Leading Firms by David Kuhlman

Author:David Kuhlman [Kuhlman, David]
Language: eng
Format: epub
Published: 2013-02-15T16:00:00+00:00

Making the New Principal Formation Process Accretive

Developing and establishing new principals is one of the most important processes in any professional service firm. It renews and generates energy within the principal group and broadens the firm's presence and revenue generating capacity. Forming a person to be a principal generally takes years, as professionals gradually develop both the skills and the seasoning it takes to succeed as a principal. Many firms view this process deterministically, letting senior managers work against the established criteria and trusting the process to advance the worthy. Unfortunately, this approach often results in a candidate pool who are strong enough to meet the criteria for advancement, but not uniformly strong enough to be accretive to the firm when they advance. The compensation increase associated with becoming a principal eats into the margin they create and a principals momentum is not so strong that it justifies making them a principal on a pure economic basis. Most firms accept this temporary dilution as a necessary cost, but it does serve to limit the number of new principals that can be named in a given year.

The formation process for new principals represents a significant opportunity to enable the firm's growth engine. If new principals are accretive or can become accretive quickly, the firm is more free to name new principals as fast as they become ready and also increases the culture of achievement as higher-performing principals enter with more momentum.

Define Senior Manager Roles and Competencies More Expansively

Many firms see the senior manager level (just below principal) as the highest form of execution leverage. Even when they pay lip service to giving senior managers client management and business development accountabilities, they rarely ease execution burden sufficiently to create the time and mindshare.

Firms should require that every major client have a designated senior manager (or more than one) with accountability to serve as an apprentice to the lead principal across all engagements with that client. A simple rule of thumb is that there should always be one more designated senior manager than the total number of principals involved with a major client. This ensures that there is not just leverage, but a sort of "excess leverage" to parallel the client manager's non-billable investment. This approach is generally a good trade-off between several FTEs in lost senior manager productivity as compared to creating one or two accretive principals.

Reducing senior manager billable-hour targets as they get close to becoming principals creates space for them to develop necessary skills and relationships. Not all senior managers can or even should become principals, so this rule should not be applied blindly, but reducing billable expectations by 100 hours/year for every "on track" year after their third or fourth one might be a good start. The expectation needs to be that the incremental time will be applied to business development, client expansion, and intellectual capital.

Firms that consistently provide senior managers with the opportunity to actively support business development opportunities see both better promotion rates and faster growth once they are promoted.

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