Attributes of Professional Services

 PROFESSIONAL SERVICE FIRMS
Professional services are appealing due to the intellectual challenge, career growth
opportunities, and high income. Architects, lawyers, consultants, accountants, and
contracting engineers are examples of professional service providers. Professionals are
experts in a particular field of knowledge and usually belong to a discipline that licenses its
members based on proven competence. Some professionals prefer to work alone, but the
majority prefers to work in groups, whether single or multidisciplinary.
Attributes of Professional Services

Professional services are a concept that describes a service provided by knowledge workers
and has 4 distinct characteristics.
a. The work involves a high level of specialization and customization. The management
problems that arise from such highly specialized and customized work vary from
those that arise from a mass-market generic approach of other services. Importantly,
managing a professional service requires the ability to manage activities and
information without proven routines that are common in other businesses.
b. It is crucial to keep the frequency and importance of face-to-face interactions with
customers, or often called as clients because it changes the way quality and level of
service are perceived and measured. In addition, a behavioral skill, such as customer
management, can be just as important as technical competence itself.
c. Professional services are provided by highly educated professional people who
represent the assets of the firm. As a result, the organization must pay close attention
to both the input and the output aspects of the service.
d. The true professional according to James Brian Quinn, Philip Anderson, and Sydney
Finkelstein, has a body of knowledge that operates on 4 levels of increasing
importance. That is cognitive knowledge, advanced skills, systems understanding,
and self-motivated creativity.
Service Consulting
When a firm faces problems or opportunities that it cannot handle internally, it can be solved
with service consulting. Health care, financial services, logistics, and hospitality (hotels,
restaurants, and entertainment firms such as Disney) are examples of service industries where
consulting is common. The range of service consulting are wide that including operations
such as staffing, accounting, office automation, workforce scheduling, process improvement,
quality assurance, waiting line management, and call center management.
An increasing number of nonprofit organizations and government agencies also seek
consulting services for outside advice. Accenture, Bain, Booz Allen Hamilton, Deloitte
Consulting, and IBM Global Services are all major service consulting firms. The
effectiveness of service consulting is usually determined by the firm operations ability to
improve and its ability to maintain a steady flow of business. Consider the following ways
that service consulting businesses use the traditional 5 P’s of operations in developing
strategies: people, processes, programs, plant, and planning.
A typical service consulting project contains a combination of these components in different
proportions that are,
1. Proposal development
2. Problem analysis
3. Design, develop, and test alternative solutions
4. Develop systematic performance measures
5. Present final report
6. Implement changes as agreed upon
7. Assure client satisfaction
8. Compile lessons from the study
The general steps of this consulting cycle are very similar regardless of the nature of the
business, but the tools used and the focus provided at each stage can differ. A typical
consulting firm can be thought of as a pyramid, with 4 levels referred to as finders, minders,
binders, and grinders.
Operational Characteristics
Professional services firms often organized as partnerships rather than corporations. The
partners have equity in the firm and as a group represent the governing body. The economic
success of a partnership is measured by profit-per-partner, which is driven by 3 factors:
margin, productivity, and leverage.
Profit-per-partner = ( profit fees staff

fees staff partners )
)( )(
= ( margin ) ( productivity )( leverage )
Margins often are the most utilized factor in measuring the profitability of departments
within a professional service firm. Unfortunately however, margins frequently are inaccurate
and misleading indicators. Margin is equal to the percent of profit for each dollar of fees
charged. This ratio is affected by many factors including the productivity, leverage, also
overhead costs. Margins will suffer if these costs are not kept under control. However,
simply cutting it cannot return the desired results in the long run.
Productivity is further divided into 2 factors that affect the short and long term success of the
firm: realized fee per hour (value) and utilization of professional staff,
fees hours
Productivity = ( hours )( staff )
= ( value )( utilization )
The amount of value that a professional services firm can provide and capture in the rates are
another factor in the productivity. Several value-building activities can be used to increasing
the value of services. Meanwhile, utilization is defined as the ratio of the number of hours
billed to the number of possible billable hours. Utilization is affected by 2 aspects of the
professional services business, balancing demand and capacity also the importance of
nonbillable activities.
Leverage is the ratio of the number of professional staff members to the number of partners,
an essential factor in determining the profit-per-partner. Partners get profit from 2 sources:
the high rates a senior staff member charges for services and importantly the ability to hire
professional staff and bill them to customers at multiples of their salary. A successful firm
will maximize its leverage while also being able to complete projects successfully.
 OUTSOURCING SERVICES
A transaction cost is incurred in seeking and maintaining the outsourced relationship. There
are 3 types of transaction costs,
a. Search costs are incurred in finding a capable supplier.
b. Bargaining costs are associated with reaching an acceptable agreement with the other
party and drawing up a contract.
c. Enforcement costs are incurred in making sure the other party sticks to the terms of
the contract, and taking legal action if it does not.
Benefits and Risks of Outsourcing Services

