Which organizations demand the highest price from the customer despite the zero sales?
Because of their unique nature, these organizations face management challenges that many other companies do not have to deal with. In this article, we are going to get acquainted with some of the characteristics of professional service companies and learn more about them.
Common work model of service organizations.
Professional service companies exist in a variety of industries. These organizations include lawyers, advertising professionals, architects, accountants, financial advisors, engineers, consultants, and more. These companies can be any kind of organization or profession providing custom and knowledge-based services.
In his influential book, Managing the Professional Service Firm, David Maister compares service organizations to medieval craft shops. In service organizations today, as in the Middle Ages, there are “apprentices” (novice managers or new hires), “skilled workers” (mid-level managers or experienced professionals), and “skilled craftsmen” (senior partners or senior managers).
Most service companies use a leverage system to maximize profitability. New employees, for example, are usually paid relatively little. They accept low pay because they gain experience and the opportunity to work with senior staff (finders) and gain valuable knowledge.
When customers use the services of a company, they usually do so because of the reputation of the company. But these clients do not necessarily use the expertise of top executives directly; Rather, it is usually these low-wage rookies who do most of the physical work.
Customers then meet with senior executives in a short period of time, who monitor the quality and provide advice. This allows the company to receive large amounts of money from customers while keeping profit margins high. This model of working is a kind of participatory model in which senior professionals are both managers and producers. Of course, not all service organizations work this way, but many companies, including larger ones, do.
Specific challenges of intangible products.
Service organizations, unlike other organizations, sell knowledge and expertise instead of selling physical and visible products. So such companies have different needs and face different challenges.
Consider manufacturing plants, for example. Once the product is designed, the factory can mass-produce the product within 24 hours with the help of machinery controlled by low-wage workers. Production managers emphasize the importance of standardization, quality, and productivity in their groups.
But how does this process compare to an accounting firm? While it is the job of managers to constantly emphasize quality and productivity, these organizations are unable to standardize their services or mass-produce them. Their profitability comes from receiving the right to consult or provide services to customers per hour; Customers who have different needs and demands. If team members do not meet with clients or work on specific projects, they will not make money for their company.
If you are the manager of a service company, balancing high productivity, personalized service and knowledge management can be difficult. One of your first tasks is to maintain the ” human capital ” of the company. In other words, you need to keep your employees motivated and creative.
Manufacturing factories make great efforts to maintain their machines and warehouses. Service companies have to spend a lot of time and energy leading their team and making sure that most of their talented employees stay with them (read more about this below). These companies, without professionalism and a great reputation, may fail.
This is a simple comparison, but it clearly shows the difference between service companies and other businesses and why these companies need to take a different approach to success.
Motivation can be a big issue, especially for a group of novice professionals, and even more so for many companies that want to retain talented people.
In the past, the goal of most novice managers was to become a key component of the company and its partners. This usually created a competitive environment, which in turn led to high-quality work. Over time, the organization’s strongest employees grew, and the weaker members of the group either left the job or gave up.
But these days, participation is no longer the ultimate reward. Sometimes younger professionals ask if extra work is worth doing. Long hours, heavy workloads, and tough clients are often uninteresting for people looking to balance life and work.
Young professionals in the service industry today have far more options than ever before. Changing companies annually to find better job opportunities is no longer unethical for a young financial advisor or lawyer.
Because of this motivational challenge, service companies need to find ways to attract and retain the best and smartest employees. Ultimately, their people are what they sell. Therefore, if these people are not motivated and do not provide high-quality work, the company will suffer from a competitive weakness.
Planning and advertising.
Service companies are profitable only when their team members are paid by their customers for their working hours. So new work is usually outsourced to people who do not currently have paid work hours. Although this increases revenue in the short term, it can lead to reduced quality and customer service.
For example, suppose your law firm has a “superstar” who has special skills in tax fraud cases. If the company accepts a new tax fraud case, and your superstar is involved in another case, there is a good chance that someone else who is not busy will take responsibility for the case.
Maintaining people’s productivity and providing payable working hours to the customer is extremely important. But if you do not plan properly for people, it can have a negative impact on customer satisfaction.
The future holds more challenges for service companies. Due to the retirement of older professionals and the increasing number of young professionals choosing the work-life balance, the company must work harder to retain its best employees. These companies must pursue strategies to attract and retain talented people, as they have limited human capital.