Just How Important Is Leadership in Professional Services’ Success?

The proof is in the numbers
by David Hofferberth, Service Performance Insight

It’s nearly impossible to read any article on leadership and come to the conclusion that leadership does not matter. Therefore, most of us already acknowledge leadership’s importance, but few of us have been able to truly quantify its benefit.

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For the past seven years, Service Performance Insight has analyzed leadership metrics in our annual Professional Services Maturity Benchmark. We ask eight core questions, which are subjective in nature yet provide significant insight into the importance of something as nebulous as leadership.

We asked professional services executives to rate the following aspects of their organization in terms of how well they operate on a 1 to 5 scale (1: not well to 5: very well). The questions include:

  1. The vision, mission and strategy of the professional services organization is well understood and clearly communicated.
  2. Employees have confidence in PS leadership.
  3. It is easy to get things done with the PSO.
  4. Goals and measurements are in alignment for the PSO.
  5. Employees have confidence in the future of the PSO.
  6. Leadership effectively communicates with employees.
  7. Leadership embraces change; we are nimble and flexible.
  8. Leadership focuses on innovation and is able to rapidly take advantage of changing market conditions.

The net result of these questions is a score ranging between eight and 40. We analyzed the results of the 2014 survey thus far with more than 100 responses and segmented the responses into those organizations that averaged at least four out of five on all questions against those averaging less than four. In other words, we put the organizations into two groups: those with strong leadership characteristics and those lacking them. Table 1 compares some of the most important key performance indicators between the two groups and how much it changed from the previous year.

Table 1: Key Performance Indicator Comparison

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The table highlights some distinct advantages of strong leadership. PSOs with leaders who truly lead the organization — with high levels of communication and collaboration — grow their organizations at a much higher rate than those lacking these qualities.

With strong leadership, employees understand what’s required of them, and can go about conducting their daily business with the confidence their work meets corporate objectives. Strong leadership helps employees get on the same page working toward a common goal. With this knowledge, employees are more productive, ultimately delivering higher levels of client satisfaction and profitability to the organization.

Communication is key

While all KPIs are important, some tend to be more so than others. Table 2 shows how organizations where leadership does a good job of communicating with the workforce outperform the others. These organizations excel in the area of communicating the PSO’s vision, mission and strategy.

Table 2: KPI Comparison Between Effective Communicators and All Others

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Also notable in this table is that those organizations with the strongest leadership achieve leadership KPIs better than all the others by more than 16 percent.

One area not covered is that as organizations grow in size, the effects of leadership become less statistically significant. Obviously, large organizations need strong leadership. However, communication suffers when large organizations are dispersed globally and employees have minimal exposure to the core leadership team. To compensate, leaders in large organizations must ensure their regional executives have the skills necessary to translate corporate goals and strategies to their workers, and have strong listening skills to give remote employees the feeling they’re an important part of something special.

Seven years of research has shown that executives must offer a clear and consistent strategy, backed by explicit expectations and goals that every employee can aspire to meet. The greater the clarity, the easier it is for employees to interpret the underlying meaning and then work to meet them.

Professional services remain employee-centric

The survey process results indicate the importance of continuing to strive for new and innovative solutions to problems. Innovative organizations provide employees with the confidence to know the organization will be around for many years to come, and they will be continually challenged and personally grow as the organization expands.

The broader economy, such as manufacturing and retail, may be just beginning to improve, but the professional services market has now had three consecutive years of more than 10 percent growth. This growth, while good for the bottom line of PSOs, will ultimately come at the price of higher attrition levels, as employees — with skills in demand — see a vibrant economy for themselves. Therefore, they will look to make more money and for greater challenges. This aspect of the work is another reason why leadership is vital.

Happy employees, who might otherwise believe there are other options available to them, will more than likely stay at their current organization if they are confident in its future, and see a path for them to personally develop and grow. Leaders must continue to offer that vision of the future, which excites and motivates the workforce to continue with the organization.

The importance of leadership

Leadership styles continue to be debated and analyzed for their effectiveness. Research thus far shows that leadership does matter, and it can be quantified. PS has many other attributes that allow some firms to perform better than others. This annual benchmark attempts to provide PS leaders with the insight to improve all aspects of the organization. However, there’s no doubt that success begins with leadership, and leaders must perform at high levels for the organization to succeed and move ahead.

Setting the Right Tone

Leadership types and roles must match the organization
by David Hofferberth and Jeanne Urich, SPI Research

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Great service leaders must wear five hats simultaneously. They manage and inspire the human side of the business — developing a vision, walking the talk and building a great team. They’re constantly on the lookout to find ways to improve execution by streamlining the business while searching for new avenues for growth. They have an innate sense of what tomorrow’s business should be, and steer their organization into a position to prosper even more in the future.

Being a leader in any industry is both exciting and challenging, but in professional services (PS), walking the line between leading and doing is especially difficult. PS leaders must play a number of roles, which include:

  • Strategist: Defining the vision, mission and associated strategies to reach the firm’s objectives.
  • Salesperson extraordinaire: Meeting and developing close relationships with the most critical clients and prospects.
  • Industrial engineer: Understanding and codifying business processes to streamline and improve service execution.
  • Cheerleader: Motivating the workforce to improve quality, cost and client satisfaction in both good and bad times.
  • Financial guru: Managing the organization’s profit and loss and cash flow to reach desired financial objectives.

The bottom line is that it’s not easy being chief cook and bottle washer. In professional services, executives must contend with an entirely people-based business, and therefore, client concerns associated with quality do not come down to a poor manufacturing process or defective materials. Instead, they fall on inadequate skills and processes associated with client development and project delivery or both. PS leadership is a constant balancing act between marketing and selling new business while striving to deliver quality engagements.

