University of Alberta

School of Business
Department of Strategic Management and Organization

SMO 434 / 634 – Lec X1

Managing Professional Service Firms
Instructor: Roy R. Suddaby Term: Spring Term 2007
Office: 2-32E Business Building Time: Tuesday & Thursday, 6:30 – 9:20 p.m.
Office Hours: By appointment (but don’t be shy) Room: BUS 4-13
Telephone: 780 492-2386 E-Mail: roy.suddaby@ualberta.ca

A. What’s It About

From law and consulting firms to architectural and advertising agencies, professional service firms
(PSFs) are the fastest growing sector in the global economy. Managing such firms, however, is very
challenging. They are composed of very smart, well educated and independent individuals who,
typically, enjoy an unusually high degree of career mobility. These professionals also serve multiple
roles at once in these organizations; acting simultaneously as owners, managers and workers.
Managerial challenges arise in the competitive marketplace as well. Historically, PSFs have been
bound by tradition and professional regulation that has suppressed normal competitive activities like
advertising and marketing. Increasingly, however, PSFs are being forced to engage in more
contemporary competitive practices. Unlike most corporations and non-professional firms,
however, PSFs occupy a unique position in society. Professionals, and PSFs, often hold ethical
obligations and duties to parties other than their clients. The events surrounding Enron and the
collapse of the venerable accounting firm Arthur Andersen provide testament to both the
complicated ethical position of PSFs and the consequences that can occur when they are not
adequately attended to.

This course provides an introduction to the complex, challenging and fascinating issues involved in
the management and organization of professional service firms.

B. Career Focus

This course prepares you with analytical frameworks necessary for understanding a professional
service firm. If you plan to work in a firm in the professional services industry, manage their services
for your employing corporation or directly assume the challenge of managing professionals, this
course is for you.

C. Objectives & Pedagogy

The course combines both theoretical and applied materials. Emphasis is placed upon case
discussion. Visiting speakers supplement the materials. Specific objectives are:
o To provide students with analytical frameworks for understanding how
professional service firms function.

SMO 434 – 634 – Course Syllabus -1- Spring Term 2007

 o To provide students with an appreciation of the skills required to have successful
careers in today’s professional service firms.
o To understand how best to procure and manage professional services within
your corporation, department or organization or professional service firm.

D. Assessment

Participation (individual) 30 %
Mid term case (individual) 30 %
Final project/presentation (group or individual) 40 %

E. Course Format

The course will be run as a seminar. You will be expected to read and study all required cases in
advance of each class. You should be prepared to answer questions regarding the readings if called
upon in class by the instructor. Small-group discussion sessions will be used in each class. Cases
will typically be discussed during the first part of each class and text chapters, supplemental readings
and in-class exercises will be discussed during the latter part of each class.

Your participation in class is essential, both to your learning and to that of your peers. Effective
participation is reflected in focused comments, analyses that illustrate your command of the
readings, and application of knowledge from other classes and/or prior experience. All cases must
be prepared in advance of class. You may be called upon to introduce a case. Please ensure that you
are prepared so that we can have useful exchanges of views. Readings need not be read in advance of
class, but form the basis of material for the final paper and exam. For this reason, I hope that you
will schedule your work so that the cases are well prepared. I estimate that a case should take 1-2
hours to prepare depending upon your reading speed.

F. Reading Materials

There is no text. A package of cases is recommended for purchase at a cost of $67.15. This covers
the cost of purchasing the cases and reproduction costs @ $0.05 per page. The package is available
from the University of Alberta Bookstore. Readings are available electronically on the course
Blackboard site. A binder of hard copies is also on reserve at the Business Library.

G. Mid-term case analysis

One case, identified with an asterisk, will be graded. A hard copy of this case analysis is to be handed
in at the beginning of the class for which that case is scheduled to be discussed. The analysis should
briefly review the relevant facts of the case and identify the primary issue or issues to be addressed.
If the case has specific questions to be addressed (either in the syllabus or at the end of the case),
then these should be answered as well. The recommended solutions should address not only how
the issue might be addressed but should also attend to how the solution will be implemented within
the organization. Case analyses should have no more than three pages of written text (12 point font,
1 inch margins, single spaced). Exhibits, charts or diagrams do not form part of the page limit for
this assignment. The mid-term case analysis will be worth 30% of your grade.

