Running a Service Business

I was on a panel yesterday at the Yale School of Management with Sir Martin Sorrell of WPP, Dominic Barton of McKinsey & Company and Dr. Jeffrey Koplan, former head of the U.S. Centers for Disease Control and Prevention on managing a service enterprise. Here are a few of the important comments made during the hour-long discussion with students and their inimitable professor, Jeffrey Sonnenfeld.

1. Power Moves from Geography to Client Management—This has always been the case with management consulting but is increasingly so in the world of marketing communications. “People believe that they get power from the number of employees they manage,” said Sorrell. “We try to make the measure of success the running of the largest clients.” I told the group that I dissented from this view for our industry, as we are a uniquely global and local business, requiring connections and insight about the markets in order to be effective interpreters for multinationals.  We believe both client management and geographic management is critical.
2. Lead from the Front—We all agreed that the primary role of the CEO is to meet clients and to be in touch with the business in a personal way. In Barton’s case, he sees at least two CEOs or government leaders every day. In my case, I like to lead pitches and open the doors for new business. I also work on six clients and book media tours for spokespeople. Sorrell had a funny story about one of the ad agencies he acquired along the way. He went to see a client after the acquisition and asked about how the agency was doing. “The fish stinks from the head,” the client quipped, leaving no doubt about his view of prior management.
3. Institutions, not Individuals—“People are cyclical and change. Institutions carry on, such as JWT now 150 years old or Hill & Knowlton at 80 years old,” said Sorrell. He pointed to Goldman Sachs and McKinsey & Company as his North Stars for service enterprise, with deep culture and strong values. We had a pointed debate about when to change out top management; I took the position that long-time executives are due a second chance and a re-potting in a different position when it makes sense, while Sorrell argued for a tougher stance on termination.
4. Turnover—The statistics of WPP, McKinsey & Company and Edelman are remarkably similar, at slightly over 20 percent per year, declining to mid-teens during a recession. The clients actually move around more frequently than agency staff, who are the institutional memory. Sorrell said that for every position you need to have a clear alternative in the event of turnover. There is a Yale model which looks like a box of four, with the x axis as quality of performance and the y axis is the speed of development, so the bottom left corner is the Deadwood, the top left corner is the Learners, the bottom right corner is the Solid Citizens and the best in the top right corner is the Rising Stars.
5. The Pyramid—The classic service business model is a pyramid, with many junior people, several mid-level and few senior people. The description of those three levels is Minders, Grinders and Finders (per Professor David Maister of Harvard Business School). Barton asserted that his firm still uses the pyramid, and it is an up or out culture, where after six or seven years a person makes partner or is asked to depart (his firm currently has 1,100 partners globally).  Our model continues to evolve as the marketplace evolves, such that the business model is shifting from a pyramid to an ecosystem of specialists connected by a client strategist lead.
6. Managing a Crisis—Barton talked about his personal agenda in the wake of the insider trading scandal that enveloped two of his former partners. “I called 350 clients directly. I spoke to our recruits. I talked to our people all of the time. I did not spin; I just told them all what we were doing and made specific commitments about the future.”
7. The Imperative of Growth-“If you are not growing, you are dying,” said Sorrell. He acknowledged that he was too impatient and short-lived to make organic growth a viable strategy. He said that the best kind of growth is organic because it does not involve culture clashes or earn-outs. I said that Edelman had made many successful acquisitions, which we did in order to capture the best talent or to fill in geographic gaps with excellence so that clients could expect a uniform level of service around the world.

At the end of the panel, Professor Sonnenfeld ran a video of Marvin Bower, the founding partner of McKinsey & Company, who described a top-flight services firm. “You always put the interests of the client first. You operate with the highest ethical standard. You build an enduring institution. You offer the client independent thinking. And you have an up or out philosophy for your team.” I think about those principles every day.