Even with flattened organizational structures, leadership remains a necessary top-down function in professional services firms. Leaders are at the top of whatever hierarchy exists in a firm. This is true because firms must rely on the particular combination of capabilities and attributes that are embodied in leaders in order to survive and thrive.
What Firms Need
What does a firm need from its leaders? In ordinary times, firms rely on their leaders for several important contributions:
Capital. Initially, a firm’s owners (who are also its first leaders) are responsible for providing the capital necessary for startup. Startup capital is necessary for organizational and operational expenses, at least until profits are sufficient to sustain the firm. Even then, the firm may require additional capital to fund rapid growth, fluctuating cash flow, office space, or additional equipment.
Marketing and selling. Leaders must feed the firm by obtaining clients and projects needed to sustain the practice. Although other individuals may be involved in supporting the marketing effort, leaders have this essential responsibility. Not only do they have the knowledge and maturity to represent the firm well, but they are able (and are understood to be able) to commit the firm’s resources to make a project successful.
Management. Leaders have a vested interest in their firm’s survival. They must provide the necessary direction for the firm to survive and thrive. They must ensure that client expectations are met, that the firm attracts and retains capable and dedicated staff, that projects are executed properly, and that the firm remains profitable and solvent.
Quality. Leaders must establish the level of quality that represents the firm in the marketplace — quality of both services and products. Although other staff will play important roles in delivery, leaders have the right and the responsibility to determine the level of quality and ensure that it is delivered consistently.
Leadership. Leaders must provide the leadership that will move the firm toward realizing its objectives. They do this by creating a vision for the future, seeing the discrepancy between that vision and current reality, communicating the vision to others, and motivating them to help achieve it.
When the Economy Dips
What does the firm need from its leaders in a down economy? The firm’s needs, and therefore the leaders’ responsibilities, fall into the same areas as in better times but are more focused and more crucial.
Capital. In a down economy, the need for capital becomes critical, sometimes requiring almost daily consideration. As clients’ access to funds becomes limited, they may postpone, reduce, or eliminate payments for services that have already been provided. In the vernacular, they “go south.”
In previous economic recessions, this syndrome was felt more in the private residential and commercial developer market. In the current recession, the malaise has been experienced throughout the economy, extending to institutions that had previously been relatively insulated from the marketplace but which, in this economy, have suffered endowment losses and contributor reluctance. Even local, state, and federal government agencies have reduced capital and operating expenses due to tax revenue shortfalls. In these circumstances, leaders must stay attuned to the conditions of the economic markets in which they operate and be prepared to support the capital base of the firm if and when required.
Marketing and selling. Marketing has become widely accepted as an important (and for some firms, the most important) activity. Some professionals enjoy it. Although it takes time and energy that might otherwise be devoted to projects in normal times, marketing yields important benefits: connection to interesting people; opportunities to talk about significant accomplishments; and most important, new revenue for the firm in a reasonable percentage of opportunities.
There is little question that the potential for generating new revenue is significantly diminished in down economies. American Institute of Architects Chief Economist Kermit Baker blames lenders who “are placing unusually stringent equity requirements on new developments.” He also cites instability in bond markets, lowering tax revenues to fund public projects, and falling property values.
Nevertheless, it is important to continue marketing, although not necessarily in exactly the same way or to the same degree as would be done in a stronger economy. There still will be work, but competition for getting it will increase. Market research to confirm or uncover new markets becomes increasingly important, as does list building to learn who is in the market. In a down economy, lead- finding is particularly important for learning who will have suitable work in the foreseeable future. Courting, networking, and staying in touch (both to develop relationships and obtain information) become increasingly important in a down economy, especially if staying in touch includes clients for whom the firm has worked successfully before.
But courting does not have to be limited to clients; it can be extended to others who are in positions to learn about, refer you to, and engage you on projects. It becomes more important than ever to be the early bird, to get information quickly so that you won’t be catching up later in the marketing process. Staying in touch builds relationships that can be instrumental in getting selected. Other marketing initiatives include seeking opportunities for planning, feasibility studies, and similar front-end services as well as pursuing alliances to broaden geographic coverage and strengthen service offerings.
