There is a distinct correlation between a firm’s profitability and the degree to which its partners think and act strategically.During the course of my consulting, I have identified nine key non-financial elements that drive high-performing professional firms. They help explain why some firms are more profitable than others, and why the high-performing firms constantly beat the competition.
* 1. Vision. All high-performing professional firms have a clearly articulated vision. If you don’t have a vision, then all of the following elements won’t work. The firm becomes its own worst enemy.
* 2. Goals. Too much of a good thing can kill you. This applies to goal-setting as well. No firm should have more than five firm-level goals at any one time. These are goals that all owners and key employees understand and agree to. They are also goals that align everyone in the firm.
These goals represent the key steps to achieving your objectives, and identify where the firm allocates most of its energies. In reality, however, most owners don’t know what the goals are, and employees don’t know what to do to support the firm’s goals. When this occurs, the firm just flounders.
* 3. Commitment. You don’t want to get too far down the strategic planning path without making sure that your fellow owners are committed to the vision, priorities and objectives of the firm. This means more than just a lukewarm commitment from them.
When you get the other owners involved in the process, you will have a better chance to win their hearts and enthusiastic buy-in. It’s nearly impossible to achieve any type of commitment without some meaningful degree of involvement in the development of the goals and the strategic initiatives. Remember — no involvement, no commitment.
* 4. Alignment. Goals need to cascade through a firm. Everyone needs to understand how their work and efforts support the overriding firm goals. Each employee should be able to explain how what they do supports the firm’s goals. You also need to align compensation with performance and outcomes.
* 5. Key performance measures. Accountants are great at measuring billable hours and other types of production measures. Unfortunately, those are not the only measures that drive profitability.
To implement your strategic plan, you need to determine key performance measures and then measure them. This gives everyone in the firm the opportunity to participate in the performance measures and to support the firm. It also provides a sense of how well the firm is doing in achieving its key goals.
The primary way to get different and, in this case, better results is to change what you traditionally measure. What should your key performance measures be? Just ask yourself these two questions: “What will success look like?” and “What do we need to measure to tell us that we were successful?” Then you tie the reward system to the new measures.
* 6. Execution. As the old saying goes, talk is cheap. Execution is where the rubber meets the road. Firm leadership is responsible for making sure the firm executes its strategic plan.
At times, it’s even necessary to revise various systems and procedures in the firm. For example, firm governance might have to be changed, workflow systems revised, core values identified or technology upgraded. You can’t execute unless you have a well-oiled machine running under the hood.
* 7. Communication. Bruce Marcus, a pioneer in the field of professional services marketing, explained the problem with modern-day communications as follows: “I sent the e-mail; they should understand what we want to do.” Just sending an e-mail does not mean you sent actionable information, or that the recipient even understood what they need to do.
In high-performing firms, leaders make great efforts to communicate the strategic vision and their priorities. They repeatedly talk about the firm’s vision and goals. You know your partners and employees understand the strategic vision when they begin to say, “Enough is enough.” Now they understand the goals and what is expected.
* 8. Scoreboard. No real sports game has ever lacked a scoreboard. The same is true for high-performing firms — they all have scoreboards. You can’t tell if you are winning or losing unless you have one, and you won’t be able to make adjustments to your plan throughout the year without one. The scoreboard gets you asking: “Why isn’t our strategy working the way we envisioned? Where can we do better? What needs to change?”
* 9. Pay for performance. With aligned compensation, high-performing firms develop a real sense of commitment to shared objectives. These firms link compensation to achieving the firm’s vision, mission and strategy. This involves, as noted above, identifying the firm’s top strategic objectives, defining what they mean in terms of organizational behavior, and designing the compensation plan in a way that recognizes and rewards those behaviors.
August Aquila, Ph.D, is the co-author with Coral L. Rice of Compensation as a Strategic Asset: The New Paradigm (AICPA). He specializes in compensation consulting, mergers and acquisitions, succession planning, and strategic planning. Reach him at (952) 930-1295 or aaquila@aquilaadvisors.com. (c) 2007.
