Thursday, December 13, 2012

The Professional versus Business Model in Engineering Consulting


The Becker-Posner Blog this week took an interesting look at the traditional professional (which includes everything from the clergy to engineering consulting services) versus the business model (which includes everything from I.B.M. to the Sinaloa Cartel).

Judge Posner writes the following:

"The traditional concept of the profession (the concept that is undergoing change) provides an interesting contrast to the concept of the profit-maximizing business firm. In the business model, the goal is profit maximization in a competitive environment that operates in a basically Darwinian fashion (survival of the fittest); risk is pervasive and both extraordinary profits and devastating losses are real possibilities. Employment and leadership in such an environment attract many and repel many. The people it attracts tend to be aggressive and daring. The ones it repel tend to be cautious and thoughtful.
 
In the traditional professional model, risk both upside and downside is trimmed by a combination of regulation and ethics both aimed at muting competition. With muted competition the lawyer or doctor can realistically aspire to a safe upper-middle-class income, but he is unlikely to become wealthy. The result, in combination with requiring postgraduate education and qualifying exams for entry into the profession and subjecting members of it to professional discipline, is to attract a type of person quite different from the entrepreneurial type—the latter a type exemplified by such extraordinarily successful college drop-outs as Bill Gates, Steve Jobs, and Mark Zuckerberg. The professional model attracts a more studious, intellectual, risk-averse type of person.
 
Why does society value such persons and create a comfortable niche for them? The answer is that some goods and services involve a degree of complexity that makes it very difficult for consumers to evaluate the quality of the goods and services. Legal services and medical treatment are important examples. Both involve considerable uncertainty (even the best lawyer loses some cases, even the best doctor fails to cure some patients). When a consumer is unable to determine the quality of a product or service, the provider has to be regulated, either directly as in the case of the regulation of the drug industry by the Food and Drug Administration or indirectly as in the professional model, in which the conditions for becoming a member of a profession encourage self-selection by persons likely to be trustworthy, responsible, and ethical because less inclined to cut corners in order to make a killing.
 
The professional model in law began to wane in the 1970s, with the beginning of the deregulation movement, which loosened restrictions on competition in legal services. The trend continued in subsequent decades, and was marked by an increased spread in earnings within law firms, an increased dispersion in the size of law firms, and increased turnover—in particular, the tendency of successful lawyers to move from firm to firm (taking their clients with them) in quest of higher incomes. Today, law firms closely resemble business firms. I am speaking mainly of law firms that handle corporate business, not of criminal or tort lawyers, who tend to practice by themselves or in small firms."

I fully agree with the idea that engineering consulting has and will continue to evolve from the professional to the business model.  The interesting point that Posner raises is, "The professional model attracts a more studious, intellectual, risk-adverse type of person."  It will be interesting to see how this type of person changes in the new business model - - with a central focus on profit-maximizing activities in unregulated (or under-regulated) competitive markets.  Greater movement toward the business model produces an environment of increased risk.  Consulting engineers may not want just a comfortable upper-middle-class income in the future; they may want to be rich; and one reason is the increased risk they face. 

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