Vertical to Horizontal: 3 Shifts to Unlock Firm Growth

Professional services firms are unintentionally limiting their growth by running vertical organizations.

It’s the old “book of business” approach that so many first-generation firms are brought up on and although it’s extremely common, it comes with downsides.

Look, it’s not that this vertical approach is wrong or bad, it’s that it limits a firm’s ability to grow and enable scaling.

If professional services organizations want to scale, they have to move from vertical -> horizontal.

In this newsletter:

• what vertical -> horizontal means

• 3 critical shifts in approach to make this principle come to life,

• how firms can incentivize horizontal structure and behavior to unlock new levels of growth and enable scaling

Let’s dive in.

Vertical vs Horizontal

When I refer to a vertical organization, think about the traditional book of business model.

A firm is organized vertically when each partner builds their book of business and the firm's revenue results as a sum of the individual books that make it up.

In a traditional vertical organization, each practice operates in a silo—mostly irrespective of the others. There’s little to no overlap or collaboration.

What results is that practices have very little insight or knowledge into what the others are doing. At the end of the fiscal year, the firm's revenue becomes an aggregate of what’s been earned within each individual practice.

It's sort of like hoping for growth—and as you know if you've been around here for a while, hope is not a strategy.

A horizontal firm, on the other hand, promotes collaboration between practices so that the firm is made up of its parts.

The firm’s revenue is a result of an intentional strategy to bring clients into the firm and provide integrated services across different practices within the organization.

When I became CEO of Baker Tilly US, the firm had been on a wonderful run under great leadership. And for all intents and purposes, it still operated very much like a first-generation firm (a sum of its books of business).

In order to grow the firm from $475m to $1.5B, we had to make 3 key mindset shifts:

Shift #1: Book of business vs business within a business

As CEO, my message to our partners was:

“I want you to build a business within the larger business of the firm. Go build a $100m business.”

How is a business different than a traditional book of business?

A business:

• Has a strategy

• Is built on systems to enable growth

• Invests financial and intellectual capital

• Builds engines to promote scaling

• Develops people with intention

• Collaborates with other businesses or allied professionals

When a firm is made up of a collection of businesses, it enables scaling because all businesses are aligned to a singular goal and strategy.

They work together.

Partners can’t go off and build their book of business and then come together at the end of the year to see what results.

Building a business made up of businesses requires intention. It requires a strategy and it requires planning.

I can tell you from experience that it will also unlock rapid growth opportunities.

Shift #2: “My client” vs “The firm's client”

Often, people within professional services predicate their value from their relationships with their clients.

“It’s MY client." and "It’s MY book of business.”

Well, when that’s the mindset, it means anything that might tread on that client relationship is automatically labeled as “bad”.

The client relationship must be protected at all costs. People get fearful, fast.

That’s not how you scale an organization.

To scale, “my client” needs to become “the firm’s client”.

I’ve had the privilege of working globally throughout my career and I’ll never forget how my colleagues in the UK would say they “Look after a client.”

Isn’t that what we’re doing in professional services? When it’s “the firm’s client”, you, the professional, are stewarding the relationship with the client on behalf of the firm.

Now, the “my client” people will often resist the firm connecting with the client to deliver value-add solutions. They control the flow of communication and information.

Oftentimes, that means the clients will miss out on value because of the lack of integration with other parts of the firm that could help them.

In the end, everyone loses.

The client loses out on the opportunity to receive more value.
The firm loses out on the opportunity to earn more revenue.
The professional loses out on the opportunity to provide better service and the potential to receive greater long-term financial rewards.

Shift #3: Single service offering vs multiple service offerings per client

Organizations that operate horizontally embrace collaboration.

Collaboration between tax and transaction advisory.
Collaboration between audit and forensics.
Collaboration between technology and managed services.

It’s about different businesses within the organization working together to provide maximum benefit to the client—which, by the way, will likely result in greater revenue for the firm.

It's called professional services. When client service is at the center of what we do, it makes sense to involve other parties within the firm to serve the client.

So it’s not about “owning” a client relationship and providing them a single service. It’s about thinking about what you’re NOT providing a client and working within the organization to provide it.

This has to be built into the overarching strategy and culture of the firm.

How to Create a Horizontal Organization

Horizontal organizations don't happen by accident.

Firms that want to scale must have a strategy defining the expectations for how practices are to behave and align incentives to those expectations.

In particular, they must:

1. Alter the strategy to reflect “a rising tide lifts all boats” mindset

2. Alter the goals and objectives to be organizational instead of individual

3. Alter incentives to reward group behavior in addition to individual behavior

4. Remove the real or perceived walls of P&Ls

How can you expect collaborative behavior if the system rewards individual performance above all else?

If your firm is seeking to scale, it's time to take a look at the behavior you're incentivizing and adjust your strategy and the way you communicate accordingly.

Firms that scale rapidly operate horizontally, not vertically.

I successfully led this shift at Baker Tilly (alongside our team) and it led to 3x growth that mostly occurred in a 5 year window.

It's the type of transformation work I now offer to firms in an advisory capacity. I've been there and know the conversations that need to be had to overcome resistance and build horizontal organizations that achieve differentiated results.

If I can be a resource to you and your firm to enable growth, let's chat. Use this link to book time directly on my calendar or reply to this email.

With intention,
Alan D Whitman