The common denominator connecting all service-oriented businesses is their most important resource: their employees. But what does that mean for managers and leaders? Managing Professional Services (MAPS) is a program specially designed for managers and leaders in the knowledge-intensive service sector. An important part of the program is giving participants a greater understanding of the big picture.The Managing Professional Services program takes a holistic approach to creating and running a successful business within the professional services industry. Under the direction of Carl Lindeborg, the program weaves together different perspectives on business, leadership and management.
Johan Graaf, a professor of business administration, is one of the program’s instructors. We asked him to tell us more about what managers in knowledge-intensive services need to be aware of when it comes to finances.
Johan, what distinguishes the financial course of this program?
“In line with the entire program, the financial course is specially adapted to the service industry. The course name is, Managing for profitability and growth – two very important parameters within the service sector. The course focuses on financial issues and challenges that the industry is facing, and we usually get some really good discussions when the participants share and compare their different experiences. When it comes time to apply the financial concepts and relationships, we always use carefully selected businesses in the service sector and do deep dives into how they work, for example, with working capital and the effect of acquisitions.”
Why is it important for consultant managers to understand finances? Isn’t that a financial officer’s responsibility?
“Obviously a consultant manager won’t have to make detailed calculations or keep track of how regulations are formulated – financial officers and controllers take care of all that. In the program, we emphasize the importance of understanding, communicating and utilizing financial information. Regardless of whether the participants have a background in finance, the course gives a refresher on financial concepts, which a lot of participants feel they need. It is incredibly important that managers with any kind of financial responsibility also understand the financial impacts and relationships of their business in order to make sensible decisions.”
What are important differences between the product industry and service industry in terms of balance sheets and profit and loss statements?
“Service-oriented businesses’ and consulting companies’ most important resources are their employees, knowledge, branding, innovation and relationships. However, because those resources can’t typically be included in the balance sheet as actual assets, they’re instead recognized as costs in the profit and loss statement. It is incredibly important to understand that many different costs make up important investments. That fact can change how an organization perceives the value of those costs. Staffing costs are typically what dominate the profit and loss statement, and service-oriented businesses usually offer high added value.”
How can you see which paths different businesses have taken towards profitability?
“We use the DuPont model to assess profit and paths to profitability. It is an important financial model and likely the most used to calculate operational profitability in a business. It takes into account both the result that is generated and the capital that has been invested in the business. One thing that usually becomes apparent to companies in the service industry is the effect of acquisitions. For consultant companies, growth is often a challenge, as there is a market interest in growing, but it can be difficult to find the right skills in the form of motivated individuals who are self-starters in projects. To be able to grow, many businesses have to make acquisitions, which in turn impacts profitability.”
What would you say program participants appreciate the most?
“We place a lot of focus on having fun in the course. Financial information can transform how we view our businesses – and the world around us – and help us understand why certain outcomes turned out the way they did. The material and exercises we use are always based on real-life businesses and not made-up textbook examples. It is essential that we give our participants a better understanding of what’s going on in their industry. Participants also appreciate that we take advantage of the vast wealth of experience in the room, and it’s always so eye-opening listening to the participants and their different experiences. There is always someone who’s faced a similar problem and can give helpful advice on how to go about the issue.”
The program director, Carl Lindeborg, also sees that as one of the program’s strengths.
“After the finance portion of the program, a lot of participants say that they now have a much better understanding of how everything in their business is related, which they maybe hadn’t understood before,” Carl says. “They understand how key metrics impact and relate to each other. Additionally, they appreciate the broad and concrete toolbox they gain, which they can immediately apply to their business. The toolbox also includes “financial vocabulary” and the knowledge they need to better and more clearly communicate, to have a more comprehensive picture of their business and to increase engagement.”
“TO BE ABLE TO GROW, MANY BUSINESSES HAVE TO MAKE ACQUISITIONS, WHICH IN TURN IMPACTS PROFITABILITY.”