SMO 434 – 634 – Course Syllabus -2- Spring Term 2007

H. Final Paper/Project

The final paper/project can be either an individual or a group project. If you plan on conducting a
group project, you should form groups of no more than five students no later than May 15, 2007.
Groups or individuals will then, in consultation with me, identify a topic or issue within the context
of managing professional service firms that they are interested in exploring more fully. Topics can
include any of the subject headings within this syllabus or other topics that you feel are of interest
and importance to professional service firm management. Groups will submit a short (i.e. one page)
summary of their intended topic to me no later than May 22, 2007. Final projects will be handed in
at the last class (June 12, 2007). The final projects will comprise 40% of your total grade.

I. Final Exam

There will be no final exam.

J. Criteria for Evaluation of Written Work

All written work will be evaluated on the basis of the following considerations:

THEORY: How well does the written material reflect your understanding and application of the
conceptual constructs presented in class? Are you using terminology appropriately?

DATA: How well do you use data to justify your analyses, to make appropriate inferences and to
support your arguments?

WRITING: How effectively are you communicating your analyses? Is the writing clear? Are the
arguments logical? Is the data presented clearly? Is the communication style appropriate for the
intended audience?

CREATIVITY: Is this analysis a routine or generic application of concepts to data or does the
analysis customize existing knowledge of professional service firm management to create a unique
solution for this specific firm? Does the analysis integrate knowledge from a variety of disciplines?

K. Course Policies:

Academic Integrity: “The University of Alberta is committed to the highest standards of academic
integrity and honesty. Students are expected to be familiar with these standards regarding academic
honesty and to uphold the policies of the University in this respect. Students are particularly urged
to familiarize themselves with the provisions of the Code of Student Behaviour (online at
www.ualberta.ca/secretariat/appeals.htm) and to avoid any behaviour, which could potentially result
in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence.
Academic dishonesty is a serious offence and can result in suspension or expulsion from the
University.” (GFC 29 SEP 2003) Note: Please read the University’s policy on plagiarism at
http://www.ualberta.ca/SECRETARIAT/chtsheet.pdf

Special Needs: I would like to hear from anyone who has a disability that may require some
modification of seating, testing or other class requirements so that appropriate arrangements can be
made. Please see me before or after class. Special arrangements must be made before any tests are
administered.

SMO 434 – 634 – Course Syllabus -3- Spring Term 2007

LATE ASSIGNMENT POLICY: Any assignment that is late will have ten (10%) per cent of the
grade deducted for each day that assignment is late up to a maximum of seven days. No papers will
be accepted more than seven days after the deadline.

L. University Policy on Course Outlines:

“Policy about course outlines can be found in Section 23.4(2) of the University Calendar.” (GFC
SEP 2003)

SMO 434 – 634 – Course Syllabus -4- Spring Term 2007

 COURSE OUTLINE
May 8, 2007 INTRODUCTION: COURSE OVERVIEW

TOPICS COVERED:
• Introduction to course/instructor/each other
• Review syllabus/reading materials
• Class norms/expectations
• Questions

CASE:
• No case

READINGS:
• “Postmortem on Holden Day Wilson”, provided in class.

READINGS QUESTIONS:
• Why did Holden Day Wilson fail?
• What does the vignette tell you about the difficulties of managing
professional service firms
• How are professional service firms different from manufacturing
firms? From other types of service firms?

SUPPLEMENTAL READINGS:
• “p2-Form Strategic Management: Corporate practices in professional
partnerships, Greenwood, Hinings and Brown, 1990.
• Galanter and Palay, 1991

LECTURE TOPIC: Overview of the field of Professional Services-

Accounting, Law and Management Consulting
• Main Players
• Industry Trends
• Trials and Tribulations

SMO 434 – 634 – Course Syllabus -5- Spring Term 2007

May 10, 2007 PROFESSIONALISM: AN INTRODUCTION TO THE UNIQUE
NATURE OF PROFESSIONAL SERVICE FIRMS

TOPICS COVERED:
• What is a profession?
• What is a professional?
• What is a professional service firm?
• Why are they important?
• How are they different from other manufacturing and service organizations?

