Commentary -- Branch Office Performance

In most multi-office firms, branch office performance varies all over the map. But without considering certain critical differences between offices, performance comparisons can be misleading and wasteful of management time and attention.

Many engineering and architecture firms have a number of branch offices. Some have dozens, along with regional offices to manage the large office systems. Offices are added as firms are acquired. Others are created to serve a major client or to provide proximity to a major project. More than a few are located in warmer climates by northern-tier firms. Offices are sited to handle selling in major markets or simply to respond to a partner's geographical preferences. Is it any wonder, then, that there are substantial performance differences?

Performance differences become important when they lead to management action of some kind. Office principals may be put under pressure to improvement performance, typically defined in terms of profitability. Office bonuses may be tied to this narrowly-defined office performance metric. Principals, in response, may initiate a wide range of efforts to improve performance, often with poor results if these efforts do not adequately account for certain critical differences between offices.

Performance improvement efforts can fail despite the best efforts of those involved. The office may actually be performing extremely well if measured against a performance standard appropriate for its role and operation and further improvement may not in fact be achievable at this time. In cases where there is potential for improvement, efforts may be misdirected because the metric causes remedial attention to be placed on the wrong factors or on points of low leverage. These obviously apply to chronic under-performers and not to offices with transient problems that can be corrected within a short period (a year or less).

Most firms measure all offices against a common performance standard, typically operating profit. But branch offices differ, often substantially — in life cycle stage, strategic role, degree of autonomy, relationship with headquarters, resources, and staffing flexibility—making comparisons based upon a common performance standard potentially misleading. A one-size-fits-all performance standard can become an obstacle to improvement if it focuses management effort and attention on the wrong factors.

Of these differences, strategic role and life cycle stage are fundamental to any performance assessment. A sales role office should not be compared directly with a full-service office (or "firm-within-a-firm"). A project office has a different potential for performance than a major production office. Newer offices must generally follow an investment-return curve before reaching maturity and achieving full performance potential.

Performance assessment must generally be done within a group of offices having a similar strategic role and life cycle stage.

To determine whether a branch office is truly under-performing (or performing very well), you must first understand how the office fits into the firm, strategically and operationally. This involves profiling the office to determine both the actual and intended role of the office, and the nature of its operations—sales, production, transfer of work, access to specialized expertise, staffing flexibility, resource availability, local capabilities, systems, operating goals, etc. It should include input from key people in the office on communication, leadership, advancement opportunities, project management, client issues, missing capabilities, special strengths, and market opportunities. Not all of this is needed to deal with fundamental role and goal conflicts but will become important subsequently in guiding efforts to achieve improved performance.

Once you have established the actual role of an office, you can compare that role to the intended strategic role and identify any conflict between them. You may, for example find that an office is operating largely as a full service office, a firm-within-the-firm, but your strategic role for the office is primarily sales. The office probably started out as a sales office and gradually expanded into production. One way to resolve such a role conflict is to establish a separate sales operation within the branch and let the branch continue as a full-service office, but selling only for its local production capabilities. In effect, you would have two offices, each with a different but now appropriate performance goal.

Or, perhaps you have an old project office that is now being treated as full-service office in terms of performance expectations. It may well be that operating constraints or local markets are preventing it from achieving this expectation. Eliminating the conflict in this case could require a relaxation of certain operating constraints—such as a requirement to sell primarily for head office production, limitations on local staffing, inadequate access to specialized resources—or a role redefinition that recognizes its actual role (sales office, local production office, specialty office, project office, etc.). Intended role and primary performance standard must be consistent for an office to perform up to its full potential.

For additional commentary on a particularly common role conflict — the branch office treated by main firm management as a remote department but operated by office management as a firm-within-the-firm — see "Branch Office or Firm-Within-A-Firm?".

Subpar performers should not be your only points of attention. Of perhaps greater importance to increasing overall performance is understanding and replicating the transferable features of your best-performing units. You should profile your top performers to develop a clear picture of what makes them effective and to discover which of these might be adopted by other offices and units. Such knowledge will be of value to all other units in your firm, not just the lower performing ones.

A new office, unless created by acquiring an established local firm, can take many years to achieve the performance potential of an established office. The first years are likely to be unprofitable as you invest in developing local contacts, handling small entry projects at a loss, staffing, and gaining access to local gatekeepers. Performance goals in early years should emphasize market penetration, contact volume and quality, and potential offered by entry projects. Financial goals should be simply meeting budgeted expense levels. Thereafter, as revenues build (assuming that the head office does not absorb these), goals can begin to move toward those appropriate to an established office.

Even a firm without branch offices can face branch office issues. Many engineering and architecture firms are organized around specialty or discipline-based divisions that have grown into self-sustaining businesses within the overall firm. Some firms even have a policy of creating a new division, or "firm-within-the-firm" whenever a group exceeds a certain size, such as 50 people. Even though situated within the firm's headquarters, these units operate with their own business development and P&L responsibilities. Most have broad staffing flexibility and develop work mainly for their own production. These are effectively firms [within-the-firm] in terms of operations and relative autonomy and can be assessed in much the same manner as a branch office.

Once you have determined that an office is truly performing below potential relative to its role and operations, you can begin to look at ways to improve its performance. This is where a full profile of the office can be extremely valuable. You need to understand the sources of under-performance and how each may be related to your office goals. Linkages between some performance sources and office goals may be complex and hard to access while others may be more directly linked and relatively easy to access. Other things being equal, going after easier targets first is generally better. Building a base of success may help as you begin to address the tougher aspects of subpar performance. In each case, the detailed knowledge obtained by thorough profiling will help you establish a sharply-focused goal, or goal set, for each step in the process.

To profile an office or business unit, you must: (1) collect a broad array of information on the office—strategic role, operations, and people; (2) organize and analyze this information; and (3) place the results into some type of summary framework. This will tell you the office's performance relative to a standard appropriate for its role and operations. Then, if the office is truly under-performing, you can develop an action plan for performance improvement. If it is performing exceptionally, you can study the profile to understand what factors are contributing most to the high performance and which ones might be transferable to other offices and units.

Firms that employ a profitability standard often adopt the firm's overall profitability as the standard or goal for each of the firm's offices and business units. Some firms identify one or more offices/units as models and set as a standard their average profitability. This is appropriate so long as the offices and units involved have a similar role and maturity. For sales offices, project offices, specialty offices, and production offices, profitability may not be an appropriate metric, or profitability may need to be joined by one or two additional metrics.

We use diagnostic and feedback software tools to gain access to vital information and knowledge in firms that is costly to obtain or simply unavailable using traditional interview methodology. Greatly reduced acquisition costs allow us to collect, analyze and apply a far broader range of information and knowledge in our efforts to help firms and individuals achieve significant gains in performance. This is especially valuable in helping pinpoint sources of performance weakness and developing effective action plans for strengthening these. And, because many people are more open and candid in electronic communications, they often provide information and specifics that they may not be willing to share with an interviewer.

Better understanding of situations reduces the chance of addressing symptoms instead of the real, underlying problem sources and enlarges the range of action options. Results tracking and side-effect monitoring are also more effective.

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