One of the great challenges of management is adjusting to the growth of a firm. The adjustment is not confined to the owner/manager. Adjustments must be made by all members of the firm. Clearly, though, the first and most fundamental step is for the owner/manager of the firm to recognize that as the firm grows, he or she must change the way in which the management of the firm is handled.

For most practitioners who began as a one-person shop, this is a difficult task. In such an arrangement, the owner does it all, from clerical tasks to analytical ones. When the first employee is added, there is still little need for formal management techniques, as there may be time to discuss most everything. But as more and more employees are added, there is an inefficiency of scale that sets in, interfering with work productivity, increasing time demands on the owner/manager and potentially limiting profitability. Often referred to as the "revenue ceiling," it is the point in growth where the limitations of management so hinder the efficient operations of the practice that continued revenue growth becomes virtually impossible without major changes.

As if by the law of diminishing returns or the law of increasing opportunity costs (originating with early 18th and 19th century economists such as Thomas Malthus and David Ricardo), increases in gross revenue could be outpaced by exponential increases in the cost of doing business. One firm recently reported that it was adding new employees at the rate of two a year to keep pace with increased workload, yet its net revenue had remained the same (or even slightly declined). And bringing on more clients, increasing asset management (AUM) fees and creating new recurring revenue sources did not seem to help the bottom line. The discouraged partners were seriously considering breaking the firm apart and downsizing.

When a practice efficiency analysis was accomplished, several things came to light (four of which are mentioned here). First, the firm was operating as a modified silo firm. This is where each of the five partners essentially ran his own operation. But an attempt had been made to integrate staff to some degree. This created a boondoggle for employees who were asked to adapt daily to five different styles of doing business.

Second, most reports (quarterly investment reports, for instance) were taking each of four staff assistants around eight hours (per report per staff member) to prepare. This was because the source data was coming from multiple locations (different software, Web sites, etc.) and had to be manually integrated into a single document. Often the resulting document had mismatched fonts, pagination, formatting and styles.

Third, management had been myopic when it structured the business. There was an office manager charged with running the office but who had had little authority to actually manage the employees. If he was given the task of assigning work, many times one partner or another would go around the manager to assign additional unrelated work to the same employee, requesting priority.

Fourth, there was no formal work-flow process and follow-up procedure in place. With a lack of work-flow and/or task completion standards for timing and quality, there was no structural methodology for evaluating employee and/or manager performance. With close to 30 employees, this firm was attempting to run itself using the same techniques as a much smaller firm, and it simply was not working.

So, what can a firm do to turn a situation like this around? One method is to start at the source of the problem, the management structure and systems (or lack thereof). A silo firm that attempts to integrate staff is asking for problems. Either you are a silo or you are not. The first step is determining the structure of the firm and building it. Most silo firms come to realize that there are inherent inefficiencies due to the differences in the way that the various partners conduct business. In some cases this may be necessary, owing to the unique nature of one part of the firm's business (for instance, a specialization in divorce, medical practices, etc.).

With such specialization, it may be necessary to build systems that are unique to that type of client. When this is the case, employees dedicated to those specialties may not easily integrate with other partners in the firm, and integration should not be attempted. For that one partner, it may be necessary to split off the work and dedicate one or more employees to that specific set of tasks. For more general tasks-clerical work, contact management, etc.-it may still be possible to integrate other staff, though extreme care must be taken to standardize work flow for this type of staff member.

In developing work-flow management systems, it is important to recognize that technology can help. But it is not a replacement for management, merely a tool to add functionality. The goal is to manage the work so that it is done at the right time by the proper person. Four steps need to be taken. The first is to develop, define and document the tasks associated with a work-flow set (which should be documented in either a paper and/or electronic procedures manual).

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