CASE: Saga of Prince Jefri and KPMG: The Mystery of the Missing Billions, (A) and (B)

CASE QUESTIONS:
• If you were a High Court judge, how would you rule on the conduct of
KPMG?
• If you were John Ellison would you have accepted project Gemma? Why or
why not?
• Should audit and non-audit service be kept apart? Why? How would this be
best accomplished.

READINGS:
• “Accounting Professionalism: A fundamental Problem and the quest for a
fundamental solution” by Arthur Wyatt and James Gaa, The CPA Journal,
March 2004, 74: 3.
• “Attributes of a Profession” by Ernest Greenwood, Social Work, July 1957,
2: 45-55.

READINGS QUESTIONS:
• What truly distinguishes a professional? Has our understanding of
professionalism changed since 1957? How? Why?
• What pressures are placed on professionals when they work in non-
professional settings?
• Should professionals be held to different standards than individuals working
in other occupations? Why or why not? If your answer is “yes”, what should
those standards be?
• Are managers (i.e. MBAs) professionals? If not, should they be? What
changes would be necessary to make a profession?

SUPPLEMENTAL READINGS:
• Abbott, A. 1991. The System of Professions, Chicago: University of Chicago
Press.
• Maister, M. 1988. Managing the Professional Services Firm, New York: Free
Press.
• “The changing organizational context of professional work” by Kevin Leicht
and Mary L. Fennel, Annual Review of Sociology, 23: 215-231.

LECTURE TOPIC: Changes in the context of professional work

SMO 434 – 634 – Course Syllabus -6- Spring Term 2007

May 15, 2007* IS EXTERNAL STRATEGY DIFFERENT IN PSFs?

TOPICS COVERED:
• Competitive positioning: Premium versus Generic Services
• Competitive scope: One stop versus Niche? Multidisciplinary?
• Competitive scale: Internally versus merger and acquisition
• Complementors and cooperative strategies: What role do professional
associations play in our strategy?
• Strategic planning in psf’s

CASE: McKinsey & Co.: An Institution at the Crossroads

READINGS:
• “How McKinsey does it”, John Huey, Fortune, November 1, 1993,
p. 56.
• “Is McKinsey overpriced”, Fortune, November 1, 1993, p. 66.
• “McKinsey’s election battle”, Economist, March 1, 2003, p. 69.
• “The real McKinsey”, Economist, February 1, 2003, p. 61.

SUPPLEMENTAL READINGS:
• “Rethinking strategies and Organizations in the world of accounting”,
Greenwood, Brown, Cooper and Hinings, 1995.
• Strategic Management of Professional Service Firms (3rd edition). 2005. Bente
R. Lowendahl, Copenhagen, DK: Copenhagen Business School
Press.
• “Professional service constellations: How Strategies and Capabilities
Influence Collaborative Stability and Change” Jones, Hesterly,
Lindquist and Borgatti, 1998.
• “The role of strategic planning in small professional service firms”
2004. S. French, S. Kelly, J.L. Harrison. Journal of Management
Development, 23(7/8): 765.
• “The professional organization” in The Strategy Process. 2003. Henry
Mintzberg et al., pp. 69-102. Upper Saddle River,NJ: 372-382.

CASE QUESTIONS:
• Why has McKinsey been so successful in the past?
• As a McKinsey director, what concerns do you have about the firm’s
future?

LECTURE TOPIC: The role of complementors, resources and history

in strategies of professional service firms

*REMINDER: Groups must file names with instructor.

SMO 434 – 634 – Course Syllabus -7- Spring Term 2007

May 17, 2007 IS INTERNAL STRATEGY DIFFERENT IN PSFs?

TOPICS COVERED:
• Profit drivers in psf’s
• Governance structures in psf’s
• Compensation issues in psf’s
• Retention strategies in psf’s
• Balancing service, capital and labor markets

CASE: Camp, Dresser & McKee: Getting Incentives Right

CASE QUESTIONS:
• If you were Tom Furman, how would you apportion the incentives
for the four executives?
• How would you evaluate this firm’s compensation system? Would
you change anything? Why? How?

