What is a Professional Services Firm?
Professional services firms are knowledge intensive organisations that provide expert service to clients.
Examples of professional services firms include Accountants, Architects, Management Consultants, Lawyers, etc.
There are some peculiar characteristics of professional service firms that distinguish them from other types of organisations.
- All, professional firms’ primary assets (like knowledge, experience and reputation) are intangible;
- The service they deliver is intangible and are customised or adapted to individual customers’ needs;
- Highly skilled and trained people provide services in direct contact with the customer, developing customer-centric relationships.
Professional firms are organised to create value by selling and delivering promises to their clients. The value creation is achieved through intellectual capital, and not through machines and other tangible assets, as happens in traditional manufacturing businesses. Consequently, the main assets are human. For this reason, a strong recruiting and retention system in professional firms is necessary, as well as the development of an effective knowledge-management program.
Another key asset of professional firms are relationships. Given the importance of human assets, the relationships that professionals have within the firm and with the clients are critical for professional firms in achieving competitive advantage. In fact, in many cases the firm discovers that clients are loyal to a specific professional and not the firm as a whole.
In addition, professional services firms tend to be structured as partnerships which makes their governance more challenging than in a traditional business as the roles of owners, managers, and employees which are separate in a traditional business, tend to overlap in a partnership. This can create issues with developing strategic plans in these organisations – see our articles “The Unique Challenges of Developing Strategic Plans for Professional Partnerships“. It can also cause problems managing these firm effectively – see our article “Creating A Better Business Structure for Professional Partnerships“.