Is Yours a “One-Firm” Firm or a “Warlord” Firm?

Source: David Maister—Professional Business, Professional Life

This article is based on a review of the management philosophies of five large professional service firms. These firms had “one-firm firm” values in 1985, and while they have at times tested the limitations of their one-firm firm principles, they continue to succeed based on their original values.

In 1985 David Maister described the one-firm firm as follows:

• High standards for recruiting.
• Promotion from within (promotes loyalty).
• Devotion to training.
• Eschewal of mergers.
• Disdain for “the star system.”
• Selectivity of business services. Avoid proliferation of niches.
• A compensation system that emphasizes group, not individual, accomplishments.
• Importance of research and development.
• Constant communication within the firm.

In retrospect, Maister would have added: Flexibility to adapt to changing conditions (within its one-firm firm principles).

In a one-firm firm, loyalty is pervasive. When someone encounters a major problem, the whole team provides help and support.

Contrast the above culture with the “warlord” firm, which:

• Promotes internal competition.
• Hires from the outside (speeding entry into new niches and reducing training costs).
• Encourages entrepreneurship within the firm.
• Has “profit centers.”
• Decentralizes decision-making.
• Allows partners to drive new business initiatives autonomously.

Most firms are not totally one or the other. But firms that try to be both may fail to exploit either as a driving force. Many firms are unable to adopt the culture of a one-firm firm, which are, in fact, rare. Those that do are successful. But a warlord firm may succeed by substituting the power of entrepreneurship for that which comes from collaboration.

To be a successful one-firm firm, leaders must be approved by, and accountable to, the members of the firm. Members must trust the leaders to operate in accordance with the firm’s shared values. Managing pursuant to a set of values provides a major advantage over the warlord firm. One-firm firms can execute far better. Warlord firms’ decisions are undercut when individual partners disagree.

One-firm firms hire from within, and opportunities for promotion thus become limited. As a result, these firms have turnover rates comparable to warlord firms. Those who leave one-firm firms, however, often maintain loyalty to the firm and are significant sources of new business.

One firm firms originally eschewed compensation systems based on profit center performance but have drifted back toward it, and the disparity between the highest and lowest compensation amounts has increased. This has been particularly important to reward new business production.

Clients are better served in one-firm firms. Individuals in these firms are more likely to cross-sell and bring in others to solve client problems.

Warlord firms can suffer sudden collapse. When business declines, entrepreneurial partners resort to what makes them secure—control of their client bases. They are not devoted to the good of the firm. The business downturn is aggravated as some partners leave the firm and take their clients.

The values in one-firm firms can be delicate. In good times, partners may become intolerant when top management fails to lower its standards to hire enough people to handle new business. Partners may also favor getting the work done over training. Firms must diligently maintain their principles to avoid short-term gains at the expense of the long term.

Rainmakers are intolerant of one-firm firm values. Their obsession with new clients is an antidote for their feelings of insecurity. They feel they should be compensated commensurately with rainmakers in warlord firms.

From David Maister—Professional Business, Professional Life 2006, http://davidmaister.com. For the complete article, click on the following link: http://davidmaister.com/articles/4/101/.