READINGS:
• “What drives profits in Consulting Firms” by David Maister,
Consulting to Management, June 2001, 12(2): 45.

READINGS QUESTIONS:
• What role do the following compensation choices play in PSF
performance?
o Tenure (lock-step) versus performance (eat what you kill)
o Team performance versus individual performance
o Highly variable versus fixed compensation
• Why are most professional service firms organized as partnerships?
What are the advantages and disadvantages of this form of
organization? Do you think the partnership form has lost its
relevance for most psf’s?
• Why do most firms use the “billable hour” as the primary measure of
individual performance? Has the billable hour been used by psf’s
through history? What are the implications for client relationships
when psf’s moved from relationship billing (i.e., retainers) to
transaction billing (i.e. billable hour, project)?

SUPPLEMENTAL READINGS:
• “Balancing the Professional Service Firm” by David Maister, Sloan
Management Review, 1982, 24(1): 15.
• The Professional Service Firm: The Managers Guide to Maximising Profit and
Value. 2003. M.C. Scott: Wiley Publishing.
• “It’s about time” by David Maister, Journal of Management Consulting,
November 1996, 9(2): 62.
• “IBM, Kodak embroiled in Ogilvy Billing Woes” by Jim Edwards,
Brandweek, Feb 21, 2005, 46(8): 6.

SMO 434 – 634 – Course Syllabus -8- Spring Term 2007

 • “The Structure of Profit Sharing in Accounting Partnerships”
Holmes and Zimmer, 1998
• “A billable evolution” by Jim Middlemiss, National, March 2005,
14(2): 20.

LECTURE TOPIC: Performance measurement in professional firms

SMO 434 – 634 – Course Syllabus -9- Spring Term 2007

May 22, 2007* ORGANIZATIONAL PROCESSES & MANAGEMENT OF PSFs

TOPICS COVERED:
• human capital management (recruitment, selection, retention)
• knowledge management
• decision making processes

CASES: Griffin & Tory

CASE QUESTIONS:
• Assume you are a member of the Bain compensation committee.
Who would you promote to Vice President? What arguments would
you present in favor of your choices to promote? How would you
justify your decision with respect to those you chose to not promote?
• Assess the promotion process at Bain. What would you change?
Why?

READINGS:
• “Outrageous employee benefits” by Michael Hayes, Journal of
Accountancy, May 2005, 199(5): 32
• “Ernst & Young LLP” by Vincent Alonzo, Incentive, June 1998,
172(6): 26.

READINGS QUESTIONS:
• What are the advantages and disadvantages of the “up or out”
promotion system? Do you think the “up or out” system has lost its
usefulness?
• How should psf’s attract and retain star performers? What about
strong performers who are not quite stars? Do you think there is too
much emphasis on top performers in psf’s?
• How should a psf deal with an underperforming partner?

SUPPLEMENTAL READINGS:
• “Knowledge and value creation in PSF’s” by B. Lowendahl, O.
Revang & S. Fosstenlokken, Human Relations, July 2001, 54(7): 911.
• “Change in the organizational context of managerial and professional
work” by Kevin Leicht and Mary Fennel, Chapter 6 (pp. 96-132) of
Professional Work: A Sociological Approach, 2001, Malden, MA:
Blackwell.
• “Sharing among the human capitalists: An economic inquiry into
corporate law firms and how partners split profits”, 1985, Gilson and
Mnookin.
• “The one-firm firm”: What makes it successful”, 1985. David
Maister. Sloan Management Review, Fall: 3-13.
• Knowledge Intensive Firms 1995. M. Alvesson. Berlin: Walter de Gruyter.
Chapters 7 & 8.

SMO 434 – 634 – Course Syllabus - 10 - Spring Term 2007

 • “Matching people and organizations: Selection and Socialization in
Public Accounting Firms”, 1991. J. Chatman. Administrative Science
Quarterly, 36: 459-484.

LECTURE TOPIC: The organizational culture of professional service

firms.

*REMINDER: Final paper/project topics must be filed with the instructor.

