Revenue Management of a Professional Services Firm with Quality Revelation

Abstract

In this paper, the authors tackle the operational problem of managing a professional service firm (PSF). A PSF, such as a management consulting firm, law firm, or an accounting firm, has employees of varying skills, backgrounds, qualifications, and experience. The operational problem of PSFs can be summarized as a bidding-cum-matching problem where the probability of winning depends on the quality of the employees promised for the job as well as the price quoted in the bid. Should the employees (hence, the quality) be committed as part of the bid, or should the firm rely on reputation? How much should the firm bid, given one or the other strategy and available resources, taking future bids into consideration? How many employees of each type should the firm have on hand? What is the optimal utilization level of each type? These are some of the questions this paper addresses.