There are several reasons to outsource a service activity rather than perform the task.
Consider the following reasons and examples,
a. Allows the firm to focus on its core competence; The volunteer U.S. Army no longer
has KP (kitchen patrol) duty for its soldiers.
b. Decreases costs by purchasing from an outside source rather than performing in-
house; Janitorial are a good candidate for outsourcing to a specialist provider because
the cleaning service must remain competitive in the marketplace.
c. Provides access to latest technology without investment; Local hospitals seldom
invest in expensive diagnostic equipment such as an MRI, but instead contract with
an outside source to provide the specialized service.
d. Leverages benefits from a supplier who has economics of scale; Automobile dealers
seldom have an in-house collision repair capability because the demand faced by a
dealer is erratic and keeping highly paid specialists busy all the time, therefore is
difficult.
Outsourcing should also be approach with caution due to the following consideration,
a. Loss of direct control over quality.
b. Jeopardizes employee loyalty because of job-loss fears.
c. Exposure to data security and customer privacy issues.
d. Dependence on 1 supplier compromises future negotiation leverage.
e. Additional coordination expense and delays.
f. Atrophy of in-house capability to perform outsourced service.
Classification of Business Services

Business services often are classified according to degree of tangibility. The degree of
tangibility describes the extent to which the service has physically measurable output
properties. Differentiating services based on tangibility does reflect the potential level of
difficulty faced by the purchaser, but the degree of tangibility does not provide enough detail
to help the purchaser making service purchase decision. However, as the focus of the service
moves from property to people to process, the tangibility service will decrease.
Managerial Considerations with Service Outsourcing
Facility Support Service (Property/Low Importance)

Services in the facility support category can be treated like the purchase of goods. Tight
specifications can be prepared and vendors then can be chosen based on the lowest bid. Even
though purchasing of such services is easy, an interested individual within the organization
must be in charge for evaluating the performance of the service delivered with particular
attention to quality and timelines.
Equipment Support Services (Property/High Importance)

Equipment support services create an additional problem because the vendor should be
located close enough to provide emergency service. Potential vendors should be limited to
those with experience in the purchasers industries, due to the critical nature of maintenance
and repair of industrial equipment or product testing.
Employee Support Service (People/Low Importance)

In determining the specifications for the service that serves people, user input is important.
Requests for employee support service usually originate from a functional department, so the
need specification will be developed with department personnel input.
Employee Development (People/High Importance)

This service requests also originate within a functional department and usually involve
Personnel Department or a higher level of management. Employee development is an
important investment in the firms human capital that requires expertise to guide the purchase
of the service. Employees affected by the service also can be useful in the evaluation process.
Facilitator Service (Process/Low Importance)

Business service operations of an information processing nature that support the
organizations purpose or process are classified as the least tangible type of business service.
Routine information processing such as bookkeeping and travel booking is part of the
facilitator service.
Professional Service (Process/High Importance)

Since professional service has such a huge effect on the organizations strategic future, top
management must be involved from the very beginning. The process starts with need
identification and proceeds through all stages of the purchase process including, most
importantly performance evaluation.

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 PROFESSIONAL SERVICE FIRMS

Attributes of Professional Services

Profit-per-partner = ( profit fees staff

Benefits and Risks of Outsourcing Services

Classification of Business Services

Managerial Considerations with Service Outsourcing

Facility Support Service (Property/Low Importance)

Equipment Support Services (Property/High Importance)

Employee Support Service (People/Low Importance)

Employee Development (People/High Importance)

Facilitator Service (Process/Low Importance)

Professional Service (Process/High Importance)

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