Agnotology: As Knowledge Expands, Ignorance Increases

Science historian at Stanford, Robert Proctor, has made this profound observation, as reported in the February 2009 issue of Wired magazine:

Normally, we expect society to progress, amassing deeper scientific understanding and basic facts every year.

Knowledge only increases, right?

Proctor points out that when is comes to many contentious subjects, our usual relationship to information is reversed: Ignorance increases.

He has developed a word inspired by this trend: agnotology. Derived from the Greek root agnosis, it is “the study of culturally constructed ignorance.”

The reason I found this so interesting is I’ve been having an exchange with Jim Hassett, a legal consultant, who has written (so far) a seven-part series of blog posts on “alternative fees.” There is no more contentious issue than suggesting professional knowledge firms trash their timesheet.

In his seventh post, he quotes me on why timesheet are part of the problem in transitioning to Value Pricing. After I present my argument, Jim writes:

In this case, Ron and I will have to agree to disagree.

Both law firms and their clients have several decades of experience thinking about cost in terms of the hours each matter will take. And there are good reasons for this approach, since ultimately most of the cost of doing the work will depend directly on the number of hours it takes, and the salaries lawyers are paid. In my opinion, asking law firms to throw this experience out the window is counter-productive.

To get better at pricing, you need to measure which matters produce the largest financial returns, and which people within the organization do. Tracking the time and money spent on each matter is the simplest way to measure that financial return.

My response to this is, so what? Jim is entitled to his opinions, but not his facts. The fact is, there are firms out there doing what he says shouldn’t be done. At what point does one become persuaded by empirical evidence? As I wrote Jim in an email:

If we were debating Intelligent Design vs. Evolution, I can accept your comment—”Ron and I will have to agree to disagree”—though I still find it lacking in intellectual rigor

But we are talking about business practices, and hopefully optimal business practices. I have no doubt that cost-plus pricing is profitable. That’s not my point. My point is it’s not optimal. Timesheets are part of the reason.

The fact that there exists—right now, in the real world—hundreds of firms that have gotten rid of timesheet and have found it more optimal should spark your curiosity, not a dismissal that we’ll have to agree to disagree.

If my worldview is challenged in such a manner, I investigate very deeply, not wanting to dismiss facts and evidence simply because they conflict with my worldview or experience, or because I do not understand exactly how they are doing it.

This is what I find so discouraging about consultants. They are not innovators. They simply spread orthodoxies from one firm to the other. And in the case of Value Pricing, they are part of the problem, not the solution.

It’s almost impossible to debate people who believe that something that is being done cannot be done, or should not be done. I will let the empirical evidence speak for itself, leaving it up to leaders in the respective professions to investigate and draw their own conclusions. More and more do so everyday, and end up trashing their timesheet as a way to become better pricers.

People can disagree all they want, but that doesn’t change the facts.

We can certainly argue about what facts mean—that is a true debate. But if we are arguing about what the facts are, then it denigrates into Proctor’s agnotology Armageddon, where reality no longer matters.

John Maynard Keynes (an economist currently back in vogue) once wrote:

When somebody persuades me that I am wrong, I change my mind. What do you do?

Robert Proctor’s new word resonates with me given my experience with debating the timesheet issue.

Is this a good explanation, or is there a better one?


  1. Garry Beavis says:

    In response to the comments from Jim Hassett
    and my recent experiences with legal and other professional service firms I would like to make the following observations.

    Jim makes the statement that “most of the cost of doing the work will depend directly on the number of hours it takes, and the salaries lawyers are paid”. Based on this assumption if would not be difficult to calculate the revenue of a firm because it would be capped. The only way to increase revenue would be to employ more billable hours and/or increase hourly rates.

    As Ron says this may be a profitable way of doing business, but not the optimal way.

    This way of pricing may be appropriate for low-end or compliance work but not for all work. This method can also be the basis of ‘productising’ your services and creating fixed fees for different services, regardless of the time involved. A fixed fee arrangement is preferable to a client rather than an open-ended arrangement where the ‘hours spent’ can be manipulated to suit.

    Where, in this basis of calculating fees, has education, experience, knowledge and expertise been costed or factored into the hourly rate? Surely if you value your skills and experience highly enough and are able to produce results and value for your clients, then does the extra $ per hour you charge adequately reflect that? I suggest it does not. All an ‘hourly rate’ suggests is that you are the same as every one else on that ‘hourly rate’ and you all share the same education, knowledge and abilities, which we all know is not reality.

    From a clients perspective who really cares how long it takes or how many phone calls, faxes or pieces of paper you use? The practice of charging for every phone call, fax, page, staple and paper clip is ridiculous. Why aren’t these already factored in to the hourly rate if a firm works on the cost of inputs as the basis for calculating fees? It amazes me that firms can be so precise when it comes to charging for incidentals like these but when it comes to completing timesheets, time spent appears to be less than precise.