SMO 434 – 634 – Course Syllabus - 11 - Spring Term 2007

May 24, 2007 MANAGING CLIENT RELATIONSHIPS

TOPICS COVERED:
• client attraction, service and retention/relationship management
• conflicts of interest
• relational versus transactional services
• role of reputation/legitimacy

CASE: Sherif Mityas at AT Kearney: Negotiating a Client Service Predicament (A)

and (B)

CASE QUESTIONS:
• Assume you are Sherif Mityas. How would you respond to Ito’s
request?
• What is Mityas problem? How should the project have been
managed?

READINGS:
• “Listening to clients” by D. Maister, Business Quarterly, 1989, 53(4): 70.
• “Strategies for managing suppliers of professional services”, Summer
1991. Wayne Baker and R. Faulkner, California Management Review,
33(4): 33-45.

READINGS QUESTIONS:
• How are client/firm relations different in professional firms? How
have relationships between clients and professionals changed in the
last 30 years?
• Who is the client when a corporation retains an audit firm? When a
financial analyst evaluates an investment opportunity? When a lawyer
creates a tax shelter? Do these professionals owe obligations to
anyone additional parties?
• How do professionals acquire (maintain and lose) reputation?
• How would you segment the professional services industry? What
criteria would you use? What positioning issues occur for firms in
each category?

SUPPLEMENTAL READINGS:
• Marketing Professional Services: Forward-Thinking Strategies for Boosting Your
Business, Your Image and Your Profits, P. Kotler, T. Hayes & P.N.
Bloom, 2002, Paramus, NJ: Prentice Hall.
• “Marketing the professional services firm: A 3 stage model”,
Greenwood, Hinings, Brown and Cooper.
• “The professional and his clients” by Wilbert E. Moore, Chapter 5
(pp. 87-108) in The Professions: Roles and Rules, W.E. Moore, 1970, New
York: Russel Sage.
• Marketplace Masters: How Professional Service Firms Compete to Win, 2004.
S.C. Love. Westport, CT: Praeger.

SMO 434 – 634 – Course Syllabus - 12 - Spring Term 2007

 • “A causal model of customer loyalty in professional service firms: An
empirical study”, S.C. Hong and Y. J. Goo. International Journal of
Management, 21(4): 531.
• “Key account management” by D. Maister, The CPA Journal,1999, 69
(3): 62.
• “When consultants and clients clash” Nov. 1997. I.F. Kesner and S.
Fowler. Harvard Business Review: 22-38.

LECTURE TOPIC: Positioning issues for professionals – a strategic

groups approach.

SMO 434 – 634 – Course Syllabus - 13 - Spring Term 2007

May 29, 2007 LEADERSHIP AND MANAGING CHANGE IN PSFs

TOPICS COVERED:

CASE: Lehman Bros (A) & (B)

CASE QUESTIONS:
• How did Jack Rivkin contribute to the spectacular success of the
equity research department at Lehman?
• Assume you are Fred Frankel. What challenged do you face? What is
your proposed plan to deal with these challenges?

READINGS:
• “Why should I follow you?” by David Maister, Management Review,
October 1997, 86(9): 47.

READINGS QUESTIONS:
• What are the unique challenges of building a high performance team
of professionals?
• How is leadership different in professional service firms?
• How is organizational change different in professional firms?
• Do you think some types of professional firms are more difficult to
change than others? Why or why not?

SUPPLEMENTAL READINGS:
• “Leadership and Management in the PSF”, Howard, 1991.
• Managing Consultants, 1995. T. Clark. Buckingham: Open University
Press.
• ‘Archetype change in professional organisations: Survey evidence
from large law firms’ 2003. A.H. Pinnington and T.J. Morris. British
Journal of Management, Vol. 14, No. 1, March, 85-99. ISSN 1045-3172.

LECTURE TOPIC: Leadership and Management in PSFs

SMO 434 – 634 – Course Syllabus - 14 - Spring Term 2007

May 31, 2007* MANAGING YOUR CAREER IN A PSF: VALUES, ATTITUDES
AND SKILLS FOR CAREER LONGEVITY AND SUCCESS

TOPICS COVERED:
• Professional values, attitude and skill development
• Successful career management
• Managing career transitions
• Work/Life balance issues
• Role of mentorship
• Professional socialization practices

CASE: Tim Blanchard at Jones-Mendel & Co.*

CASE QUESTIONS:
• What is Tim’s problem?
• What are the underlying causes?
• What actions (short, medium and long term) should he take?

