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2.5.4.1 Ownership structure

Transnational firms are typically partnerships in which senior professionals (partners) own and manage their respective national firms and lead client engagements (Greenwood et al., 2010). As Malhotra (2006) states, partnerships as a governance form embodies three beliefs: the fusion of ownership and control; a form of representative democracy for purposes of operational and strategic decision-making; and the non-separation of professional and managerial tasks.

As Young (2005) states, the ownership structure affects the firm’s culture and decision-making process. As the numbers of partner increases, a

management structure will evolve. As the partners being managed are also the owners of the firm who vote the managing partner into position, the leadership must work by consensus.

2.5.4.2 Professionals having three-heads

Lorsch and Tierney (2002) say it is a the three-head challenge: being a producer, a manager and an owner. Professionals become hardly into senior management positions unless they are excellent producers. Many seniors do not stop producing professional work. On the contrary, bringing in and

serving new clients is the primary source of recognition in firm as well as their economic lifeblood. This is the critical tension professionals experience as being producer-managers.

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The engine of all firms are incentives, of which the most powerful incentive for intelligent professionals is ownership (Scott, 1998). It is not just about cash, but also autonomy, freedom of decision making and personal fulfilment. This is why so many firms have traditionally been structured as partnerships.

Scott (1998) continues, the annual bonus is a fairly standard hierarchy of methods available to the firm to simulate ownership rewards. Most firms are stuck with incentives structures, which are not based on significant variable earnings because profit accountability is held by a small number of people and profit accountability is rarely held at the account level. The reason few firms do so is that the management of most firms are afraid to empower staff with financial control. Often they will not trust their account managers or senior consultants to set and manage proper budgets. Such neurosis on the part of senior management of the firm is surprisingly common (Scott, 1998).

2.5.4.3 The professional as a leader

DeLong et al. (2007) characterises the steering and leadership of the

professional service firm as follows: specialisation by practice; integration of management and producer role; professional apprenticeship instead of formal trainings; partnership types of organisation instead of corporate form and separation of management and ownership. The distinguishing structural feature with the corporate model is that the corporate model emphasis on specialisation by function, with a clear separation of manufacturing, sales, marketing, and design into differentiated sub-units and its clear separation of managerial roles and producing roles. When making progress on the

organisational ladder and become managers in the corporate model, there leaders stop functioning as individual contributors. As DeLong et al. (2007) continues, business development, client service, and execution are not highly differentiated roles in different departments within the firm as they are in the corporate model. When true functional specialties exist in the firm than they are typically support groups, such as human resources, finance, accounting, technology and marketing. Its major role is to assist practice leaders and individual partners in spotting, researching, and developing new business opportunities. Leaders at client-service-group level are also deeply involved in the execution of client work. In today’s rapidly paced world it becomes a

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problematic leadership issue as partners find themselves with more tasks than time.

2.5.4.4 Professionals and stars

Lorsch and Tierney (2002) state that the success is determined more by the people these firms pay (“the stars”) than by the people who pay them.

Success is defined as financial performance, reputation and stood the test of time, like weathered business cycles and evolved well beyond their founding generation.

Aligning these stars argues that strategic success is achieved by building an organisation of executive-level stars whose day-to-day performance

reinforces and ultimately achieves the goals of the business. Outstanding firms align stars across business lines, geographies, and even generations.

Lorsch and Tierney, show how successful firms create and sustain alignment via:

 Strategy - determining which elements of strategy are most important and why - and how effective implementation incorporates

organisational realities;

 People Systems - converting talent into stars, while nurturing firm first behaviours;

 Structure and Governance - organising around partnership principles even in a corporate environment;

 Culture - actively managing the culture to guide and control individual behaviour;

 Leadership - exercising effective leadership when the power to control partner-peers is limited; and,

 Careers - aligning individual stars by helping professionals build a life, not just a resume.

According to Lorsch and Tierney (2002) outstanding firms are consistently able to identify, attract, and retain star performers; to get stars committed to their firm’s strategy; to manage stars across geographical distance, business

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lines, and generations; to govern and lead so that both the organisation and its stars prosper and feel rewarded.

2.5.4.5 Professionals and client’s buying behaviour

Young (2005) emphasises the need for a professional to understand client’s buying behaviour. Suppliers need to understand the roles of different people in the organisational buying process, the weight given to different purchase criteria and the sources of information used to come to a decision. The buying of professional services can still be very personal with little

involvement from purchasing specialists. The sources that buyers refer to in collecting information about a supplier are: representatives of the firm, word of mouth, industry networks, directories, press releases, brochures and internet searches. According to Young, if professionals report that price is the prime consideration of their clients, either they are not diagnosing need properly or their offer has been allowed, by their industry, to become a commodity.

Lorsch and Tierney (2002) say it slightly different: the professional service sector is grounded in a unique business model, which is centred on

productively managing highly paid professionals and where the basic building block of its business model is the client relationship. You are buying

purchasing time, but mostly you are concerned with the consequences of how that time is used. It is not that price does not matter, but results matter more. They distinguish three dimensions of the business model:

 The already mentioned need for strong personal relations with the client;

 Individual behaviour of the professionals, who should put the interest of the firm ahead of their own needs;

 Implementing the firm’s strategy by the individual professionals, which reflects client needs, capabilities and against which competitors.

