “I don’t know an answer” or 99% of consultants saying, “I don’t know” is almost impossible to do. Charlie Green talks about this quite a bit in The Trusted Advisor, and how important it is to be able to articulate that in order to build trust. But it’s such an issue that he’s writing books around it. I think that’s really interesting.
Jason Mlicki: I want to sum something up real quick. I want to make sure I understand. The BS of PS is a phrase you’ve coined, right? You’re using it to describe what you’re saying is the dysfunctionality of a professional services firm, correct?
Jeff McKay: Yes. There are many other terms that encapsulate this.
Jason Mlicki: The central argument is that the dysfunctionality comes from these two dimensions. It’s this combination of a structural … I was about to say disability, but that’s not the right thing. The structural element of the firm combined with the propensity of the firm to collect these really highly successful individuals that, like everyone, are motivated by some level of fear, but unlike many, maybe have not experienced that many failures.
That to me is the big thing that jumped out when I was reading it, was that when you stop and think about it, in business today, we spend a lot of energy talking about the incredible importance of failure. VCs are more likely to fund early stage companies where they have seasoned managers who have shown past failure. They’d much rather see a seasoned executive who’s already failed than a younger executive who’s never failed, right?
Jeff McKay: Mm-hmm (affirmative).
Jason Mlicki: And I know even when I think about with my kids, when we talk about learning, I’m much more interested in seeing my kids struggle and fail and respond than knock out days all day as they get older. There’s no learning that happens from being in a situation where it’s easy and you succeed every day. Learning happens when you’re challenged and you’re struggling, and maybe you even fall down, and then you pick back up again.
So, on some levels I would argue that is an interesting notion, that the likelihood that these firms are bringing in people who have experienced failure is lower than a firm that’s not hiring from the top of the top, right?
Jeff McKay: Mm-hmm (affirmative).
Jason Mlicki: These two things together ultimately create the dysfunctionality of the firm, is the essence of the first half of this argument. Now, the second half of your argument if I understand it, and I’m paraphrasing on your behalf, and now you can jump in and say, “No, you’re wrong,” is that those two things together keep firms from meeting their full growth potential.
Jeff McKay: Yes. Wholeheartedly.
Jason Mlicki: Okay. Now, let’s talk about the remedies to that. Let’s talk about so if that’s the case, what do I do about it? If I’m a firm leader, or just a firm, I don’t even know who the person is, but how do I overcome these two big barriers that are making my firm dysfunctional and are blocking our ability to get what we really want?
Jeff McKay: I’ve already alluded that those that are aware of it, that it’s inherent in these systems, they make a choice to not let it hinder the firm. They own it. Others that don’t address it just allow it to continue unabated. What it becomes is just sand in the machine, bringing the gears to a crawl.
Normally I’ve seen four reasons why these behaviors continue within firms, and hinder their growth. The first one is the firm has a culture of optionality. Going back to the path of least resistance. I have my utilization and my revenue number, I’m just going to hit it, just leave me alone. I’m not going to do anything else unless it’s going to impact that, so just go away. Any attempt to make a more cohesive firm falls by the wayside.
The second is there’s a culture of feigned accountability. We have all these value posters and brand initiatives in so many firms talking about, “Hey, we hold one another accountable.” But most firms don’t. They just present it as if, and they just keep doing what they’re going to do.
If there’s accountability, you’re going to see a firm firing people for bad behavior. It’s not just bad behavior that makes it out into the press. It’s the bad behaviors that only one or two people see they’ve put an end to it right there. They hold people accountable for what they’re doing.
Third, these firms punish risk taking. To your point earlier about failing, they look down on failing. “I have a fear of failing, therefore that’s going to manifest in how I communicate with others and my expectation of them, as well as myself.” I think top firms say, “Failing is okay, as long as we take the personal responsibility, own it, learn from it, and disseminate that knowledge through the firm.”
Jason Mlicki: I have a quote popped up in my head from client engagement, and I won’t name any names, but it was, this client said to me in this review we’re doing, he said, “We can do anything we want, as long as it’s profitable from day one.” I love the quote because it speaks to so many of the things you’re talking about, right? “We can do anything we want,” pause for a second. That implies the decentralized chaotic mess that firms can be. “And as long as it’s profitable from day one” is exactly what you just said. We’re not going to take on any real risk here, right? That’s scary.
It just popped in my head and I had to share it because it just described so clearly what you’re saying. Okay, so four reasons and I cut you off. Reason four is?
Jeff McKay: The fourth reason is it requires these human beings to act in an unnatural way in the professional services world. One, you have to have uncomfortable conversations and the path of least resistance is sure a lot nicer than confronting somebody. Two, you have to trust others when the heat is on. You can tell whether there’s trust in a firm or not fairly quickly by things like cross selling effective, and one partners willingness to take another partner out there and trust that partner with his precious client relationship. People are not inclined to do that in most firms.
Three, you’ve got to get rid of some billable time. You have to give time for these uncomfortable conversations, of the learning, of the failure, and those things just take time, which leads me to the fourth one, is these firms that are successful doing this are thinking long term. They are seeing themselves as stewards of a firm that they want to leave better off for the next partners or group of people coming through. They don’t manage month to month or quarter to quarter. They manage decade to decade, and it’s just a fundamental difference, and we all know that. We all know that, a public versus a private company, but this is that on steroids. Those are why they continue unabated.
Jason Mlicki: That’s why the problems continue unabated.
Jeff McKay: Yeah. It’s natural for people.
Jason Mlicki: I have another story and then I want to ask you something, so you ever see the Jerry Seinfeld episode where he talks about how you can sense when a show is not going to finish the way you hoped it would? You’re watching the show and you’re into it, and you can’t wait to see what’s going to happen and then you look at the clock, and it’s like at 28 minutes, and there’s no way they’re going to be wrap this story before it ends. You ever see that one?
Jeff McKay: No. Please, keep going. I can picture it in my mind.
Jason Mlicki: So that’s totally where we are. I feel like we’ve dissected the problem, what creates the BS of PS, what creates the dysfunctionality so articulately well, but my sense is we’ve probably overrun our time, which means we have to punt the solution to the next episode. That’s why I shared that story.
Jeff McKay: That means same bat time, same bat place, same bat channel.
Jason Mlicki: To hear how you solve this problem. But before we stop and before we part, one of the things I’m curious if you know, and I don’t know, is you opened this with this story about McKinsey and this really captivating and interesting story about the marketing leader that gets fired because the culture basically bleeds out into the press in a way that the leaders find unflattering.
And then you mentioned, hey, the CEO gets indicted. Do you know the end of that story? Can you share that with us? Do you know what happens next? Because I’m dying to know. I don’t know what happens next, I don’t know this story.
Jeff McKay: You’ll have to download the whitepaper or read the firm to find out.
Jason Mlicki: I must not have finished that, because I don’t think I made it through the whole book. I think I tuned out after a while. All right. Well, I sincerely enjoyed hearing you talk through this idea of the BS of PS, because you and I have talked about it loosely, multiple times of different episodes, and this is the first time I’ve heard you articulate it and to half end I guess, so thank you.
Jeff McKay: My pleasure.