Commentary -- Branch Office or Firm-Within-A-Firm?

Engineering and architecture firms commonly regard branch offices as extensions of the main firm but many offices function in reality as firms within the overall firm. The difference is critical for managing an office effectively and profitably.

Branch offices originate in many different ways. Some start as sales offices and gradually add production capabilities. Others appear as established local firms are acquired. Many begin life as project offices and struggle thereafter to find enough local work to justify their continued existence. At any point in time, a larger firm may have branch offices of nearly every type and stage of life.

The main firm's management may regard most or all of the offices as simply remote departments but otherwise an integral part of the main firm. In some cases, management will give the office almost complete autonomy and will view the office instead as an affiliate or subcontractor. Too often, however, the office's role as seen by management differs substantially from the office's actual role. Where this occurs, the branch office may be so affected by the role conflict that it cannot perform either its actual role or management's intended role effectively.

Most common among role conflicts is one in which the main firm's management sees the office as a remote department while the branch office management runs the office as a firm-within-the-firm. This conflict can create endless problems in handling head office production, selling for head office vs. local production, moving people in and out of the office, hiring constraints, inadequate access to specialized resources — and the list goes on.

Offices treated as remote departments of the main firm often start out as sales or project offices. Any significant production capability is seen as a peak-load resource by the main firm. Good people hired by the office seem to find their way into head office groups. The office may be constrained in terms of its ability to staff with specialized resources, requiring the office to use head office specialists instead. Another common use for a branch office is as a people-storage facility—a Siberia—for weak performers from headquarters who cannot be terminated for some reason. Of course, not all of these problems occur in every office and many are transient in nature but the overall impact is that an office treated as a remote department often cannot perform up to its true potential.

Offices acquired as established local firms are allowed in many cases to continue to operate as largely autonomous practices and are treated as such by the main firm's management. These offices operate with their own business development and P&L responsibilities. Some even have separate balance sheets and are responsible for billing, receivables management, capital spending and other basic activities of a standalone business. Most have broad staffing flexibility and develop work mainly for their own production. There is typically little exchange of staff between the office and headquarters. So long as this situation exists, the office is likely to perform at or close to its potential.

An office that is expected to serve as a remote department and has local management that fully understands and accepts this limited role has no role conflict and should function as expected. But where the role expected and the role-in-fact differ, performance damaging conflict may exist. Resolving the conflict requires both main firm management and branch office management to agree on an appropriate, practical role for the office.

In some cases, the main firm may need a remote production capability but nothing else, making the remote department role a necessary one. Here, the job is likely to be in persuading branch office management that this is an important and valued role and rewarding them accordingly (based on performance metrics appropriate to this role). It may also be helpful to strengthen the office's ties to headquarters so that the office truly feels that it is part of the main firm.

In cases where the office has evolved into a firm-within-the-firm but is still viewed as its original form (sales office, project office, etc.), then the solution will nearly always be to adjust main firm management's role expectations. Few firms will find it beneficial to reduce a firm-within-the-firm capability to a much more limited sales or project role once again. Where the main firm's role requirements are still needed, it may be possible to co-locate the needed role — a sales office or project office, for example — within the branch office/firm. This approach effectively creates an additional office but with each office now able to pursue a clear strategic role with full effectiveness.

It is not uncommon to find a wide gap between what an office manager's goals are and what the office's role is able to deliver. Manager incentives based on office profitability implicitly assume that the office is able to function as either a firm-within-the-firm or as a subcontractor-like production office. What frequently occurs, however, is a profit-based incentive in a remote department situation. The result is office manager frustration and turnover.

Decide on the office role first and then choose goals for manager incentives that reflect the key elements of the office's assigned role.

Determining an office's actual and expected role may seem simple as described here but it is rarely so in practice. Most situations are rather complex, involving more than one role in each case. Even when actual and expected role can be identified, there is often fundamental disagreement on which should prevail. Sometimes, managers on one side or other refuse to accept the fact that they cannot have both their desired office role and their desired performance when a role conflict exists. And, in many cases, the range and nature of action options is sharply constrained by office characteristics.

An accurate role determination and a clear understanding of what might be done to improve things both require a substantial amount of information about the office, its people, how it operates, interactions with regional and head offices, etc. Such information is normally gathered by means of interviews with a range of key people in the office and review of financials, project summaries, and other reports. This can become a quite costly, time-consuming exercise if performed by consultants and can miss vital information if the consultants rely on junior associates for much of the information gathering work, as is typically done.

Our approach is to use a variety of intelligent diagnostic and feedback software tools to handle most or all of the basic information gathering. This can eliminate much of the time and cost as well as both errors inherent in the transcription of interview notes and information gaps resulting from interviewer inexperience. It can also provide information not always available from interviews. For details on this approach, please see "Acquiring Information and Knowledge Using Software".

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