Professional service firms occur in sectors such as architecture, law and accounting. These sectors are characterized by extensive and long traditions of professional practice, highly regulated professional training and examination, and a professional partnership (PP) style of organization. The PP model means that the firm can operate quite differently to a typical limited company. Professional service firms may have many partners in the business and there are tax advantages that normal limited companies do not have. On the other hand, each partner is liable for any wrong-doing by other partners and the liabilities of the firm – so their personal risk is much higher.

Firms of accountants, lawyers and doctors, among other professional groups, tend to be similar because they conform to a sectoral archetype of what a professional firm should look like. Their structures and methods of organizing are similar because they want to conform to the social expectations that exist in their sectors. These expectations push for structural and organizational conformity as a way of legitimizing the firm in its sector. Without legitimacy, a firm would struggle to be seen as a serious operator.

However, competitive and institutional pressures in the various sectors have caused professional service firms to re-think their business models. The main pressures at sector level were increasing competition and the need to be far more efficient. Partners in the firms began thinking about the merits of changing the organizational form away from a partnership to a managed professional business (MPB), which typically has a more hierarchical governance structure, more centralized decision making, more separation of management from professional tasks and tighter management control.

Across the various professional sectors, however, research has shown that some firms in a sector have made the transition from PP to MPB, whereas others have not. This is intriguing because, since external conditions affect firms in a sector in the same way, different outcomes from attempts to change look like they have explanations lying inside the firm.

Three PP firms providing legal services were studied (Lawrence, Malhotra and Morris, 2012) and the triggers for change in the firms included: a profit crisis;

the retirement of a senior partner; a merger between two partnerships; under-performance; high-profile partners leaving for jobs in other partnerships and taking their teams with them; demands for new types of professional service following regulatory change;

and high profitability, which increased commitment to stronger management control.

Key changes at the three law firms over a ten-year period included:

● Law firm 1 – Some roles were abolished and an executive committee was turned from being decision making to advisory. Divisional structures were introduced along with a principle of divisional autonomy. The service portfolio was refocused around two market sectors and the creation of a new third business division. Different reporting systems were introduced, as were formal procedures for HR practices such as hiring and promoting.

● Law firm 2 – A new management team was formed and made up equally of partners from two merged firms. The central management team was expanded and appointed/replaced heads of particular law practice groups. At first the portfolio was expanded to reflect the two firms that merged, but this was later refocused into two major practice areas. System changes included HR and billing. Financial systems identified partner performance and led to counselling and the managed exit of poor performers. Over several years there was continuing resistance to the changes by some groups.

● Law firm 3 – Strengthened central management and adoption of the vocabulary used by corporate clients (such as talking of the ‘board of directors’

and ‘shareholders’) and a refocusing on core law practice areas and reduction of other areas. New appointments were made from outside, alongside promotions at senior level. A new firm-wide strategic planning and monitoring system was introduced.

Specialists were hired to manage HR and marketing.

Stronger people management such as processes to measure partner performance were introduced.

Questions

1. Using the various models given in this chapter, how would you classify the attempt to change from a professional partnership to a managed business?

2. Given that competitive and institutional forms are the same in each sector, why have some firms made a successful transition and others not?