Overall leadership objectives

Regardless of which hat the PS leader wears, he or she must meet several overarching objectives to drive the organization forward. The leader must:

  • Set the vision and strategy and develop the service organization’s mission and charter by effectively teaming with the cross-functional leadership team.
  • Develop a service strategy to capitalize on chosen markets and customer segments.
  • Ensure goals and measurements align with and support the strategy.
  • Foster new ideas and methods in response to changing requirements.
  • Ensure effective bi-directional communication to maximize collaboration.
  • Improve visibility and overall efficiency and effectiveness on a frequent basis.

In the dynamic PS market, standing still means falling behind. There’s never time to rest because PS organizations must account for every hour, and non-billable hours are forever lost unless they were invested in building future capabilities. PS organizations are constantly in motion, delighting clients while simultaneously looking for new ones. Change is constant as new technologies, client business problems and execution challenges never take a holiday.

Based on SPI’s in-depth research of over 600 billable professional service organizations, fostering a consulting culture built on both the desire to solve client problems and establish business value for doing so requires a unique leadership skill set. Tipping the balance too far in the direction toward aggressive business development at the expense of clients and staff or too far in the direction of delivery excellence without a profit motive are extremes to avoid.

What type of leader are you?

Based on our research and experience, we believe PS leadership competencies must change and advance as the organization grows and matures. We have identified four major leadership profile categories based on the size of the organization and its focus. These profiles concentrate on the content of the job (competency required) as opposed to the leader’s personality style. As organizations grow, the complexity of the leadership position increases. Furthermore, the role shifts from doing to managing to leading and ultimately to inspiring.

To be effective, a leader’s competencies must match the organization’s requirements and maturity level. For example, entrepreneurs successfully juggle many different problems but may be averse to consistency, operational controls and measurements. They enjoy the chaos, flexibility and heroic nature of startup environments. They’re not afraid to roll up their sleeves and jump into the fire, but their aversion to authority and standards isn’t a good match for larger, more-established organizations.

As with personality profiles, leadership competency profiles are not right or wrong. They accentuate characteristics that must be present to be successful in the current role while envisioning and growing both personal and organizational skills for the firm of the future.

Generally, PS leaders fit in one of four main types of leadership profiles:

The Entrepreneur.  This type of leader generally does well in start-up environments. Entrepreneurs are doers, meaning they have their hands in all parts of the organization, from the development of tools, technologies and business processes to the management of clients and finances.

They tend to have stronger technical skills than business or leadership skills. Because they must convince potential employees and clients to join in, recruitment and ramping up are important to them. Growth and early client references are top priorities.

The General Manager.  This leadership profile best suits larger organizations where they replace chaos and “anything goes” with planning and building efficient operating processes and guidelines. Because a growing organization requires a general management skill set, leaders need to develop strong financial and operational skills. At this stage, the organization may potentially expand both globally and by line of business. Thus, the PS leader must understand and institute new organizational models and global structures to ensure consistency, quality and efficiency.

The general manager must be able to delegate plus recruit and develop strong geographic and functional leaders. At this phase, it’s critical for leaders to invest in business and strategic planning to help the organization focus on the most promising markets for growth. Large organizations require this leader to be an effective communicator and planner as well as take an active role with premier clients.

The Specialist. Specialists focus on a market niche or specialize by technology or vertical market. Vertical-market or business-process experts typically lead highly specialized boutique firms. The specialists at these firms possess unique knowledge and skills, and differentiate themselves by hiring elite subject matter experts.

Often, many consider the firm’s leader an industry guru who can attract like-minded specialists to concentrate exclusively on the uncommon problems the firm specializes in. These firms and their leaders often excel in domain knowledge and market thought leadership along with the development of exceptional intellectual property.

The downside of specialists is that they may have poor business and operations skills. They may not be able to scale the organization or diversify into new markets. When the visionary leader leaves, the firm may be in trouble because it has not developed broader horizontal skills and competencies.

The Strategist. As the organization grows to a point where it’s big, global and has established a strong brand, it needs a strategic leadership style to continue to build the brand and assure clients and prospects that they have made the right decision in selecting the firm to help them make “bet your business” decisions.

Even though at every stage of growth, the leader should lead, inspire and communicate, as the organization grows both in strategic and geographic impact, effective internal and external communication becomes mandatory. Strategic leaders create effective leadership teams, prioritize and sequence improvement initiatives carefully, redesign organizational structures to make good execution easier and most importantly, integrate all these tactics into one coherent strategy.

Leaders are multi-dimensional

Great leaders have distinctive qualities regardless of the type, size and maturity of the organization they run. Intelligence and the ability to create and communicate a vision, mission and strategy make up an incredibly important part of the job. Leaders must have a unique blend of capabilities, seemingly divergent, that on the whole inspire confidence. For instance, they must have strong people skills to listen to and empathize with employees and clients, yet they must be decisive and hard-nosed when they need to take action.

Successful PS leaders don’t need to have superior skills in every dimension, but must be clear, deliberate, fair and consistent. They must ensure the organization aligns with the overall strategy and direction of the company. Then, they develop goals and measurements to support that vision and constantly monitor, measure and improve every facet of the operation.

Great services leaders must be multi-dimensional. They drive strategy and execution at the same time, but they can’t do it alone. Leaders are only as good as their teams, so their focus is always on team improvement and enrichment. They convey their message to their top performers and hold those persons accountable. They rely on good practices and measurements to improve and document their performance, and to allow them to concentrate on the problems and issues only they can solve.