In the August 7-20, 2006 issue of Accounting Today, Gary Boomer, noted consultant to the CPA profession, wrote an article that warms my heart and gives me hope: “The time sheet is only one measure of performance.” I urge you to read the article before reading my comments.
Let me begin by saying I have crossed intellectual swords with almost every single consultant to the profession in the English-speaking world on the harm timesheets are doing to the profession. Some have argued vociferously with me, most have ignored the debate altogether, and only one—Ric Payne—challenged my theory with intellectual rigor.
In my book, The Firm of the Future, I thoroughly destroyed the three common defenses for maintaining timesheets, which are:
- We need them to price.
- We need them to determine the productivity of our team.
- We need them for cost accounting.
I am very happy to report that most of the consultants finally concede that the first defense is incorrect. The value of something is simply not determined by how long it takes to produce. This is idea that dates back to the eighteenth and nineteenth century, and made most popular by Karl Marx, when he posited his labor theory of value. This theory was absolutely refuted by the Marginalist Revolution in 1871, which basically stated that value drives price, and price drives costs, not the other way around. It’s nice to see the consultants finally catching up with the dead economists.
It’s the second and third defense that firms and consultants alike still cling to like barnacles. Thankfully, Gary’s article shows that there is light at the end of our tunnel vision, but he’s not quite there yet.
He starts his article with the specious statement that a timesheet is nothing more than an accountability tool. But is it? Can’t someone look fantastic on a timesheet—either by recording a lot of hours or coming in under budget—but still be a complete hack, whose work has to be redone? Or, more sinister, whose customer service ethic, or interpersonal skills, are so poor that he alienates everyone he comes into contact with?
In other words, the timesheet doesn’t measure the most important traits of a successful CPA—interpersonal skills, communication skills, customer service ethic, ability to change, risk taking, innovation, creativity, and a host of other characteristics that cannot even be measured. Rather, they must be judged. A timesheet is not a judgment; it’s nothing more than a very crude measurement that provides absolutely no information on the important characteristics of a knowledge worker.
Gary further claims the profession erred, “because the timesheet was never intended to be a measure of value or a pricing tool.” This is correct. The timesheet was introduced to the profession as a way to perform cost accounting, not pricing. What started as a way to track the inventory—i.e., time—became the inventory—i.e., we sell time. This is quite natural.
After all, if you make two generations of CPAs complete timesheets in six-minute increments, they are going to start to think all they sell is time. Is it any wonder it became the gold standard measure in most firms?
But it’s not just the profession that has erred. It’s the consultants as well, since they continue to perpetuate the mentality that everything revolves around the Almighty Billable Hour. All of the metrics used in the MAP surveys, benchmarking studies, and reviews revolve around charge hours, realizations rates, and utilization. The consultants are as much to blame as the leaders of the profession—maybe more.
Why? Because consultants are suppose to be change agents. However, the facts show otherwise. They simply perpetuate the current orthodoxies that exist in the professions they consult with. They all bathe in the same bath water and gaze at each other’s navels, never stopping to challenge the status quo until it becomes unsustainable. They are not innovators.
Gary further states that the timesheet as a measure of value is a hold over from the old “effort-based economy.” That’s not quite correct. There has never been an “efforts-based economy,” since customers have always paid for results. It’s just that the efforts and inputs are far easier to measure than the results and value. We can count the bottles, but it’s harder to describe the wine. But the latter, especially in a knowledge economy, is critical to understanding value.
The timesheet is actually a holdover from the labor theory of value, and more specifically, from the time-and-motion studies of Frederick W. Taylor in the 1880s.
Taylor’s obsession with his stopwatch certainly increased the productivity of factories around the world, largely contributing to our current standard of living. I’m not bashing Taylor; he did wonders for creating wealth. But he studied manual workers, and then his metrics were brought to service workers in the 1920s.
Unfortunately, these same metrics have been applied to knowledge workers. But knowledge workers—the term Peter Drucker and Austrian economist Fritz Machlup coined simultaneously around 1961—are different. They don’t work to the rhythm and cadence of an assembly line. Rather than being slaves to the assembly line, they are masters of their environments. It is a process of the mind, iteration and reiteration, and Taylor’s time-and-motion studies—embodied by the timesheet—are simply irrelevant in determining the quality and value of their work.
Not only that, but today’s knowledge workers own the means of production in their heads, represented by the massive amount of education they have invested in their own intellectual capital. Taylor didn’t have to deal with this issue. Yet the metrics we use to measure these workers are directly descended from him, which proves how hard it is to change a reigning theory.
It’s nice to see Gary calling for firms to re-evaluate their performance criteria, a suggestion I heartedly endorse. However, he doesn’t seem to want firms to reevaluate the obsolete timesheet; and I have to ask, why not?
He suggests the Balance Scorecard, which I have major problems with, since most of them are full of nothing but lagging indicators. Further, they are simply measurements, not testable theories. What firms need to put in place are leading indicators, which have predictive power to peer into the future (see my Trashing the Timesheet book, for more information).
Gary then proposes his Performance³ Formula, which is this:
Planning x People x Processes
It’s not a bad start, but it doesn’t go far enough. It fails to recognize the true levers of what makes firms successful—that is, intellectual capital. A better Formula is what we call The New Practice Equation, which is:
Profitability = Intellectual Capital x Price x Effectiveness
I think Gary is still confusing efficiency with effectiveness, and that’s a major problem in a knowledge environment. Do you want your heart surgeon to be efficient or effective? Effectiveness is far more important than efficiency in a knowledge economy, and doesn’t lend itself to processes. It’s hard to flowchart creativity because it is iteration and reiteration, a process of the mind.
All that said, I commend Gary for refuting defense #1 and—even if only partially—defense #2. It’s a good start, and gives me hope that the consultants to the profession are finally beginning to recognize that we live in a knowledge economy, not an industrial economy.
There are some 350+ firms around the world operating without timesheets. It’s no longer just a theory—it’s a fact. They have refuted all three defenses with the empirical evidence of their results. Most consultants, sorry to say, still lack the intellectual curiosity to explore how it’s being done.
In 1984, when I joined then Big Eight firm Peat, Marwick, Mitchell, I was told, “Baker, you sell your time.” I was young and naive enough to believe it. But no customer buys time, and if they did, I’m damned sure they’d buy it from someone cheaper than CPAs.
I don’t want another generation of CPAs to be ill informed like I was. It forces them into a union employee mindset, where they worry more about what they make per hour than the value they create for the customers they are privileged to serve. Worse, it keeps our profession mired in the mentality that it sells time. Have you ever met a wealthy rank-and-file union member?
It also turns CPAs into galley slaves on the SS Billable Hour. This is one of the reasons firms are having such a hard time attracting and retaining talent. The present day leadership, and the consultants to the profession, share the responsibility for this sad state of affairs. Knowledge workers are not bags of cement they can simply process and shuffle around to their whims in order to maximize “productivity.”
We are dealing with knowledge workers, and it’s way past time to start working on new measurements and judgments that recognize this tectonic shift in the way the world creates wealth.
Come on Gary, get off the fence and take a stand. Publicly call for the elimination of timesheets. They are a cancer in the professional firm of the future. They are an idea from the day before yesterday—an idea whose time has past.
Better yet, sign our Declaration of Independence, so we can stop betraying the next generation of CPAs, and create a better quality of life for the posterity of our profession.