Value vs. Performance: Measuring Success in Terms of Client Value

Increasingly firms are looking to adjust how they go to market, with a much greater emphasis on being client-centric, enhancing the client experience and reducing the impact of the firm’s operational constraints on how they interact with clients. A fundamental representation of this emphasis is tied to how firms measure success.

As businesses that have sold time as the primary “product,” professional services firms have traditionally measured success based on inward-looking performance metrics — for example, profitability as a function of rate, utilization and leverage. The increasing intensity of competition in the industry has, however, required an evolution in the way firms think about success. Firms are now thinking about broadening the definition of success to include the value clients derive from services rendered, in addition to traditional measures of the performance of people, teams, practices and offices.

An obvious way to see how firms have changed — particularly when it comes to their go-to-market strategies — is that they now tend to talk about industry-focused groups, not practices. They talk about jurisdiction expertise, not offices. In fact, the power that used to sit with the managing partner has for many firms now transferred to the chairs of industry and jurisdictionally focused teams. While remuneration models have not shifted quite as fast as the market positioning, surely this must follow to drive home the behaviors that professionals must adapt to align with the evolving strategies that firms are pursuing.

“Every firm must ultimately decide on the mix of value versus performance and where it places the emphasis on how it measures success.”

But which approach is better — a focus on performance or value? You might consider my answer to be somewhat of a cop-out, but I genuinely believe that you need to achieve balance. Skewing your strategy in one direction or the other poses risk.

On the one hand, the performance-focused firm tends to be more inward-looking. It can often focus too heavily on a small number of performance metrics, which may mask financial issues that can lead to disaster. Conversely, the firm that focuses too heavily on perception and feedback might miss short-term operational performance indicators that need to be addressed.

The systems for measuring performance and value will be the same and the data points that they contain will be the same. The balance that firms need to strike is in what questions they are trying to answer with their data.

Let’s take a look at how these two perspectives can differ depending on the extent to which the firm is focused on performance or focused on value.

VALUE-FOCUSED MODEL

• Understand how the firm’s work aligns with clients’ needs and expectations.
• Leverage the experience gained from work to develop service offerings that will support other clients with the same challenges.
• Pay attention to leverage, as all firms should. However, value-focused models more acutely factor in the impact that flexible pricing models have on a client’s perception of value.
• Evaluate clients’ emotional and rational feedback to address service issues and sustain and protect long-term client relationships to inform client acquisition strategies.
• Align the go-to-market strategy with the lessons learned from client data.
• Output proposals and create client teams that align with the business needs of the client as well as their expectations of a community-driven and socially responsible firm.
• Ultimately differentiate on value rather than price.

 PERFORMANCE-FOCUSED ORIENTATION

• Understand how to create the right model to maximize utilization.
• Commoditize experience to drive profitability.
• Focus on achieving the best rates for work product, driving utilization and achieving leverage with a strategy to recruit and develop junior staff.
• Develop client feedback models to protect client relationships and mitigate flight risk.
• Align the go-to-market strategy based on the price that specific markets will bear for a given type of work.
• Create client teams and onboard clients based on maximum utilization and efficiency.
• Differentiate on technical reputation and marquee client work.

Neither point of view is wrong. But taking one position exclusively over the other is where firms can have challenges.

In the past, discussions about integration and data analytics focused on reporting and the financial metrics the firm needed to access. That dialogue is changing — and changing fast. Marketing and business development are increasingly driving the discussion around how the firm measures itself, or at least, they’re now getting a seat at the table when these things are discussed. The alignment of the needs of the firm with the needs of the client will become ever more pronounced. This shift will have radical implications for the way that firms manage their systems, data and integration strategy.

Every firm must ultimately decide on the mix of value versus performance and where it places the emphasis on how it measures success. But whatever each individual firm decides, there will be a need for systems to become ever more connected to achieve client centricity.