    I as a consumer want a result and at a price that represents value to me, and that value needs to be articulated to me by the service provider. If that can be done then whether it took 1 hour or 10 hours and 5 staples is irrelevant.

  2. Jim,

    I agree with you that business is not a science. I also concur there are no simple answers, or one-size-fits-all strategies.

    But that doesn’t mean that economics can shed light on human behavior. Value Pricing–or more accurately, price discrimination–has been around since the late 19th century. It’s clearly optimal to cost-plus pricing, which assumes there is one optimal price.

    The fact that there’s been a pricing revolution going on in the rest of the business world–especially the Fortune 1000–proves that pricing strategically is far more complex than mere cost-plus pricing. Organizations such as the Professional Pricing Society wouldn’t exist if there wasn’t some advantage to thinking strategically about pricing.

    As for no timesheets, developing pricing competence is not the only reason we advocate eliminating them. They measure the wrong things. We have developed Key Predictive Indicators that firms select from–again, no one size fits all–and we believe they are more predictive of customer and firm success.

    But more importantly, fixed prices up-front are indeed superior to hourly billing. This I will stake my life on. The reason is simple. Every other business on the planet does it this way. Would you fly with an airline that charged you $4 per minute?

    Moreover, even in industries with incredible risk and uncertainty, and many unknown variables, provide fixed prices, such as my earthquake insurance provider. If they can do it, so can laws firms.

    There’s much more to our philosophy than merely Value Pricing Jim. It would add substantially to your understanding if you read any one of my books, and not simply random blog posts.

    We have tested these ideas across all professional sectors, in all size firms. They are superior to the old model of “we sell time.” That said, there is still room for incredible variation, innovation, dynamism, and creative destruction.

    But if you are still advocating firms bill by the hour–meaning in arrears, after the work has been performed–then not only do we disagree, we have proven there is a better way.

    Isn’t the whole purpose of Blogs, business books, etc., to gain an advantage? Value Pricing is just one of many that firms can use to gain such advantage. They’d be crazy to stay mired in the Marxian labor theory of value.

  3. Guys, more matter less art! You are making the way too complicated.

    In knowledge work, value does not equal effort AND cost does not equal effort.

    Jim, you are deluding yourself by thinking that in measure hours you are measuring costs. It would be like measure the number of swings a batter takes in baseball and basing your evaluation on that alone.

  4. Hi Jonathan,

    In the USA alone, the airline industry changes its prices over 11 million time in one 24 hour period. Is that scalable enough for you?

    Nearly all the Fortune 1000 companies have pricing departments. UPS has over 220 people who do NOTHING BUT PRICE. FexEx has roughly 75. All of these pricing departments are obviously scaled across these enormous enterprises.

    It’s our job as leaders of PKFs to educate customers about value. We were the ones who sold them on hourly rates and we will have to wean them off of them. It can be done; business models change all the time, as the airlines prove. They adopted Yield Management in a period of years, whereas it’s taking PKFs decades to ditch the billable hour. Customers hate hourly billing; they want fixed prices, and certainty in delivery.

    I hope this dispels, once and for all, that pricing is not scalable. If the Fortune 500 can do it, so can the biggest PKF.

  5. Matthew Tol says:

    I find this discussion interesting. There are a number of ways of viewing this topipc and arguing that the “average” PKF can’t handle value pricing is just ludicrous.

    I was taught that “average” is where the best of the worst meets the worst of the best – don’t we, as professionals, want to distinguish ourselves from the pack – from our competitors – and ensure that our customers have a wonderful experience, with no surprises, when they engage us?

    The way you move the average is one increment at a time. Each new firm that takes on value pricing and gets skilled at value identification with their customers is slowly moving the “average” to the more effective end of the spectrum. People who say it simply can’t be done are wrong. They will be the ones in future years who will say “how did that happen” when their clients move to new advisors because they price up front and because they get no nasty surprises and because they are encouraged (not penalised) to ring their advisors and because they have certainty with expectations as to the job before it starts.

    There are hundreds more “and becauses” that can go in there. The issue is that if you’re pricing by the hour, the “average” firm will look to what their competitors are charging and charge about the same – why would you let someone else set your pricing levels? Stupid.

    With value pricing this issue removes itself completely and the value agreed with the customer is one which both they and you are happy with. Simple. And your competitors can charge what they like.

    Yes, it is somewhat hard to change to the “brave new world”. You grow as a result of it. If you’re not growing, you’re dying. I don’t think any one of us wants to be “average” either.

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