The distinguishing character of the business model is its reliance, its absolute dependence, on skilled and motivated professionals. These professionals, the stars in the wordings of Lorsch and Tierney, propel the business model

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along all three of its dimensions: building enduring client relationships, consistently performing up to their full potential and putting the firm first, and implementing strategic imperatives.

2.5.4.6 The partnership model

Lorsch and Tierney explain, in traditional corporations, power is essentially positional and top-down. In professional firms, power is attached to

individuals as well as to positions. Professionals derive power from their accomplishments and expertise: peers and younger professionals will respect you and follow your lead if you are outstanding at your craft and effective with clients, regarding of your formal position in the firm. As a result, power and influences are more widely distributed among partners of a firm than they are in a typical large corporation with a more rigid, hierarchical structure.

Lorsch and Tierney continue that for centuries, partnership was the only form of organisation available to independent contributors who wished to band together in the pursuit of professional success. Even as alternative legal structures such as incorporation evolved, most professional service firms continued to think of themselves as partnerships.

In professional service firms led by partners and in a partner-based sales model, typical of the audit, tax and consultancy sector, there is a tendency to spend too much time on internal administrative and delivery activities instead of developing new business (Baschab and Piot, 2005a). The advantages of the partner model are: alignment between financial and personal interests, a good understanding of the services, preservation of financial resources, and a continuation of the relationships from the sales phase into the delivery phase. There are also challenges: ensuring the efficient allocation of human and financial resources when driving new business with partners and

professional staff, the required diligence, perseverance and discipline needed for marketing and developing business, and the necessity to show desire and aptitude to market the firm and develop business. Today, as Lorsch and Tierney (2002) state, the partnership is under siege. Times have changed and more and more firms have decided to expand their service offerings and

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to become international, if not truly global. Some have gone public of have merged or been acquired by other firms.

2.5.4.7 Organisational change within the professional service firm

This paragraph deals with the aspect of how to implement an organisational change, like embedding account management, within the professional service firm. Professional service firm are led by the partners. Partnerships are characterised by decentralised decision-making process and require high involvement of the partners. As Lorsch and Tierney (2002) stated,

professionals derive power from their accomplishments and expertise.

As mentioned earlier by Greenwood (2010), the national partnerships have progressively recognised that the largest international clients are hugely important, both from a profitability point of view and as an influence upon the firm’s status and reputation. The firms recognise that in order to serve the interests of their largest clients, and to differentiate themselves from other firms of advisors, partners have to find ways to co-operate with colleagues in different countries and across other service lines. Embedding account

managent in the firm is an asnwer to overcome this challange. Account management focuses primary on clients needs instead of the chargeable hours of the individual practices within the firm. Also Gulati defines that an outside-in orientation is necessary to get real insights into client’s needs (Gulati, 2010). Gulati emphasises that a culture should be fostered which aligns all professionals around the shared goals of client solutions and bridge the internal silos of service lines.

LØwendahl (1997) mentioned that the structure and culture of the firm differs

in a way that some firms rely on intangible resources that are controlled by individual professionals, whereas other firms rely on organisationally

controlled resources such as complex data systems, excellent practices and procedures. Embedding account management within a firm will therefore be easier when a firm relies on organisationally controlled resources, because in this case the account management role and activities can be defined and embedded, whereas in an individually controlled firm, embedding account management is more dependent on individual partners.

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It is important that for embedding account management in a firm, that attention is paid towards enriching the practitioners’ understanding of the (decision) situation, so better decisions can be taken (Nicolai and Seidl, 2010). In a parthership model, this means creating awareness for the value of account management.

To overcome the silos of individual service lines and the “rainmaker”

mentality in favour of a co-operation model between account managers and professionals, it requires domination supported by legitimation (Hussain and Cornelius, 2009) and developing shared norms (Lowendahl, 1997).

This requires a cultural change, because the current dominant belief is that account management is personality driven, that every professional should make chargeable hours, and therefore dedicated account managers are not necessary. A dedicated account manager conflicts with the “rainmaker” mentality of the “expert” industry (Baschab and Piot, 2005b). To overcome this dominant belief, the culture of the firm need to be changed that autority should be given to account management to mobilise professionals for the clients, to structure the performance management system of the firm around clients and to act in favour of the whole firm instead of the individual service lines.

As is mentioned by Lawrence et al.(2012), in carrying out successful organisational change it is an important to understand the role of power in professional service firms. Managers must recognise the essentially political nature of the process. They must unfreeze the entrenched political alliances that might otherwise block change without alienating colleagues who

ultimately need to support the transformation. Lawrence et al. add that transformation is best achieved by changing the patterns of authority within firms in order to disrupt the traditional rules and assumptions within the organisation. Centralising the decision-making, power and authority can help bring about transformational change. Furthermore, Lawrence et al. mention the importance of achieving legitimisation of the power shift is critical by obtaining buy-in from key individual partners.

This paragraph described the “characteristics regarding professionals”, including a review of the literature focusing on an organisational change in

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the culture of a professional service firm. The extant literature regarding the importance of having relationships in professional services industry is mentioned in the next paragraph.