READINGS:
• “Why there are so few women accounting partners: Male and female
accountants disagree” by R.J. Maupin, Managerial Auditing Journal,
1993 8(5): 10.

READINGS QUESTIONS:
• What are the qualities of a successful professional?
• What are your key strengths as a professional? Weaknesses? How do
you go about improving your weaknesses?
• How can you tell when your work/life relationship is out of balance?

SUPPLEMENTAL READINGS:
• “Perceptions of successful traders by Foreign Exchange
professionals” by Tom Oberlechner, Journal of Behavioral Finance, 2004,
5(1): 23.
• “The calculated and the avowed: Techniques of discipline and
struggles over identity in Big Six Public Accounting Firms”, by M.A.
Covaleski, M.W. Dirsmith, J.B. Heian & S. Samuel, Administrative
Science Quarterly, June 1998, 43: 293-327.

LECTURE TOPIC: TBA

*REMINDER: This week’s case analysis is due for your mid-term case
analysis.

SMO 434 – 634 – Course Syllabus - 15 - Spring Term 2007

June 5, 2007 WORKING ABROAD: THE GLOBAL NATURE OF
PROFESSIONAL SERVICES

TOPICS COVERED:
• Global expansion of professional services
• Managing across cultures
• Managing international mergers of professional service firms

CASE: Cap Gemini Ernst & Young: A Global Merger (A) & (B).

CASE QUESTIONS: TBA

READINGS:
• “Managing knowledge in Global Service Firms: Centers of
Excellence”, 1998. K. Moore and J. Birkinshaw, Academy of
Management Executive, 12(4): 81-92.

READINGS QUESTIONS: TBA

SUPPLEMENTAL READINGS:
• “International accounting firms and Processes of Globalization”,
Cooper, Rose, Hinings and Greenwood, 1999.
• “Lawyers Abroad: The Internationalization of Legal Practice”, Spar,
1997.
• “How international are international accounting firms”, Richardson,
1999.
• The co-evolution of network alliances: A longitudinal analysis of an
international professional service network. 1999. Mitchell P. Koza
and Arie Y. Lewin, Organization Science, 10(5): 638-653.
• The Globalization of Professional Business Services, 1993. Yair
Aharoni (editor). London: Routledge.

LECTURE TOPIC: TBA

SMO 434 – 634 – Course Syllabus - 16 - Spring Term 2007

June 7, 2007 REGULATING PROFESSIONAL SERVICE FIRMS

TOPICS COVERED:
• Current issues in professional regulation
• Sarbanes-Oxley (2002) and professionals
• Multidisciplinary practices
• Role of professional associations in regulating professionals
• Role of socialization in regulating professionals

CASE: Alas Poor Andersen: The Post Enron Fate of Arthur Andersen

CASE QUESTIONS: TBA

READINGS:
• “Observations on the role of commodification, independence and
governance in the accounting industry”, 2003. J.R. Macey and H.A.
Sale, Villanova Law Review, 48(4): 1167-1187.

READINGS QUESTIONS: TBA

SUPPLEMENTAL READINGS:
• “Professional as agent: Knowledge asymmetry in agency exchange”
by A. Sharma, Academy of Management Review, 22(3): 758-798.
• “Disciplining domestic regulation: The World Trade Organization
and the market for professional services”, 2005. P. Arnold.
Accounting Organizations and Society, 30: 299-330.
• “Reducing the Barriers to International Trade in Accounting Services:
Why it Matters and the Road Ahead. 1999. Lawrence J. White. Paper
presented at the conference on “Services 2000”, Washington, DC:
June 1-2.

LECTURE TOPIC: Post professional regulation

SMO 434 – 634 – Course Syllabus - 17 - Spring Term 2007

 June 12, 2007 REVIEW: SO, WHAT DO WE KNOW ABOUT PSFs?

TOPICS COVERED:
• Presentation of Final Projects
• Review of lecture materials
• Key questions in professional service firm management

CASE:
• No case

READINGS:
• No readings

SMO 434 – 634 – Course Syllabus - 18 - Spring Term 2007