TORONTO--(BUSINESS WIRE)--Even though Sterling Cooper Draper Pryce, the advertising firm at the heart of AMC’s Mad Men, is fictional, the situations they face can be very real to today’s professional services firms.
Although operating an advertising firm in the Sixties brings unique challenges, there is one thing that ALL professional service firms have in common. There is no product—just people. The inventory is their insight, intelligence and creativity. Autonomy is often valued as much as structure. Everything is driven by the client, and skilled talent has to double as entrepreneurs—something that Roger Sterling, Bert Cooper, Don Draper and Lane Pryce have experienced as they’ve struggled to grow their firm and make a name for themselves in the competitive world of Madison Avenue.
Grant Thornton LLP has just published Foundation for Growth, a white paper that presents the results of research and analysis into how professional services firms view their performance and people, their planning and profitability. It contains some very important lessons that Sterling Cooper Draper Pryce (SCDP) would be advised to follow if they want to continue to grow.
And for firms such as SCDP, growth is a consistent focus. Even though the team on Mad Men finished the television season having just completed their best quarter ever and landed their first car account, Don is still dissatisfied with the pace of growth. “You realize when you’re surrounded by young people that you’re getting older and what’s your legacy going to be? Are you just going to play out the string, or are you going to continue to achieve, and continue to strive, and try to move forward?” Don says to Roger. “I don’t want Jaguar...I want Chevy. I don’t want Mohawk…I want American. I don’t want Dunlop…I want Firestone.” Add to this, Don faces the struggle of growing a culture that grooms and develops its talent without losing them to a competitor (as with Peggy Olsen) and the very real struggles that come with rapid expansion (such as cramped office space).
The Grant Thornton survey focused on three critical areas for professional services firms and practitioners—market value, succession planning and performance measurement. Each of these are critical to the growth and success of professional services firms like Sterling Cooper Draper Pryce.
Market value: One of the most fundamental measures of success is fair market value, which gives firms an idea of what they’re worth on the open market and can help them to focus on the metrics that will drive growth. It’s what allowed the original Sterling Cooper partners to sell to Putnum Powell and Lowe for a fair price, thus giving the partners the seed money they needed to start their own firm. More recently—and perhaps controversially—without current knowledge of the value of the business, Pete Campbell couldn’t have completed the formal partnership offer to Joan in less than a day (as distasteful as that might have been).
Half of the respondents (51%) in the Grant Thornton research reported they have some idea of what their business is worth, another 32% do not know and 17% are uncertain. Of those firms that say they know the value, a majority (54%) perform a valuation at least annually (42% value annually, while 12% value more than once a year). Almost half of the respondents who’ve had a valuation (46%) used a third-party firm to assist them.
Succession planning: The functional capabilities of a professional services firm are entirely tied up in its people, but shouldn’t be linked to any one person. One of the biggest strengths of SCDP—Don Draper—can also be one of its biggest weaknesses. To retain the client base and grow, it’s critical to have succession strategies in place. After all, the firm may be able to survive the loss of Lane Pryce and Peggy Olsen, but can it survive the loss of Don Draper? And with Peggy Olsen’s defection, the once-clear line of succession is now blurry. This is one area where Grant Thornton would recommend SCDP take immediate action. Formal succession planning is a must.
The Grant Thornton survey found 49% of professional services firms do have a formal succession plan for when a key member of the team retires or anticipates retiring. Of those firms with a succession plan, a little under one-third feature the following: plans to transition clients to other personnel (31%); training programs to identify future leaders (31%); policies and procedures for purchasing shares (30%); and non-compete clauses in agreements (29%). The respondents who lack a succession plan mainly cite two reasons—no key decision makers have expressed an interest in leaving (32%), or they simply haven’t considered it (18%).
Measurement of key performance indicators: Any business can quantify and track countless metrics, and certainly Lane Pryce provided an invaluable service in keeping SCDP on track. Although she is trying her best, can Joan continue to channel Lane’s voice of reason in partner meetings? If they want to grow, they can’t just track cash flow and count the cheques coming in the door. Sterling Cooper Draper Pryce needs to keep their eye on a variety of key performance indicators.
Two-thirds of firms surveyed in Foundation for Growth use performance indicators, and say they’re an integral part of the overall business strategy. The good news is that SCDP seems to be tracking the five most cited key performance indicators in the Grant Thornton survey:
- revenue stream/cash flows (58%)
- cost control measures (30%)
- number of clients serviced or the value of new work won (30%)
- growth of the business/growth of margins (27%)
- balance sheet metrics (25%)
From the survey results and the advisory board discussion around them, one clear imperative emerged for practice leaders in professional services firms. They have to divide their focus and energy very carefully, allocating time to working both in the business and on the business. It can be a difficult balance. At SCDP, Don has spent more time away from the front lines and clients sense that they are no longer getting the “full Don treatment”. This can be a risky strategy.
“Many people in professional services find it is easier to spend most of their time on the day-to-day operations, professional challenges, and sticking to the comfort zone of their core competencies, whatever those might be,” says Kelly Kolke, partner and national leader of Professional Services at Grant Thornton LLP. “In the case of Mad Men, Don suddenly became involved in developing a client campaign this season after an absence from the creative side. It gave him a chance to step back into a role where he felt comfortable and in command. But in order to grow, Don—and all professional services firms—have to make sure they have the right balance. Don needs to stay involved in the creative output of the firm while at the same time think about things like developing future partners, measuring financial and operational excellence and taking the time to understand the factors that drive the business value. That is, if he really wants that big airline account and a Christmas bonus next year.”
The research and principles in Foundation for Growth apply to advertising, architecture, engineering, medicine, law, management consulting, financial services and more. Professional services firms like Sterling Cooper Draper Pryce and those in today’s real business world can learn more by reading Foundation for Growth to help them better understand their capacity to grow and seize new business opportunities.
Kelly Kolke, national leader, Professional Services, Grant Thornton LLP, is available for interviews. You can also watch a video of what he and other professional services research study advisory board members have to say about the research on our website.
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.
About the survey methodology
The study consisted of a nationally representative sample of 238 designated professionals, working in small partnerships/corporations (2–15 partners or key decision makers) and larger partnerships/corporations (15+ partners or key decision makers). With 95% certainty, the total results are within +/- 6.3% of what they would have been had the entire population of Canadian business leaders been polled. The data has been statistically weighted to ensure that the regional composition of the sample is in line with parameters set out by Grant Thornton at the beginning of the project.