Remember that work is obtained not from markets but from clients. The easiest source of work is clients with whom a firm has already worked. Leaders should be particularly mindful of sustaining relationships with past, current, and prospective clients. They should stay connected at many levels and expand their networks to include those who influence and assist clients — realtors, financers, leasing agents, public agency representatives, and others. It is particularly important to help clients understand how the things that differentiate your firm benefit them. And consider becoming a client by becoming a developer, but remember that developing projects requires an understanding of finances, funding, the market, risk tolerance, and focus.
Management. When times are normal and there is sufficient work to be done, management isn’t easy, but neither is it very difficult. A reasonable and relatively consistent revenue stream allows leaders to attend to the firm’s client, project, staff, and financial needs. There are clients to be satisfied, projects to be executed, staff to be rewarded, overhead dollars to be spent, and profits to be allocated. In a down economy, especially one in which the firm suffers significantly reduced revenues, management becomes crucial.
Although there is still marketing and selling to be done to produce new revenue, such efforts will rarely have the positive results that they do when credit is easier to obtain and money is flowing more freely. Since generating new revenue will be difficult, leaders must focus on the expense side of the ledger, seeking to reduce direct and indirect expenses. Since the cost of labor is the most significant component of cost, the first line of attack takes the form of salary cuts, work week reductions, furloughs, layoffs, or terminations.
Down markets are good times to assess talent and make changes where improvement is warranted. Of leaders’ myriad responsibilities, attempts to reduce labor expense are usually the most difficult because of the human element. Individuals’ lives are likely to be affected drastically by any of these changes. At such times, it is useful to remember that the objective is to preserve the firm.
Management also includes the effective organization of individuals and groups and the creation and installation of a project delivery process that will produce projects demonstrating the desired level of quality. Management includes tending to the human needs of those in the firm and rewarding whoever most needs rewarding. This is difficult in a down economy but even more necessary than in boom cycles.
Other management initiatives include using the down market period to increase technical and technological proficiency, including building information modeling and LEED accreditation. Not having such proficiencies is rapidly becoming a negative differentiator. In addition, new project delivery methods such as design-build might be perceived by potential clients as offering clear accountability and controlled cost — very attractive selling points.
Leadership. In down economies, leaders have a harder time accomplishing what is expected of them. Current financial, marketing, and management pressures frequently put considerations of the future on the back burner. But strategic thinking is particularly important in troubled times. The future is a reality that must be considered.
While pursuing work for the near term, leaders must position the firm for where they want it to be in three years and beyond. Planning for the future by creating a vision, communicating it to everyone in the firm, and engaging them in action planning will provide a positive message at a time when nearly everything else looks bleak. Perhaps these times are the best for leaders to consider affiliation strategies as ways to expand expertise, power, and influence in everything from individual, project-based strategies to broader strategic alliances to mergers and acquisitions.
And while considering strategies to improve success, think about including offerings that improve clients’ likelihood of success — things like financing strategies, branding strategy, implementation, and perhaps operations and maintenance.
To sum up ways that a leader can help provide for a firm in a down economy:
• Stay attuned to the economic conditions of the markets in which the firm operates, and be prepared to support the capital base of the firm.
• Stay in touch with past, present, and prospective clients as well as those who influence them.
• Gain understanding of the clients’ worlds, and develop expertise to meet their needs.
• Manage costs, especially labor costs. Assess talent and make changes where improvement is warranted.
• Use down time to hone knowledge and skills.
And above all, the role and obligation of a leader is to plan for the future.
Peter Piven is the principal consultant for Peter Piven Management Consultants in Philadelphia. He helps professional practices in the areas of organization, strategic planning, valuation, ownership and leadership transition, marketing, project delivery, financial management, mergers and acquisitions, and senior-level search. He is a fellow of the American Institute of Architects.
