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Management guru David Maister says bankers, lawyers and accountants have got it all wrong. He tells Stefan Stern what they should do better.

Professional service providers — lawyers, accountants, bankers, advertising and marketing whizzes — should be worried. Competition and pricing pressures are getting fiercer as procurement officers start getting stuck into the unbelievably high fees that some firms are charging.

David Maister: every business degree on the planet

Whether the business is a plc or a partnership (a model of ownership that is coming under increasing scrutiny), the days of easy money have gone. Not that anything in business can be that straightforward again after the Enron, Tyco and WorldCom scandals ushered in the era of Sarbanes-Oxley in America and ever more stringent corporate governance rules.

In these circumstances being a “trusted adviser” is more important than ever. So why has the management of professional service firms continued to be so rigid and lacklustre? David Maister, English-born management guru, knows the answer. “They never met a billable hour they didn’t like, and they never met a deal they wouldn’t do,” he says. “As a result it is impossible for them to develop strategy.”

This is not a gratuitous insult. Mr Maister has been writing and lecturing on these businesses for over two decades. An author of several books including Managing the Professional Services Firm and The Trusted Adviser, he was a professor at Harvard Business School for seven years before becoming a sole-trading consultant 20 years ago.

Based in Boston, his seminars and advisory work take him all over the world. He must know something about keeping clients happy because he is able to demand top dollar. His current daily rates are $20,000 (£11,000) for consultations and $25,000 for public performances. Three years ago he was named as one of the top 40 influences on contemporary business life in the management book Business Minds.

What basic principles do professional service firms need to grasp? It is a question of getting real, Mr Maister believes, and taking practical steps to make fine-sounding mission statements — about “faithfully serving our customers” — come true.

“Of course we all want to ‘provide superior service’ to clients,” he says. “But it has to be consistent. You do not get a market reward for being pretty good on a good day in the right office. So how do you become dependably terrific? The only way you can do that is to energise, excite and enthuse your people.”

Mr Maister speaks as someone with an armful of degrees and a Harvard professorship behind him, so his argument is striking. “One thing a lot of these firms have in common is that they all have over-educated brains,” he says.

He argues that professional service firms are often very good at the professional bit. It’s the service that suffers. In his view “Do unto others as you wish to be done by” remains a good rule. So in his work with clients Mr Maister asks them to forget about being the provider of services, and instead gets them to focus on their personal experience as a buyer.

Every profession’s self image, Mr Maister believes, is that they are essentially right. If a lawyer or a banker gets things right technically, why should they have to worry about the stupid client’s feelings when they should really just shut up and let the expert remain in charge? This is where the service firm gets it so badly wrong, Mr Maister says: “It doesn’t matter that you are right if you can’t get people to listen to you.”

In the end, long-term performance all comes down to the quality of management at the firm. High-fee earners get promoted, because that is the conventional career path, regardless of whether they are any good at managing people or have any desire to manage people.

This is plain stupid, Mr Maister says. He has a check-list of questions for any senior management team that asks him to work with their managers:

• Did you select your managers because they were interested in spending the next few years helping other people get good, instead of indulging their own need to get good?
• Did you select them because they had demonstrated interpersonal skills, the ability to sit across from someone and help them understand their weaknesses, and do it in such a way that the other person said thank you?
• When you measure and reward these people, do you reward them on the basis of how well their group has done, or just on their own book of business?

  Mr Maister says that too many firms make a series of extraordinary misjudgements. They choose people to manage who did not choose to do the job. They chose them on criteria other than those needed to be effective in the job, and they measure and reward them for things other than doing the job.

  “The topic of management is completely misunderstood,” he adds. “I have every business degree the planet has to offer, but what I realised shortly after I left [academia] is that I knew a great deal about business, and nothing — zero — about managing. Because they are not the same subject.

  “The firms that make the most money are the ones where there is an ideology in place, and people are managed by managers who are ambitious for the organisation but they are not personally ambitious for themselves. We keep thinking of business as this intellectual, rational, analytical, logical exercise — and it’s not. The key to making money is the ability to turn people on.

  “This turns out to be a shocking conclusion, nothing to do with formal systems, nothing to do with compensation systems, nothing to do with strategies. It all comes down to the abilities of the individual leader, the individual manager.”

  So if firms can put the right sort of managers in place, what sort of strategy should they be pursuing? How can they break free of that cycle of billable hours and repetitive, tedious work? “You’ve got two choices in life,” Mr Maister says. “One is work every hour that God sends, in other words, work at getting more or work at getting good.

  “The trade-off is very simple. If you can figure out a way to be more valuable to your market place, you can charge higher fees for whatever it is you do. If you can charge higher fees you get a choice about how many hours and what level of fee at which to work.

  “Within any business the real choice should be: let’s run the business to get better versus let’s run the business to get more. Ninety-nine per cent of what people manage is how to get more. And yes, they are making their money, but they are idiots because it’s a stupid way to make money.”

  Mr Maister left Britain for the US 30 years ago. His childhood was spent in Swiss Cottage in north London, and it is from there that he draws more evidence to support his argument. “My dad was a ‘Depression kid’,” he explains, “and he had to leave school at the age of 13 to support the family. He understood you could make more money if you worked harder than anybody else. That doesn’t make you clever, it makes you stupid.

  “The goal is — how do I get better? How do I make myself more valuable? Intellectually these firms understand it. But that’s not what they are spending their days doing. A good business balances investment and income. But inside these firms they never make that trade-off. Cash beats any investment. They always end up under-investing in their future. So they have to keep running harder. It is stupid to get stampeded by today and under-invest in tomorrow.

  “You’ve got to have some portion of your week, your month, your year that is about creating a better tomorrow. These professional firms’ managerial processes are very good at managing today, their processes are very bad at managing tomorrow. They are almost non-existent.”

  So who should we look to as the model for how to run the professional service firm? “The firms that lead are not those with the best metrics. It’s those that have an ideology. You do things the McKinsey way, the Goldman Sachs way. You do things that are right for the firm, not right for the metrics,” Mr Maister says.

  “Those are the two great brand names in professional services. They are not just business management firms. There is a strategy that everyone is trusted to follow — the Goldman way — because if you don’t follow it you aren’t around here very long. So they make the right decisions without having to second-guess anybody else.”

  So that’s the secret. And, by the way, have you seen what Goldman and McKinsey are charging these days?