To borrow a line from Oscar Wilde, “The billable hour has no enemies, but is intensely disliked by its friends.”
It’s hard to find an ardent defender of the billable hour anymore. Oh, they’re out there, but they are a marginal fringe group—late adopters on the diffusion curve; the type of people who only buy a touch-tone phone because rotaries are no longer available.
The theoretical and practical argument against the billable hour is over, especially since you can trace it back to Karl Marx’s labor theory of value.
Fortunately, more and more firms are realizing this everyday, as this blog post sent to me from my colleague Tim Williams demonstrates.
Yet, some don’t still don’t get it.
An Example of Bad Economic Advice
Neil Oakes is a consultant in Australia. His post, “Finance: An objective discussion about fixed fees,” is anything but objective.
This post is full of economic illiteracy, such as this:
To the best of my knowledge, critical questions such as “What happens when informed clients figure out that they are paying significantly more for the same service?” remain unexplored.
The most successful of my clients have achieved their results with total price transparency and constant client communication. A fixed price for a new client could not be more transparent, but managing the transition to fixed fees for existing clients who may pay more for the same will involve an interesting discussion.
One is left wondering if Neil has ever flown on an airplane, stayed in a hotel, rented a car, went to the movies, dined in a restaurant, or witnessed a law firm providing pro bono services. All of these businesses engage in (blatant) price discrimination—that is, matching a price to a customer’s willingness and ability to pay. Of course, you have to be aware of it to see it.
If Neil would like to see an economy where this doesn’t happen, he’s free to visit North Korea, Cuba, or read an economic history of the former USSR—where all prices were “fair,” “equal,” and based on cost plus a reasonable profit.
It didn’t work under the jack-boot of communism and it’s not working well in professional firms.
Neil claims he’s not against Value Pricing, but he does advocate the necessity of tracking time:
I will lay London to a brick that when you start the conversation about your relative worth by asking the client’s opinion, they will ask: “How long will it take you to do the work?”
I am not suggesting that it cannot be done; of course it can. I would go as far as to suggest that for many it is a good idea, but tread cautiously with plenty of information. Delay the timesheet-burning ceremony for a few years. Determine fixed fees objectively, compare the result with the value of recorded time and build corporate knowledge and estimating skill.
I’ll take that bet, Neil. If a firm answers, “We don’t track time here, we believe our knowledge workers have better things to do than be a slave to bureaucracy that creates no value,” how will a customer respond?
Why don’t you ask one of the firms that have actually had this conversation? Neil shows no intellectual curiosity on this issue. I can assure him these firms have dealt with this issue, very successfully.
As for delaying the timesheet-burning ceremony: Why? Firms already have decades of this information and it’s obviously made them no more competent in pricing. Why do more of something when it’s not working?
This confuses activity with results.
Once again, Neil is making an assertion that has been empirically refuted. This rises to the level of a religion, not an economic argument.
Given that his business model is to sell surveys of what firms charge, this is understandable.
Economically, where we sit is often where we stand, and if my living depended upon perpetuating these types of useless surveys then I would want firms to continue to provide hourly data.
The Four Defenses of Timesheets
Yet even though the debate over the billable hour is over, this debate over the necessity of tracking time rages on, and is far more controversial than hourly billing vs. Value Pricing.
Just within the past month, I’ve had several blog posts sent to me expounding the requirement to track time, especially if firms are going to offer fixed prices.
One was sent to me from Mark Chinn, a VeraSage Trailblazer.
Less Rosen, a family lawyer, posted “Why You Should Track Your Time.”
Even my good friend Shannon Vincent got into the act with his post.
There are four primary defenses used by the proponents of timesheets:
- We need them to price
- We need them to track team efficiency
- We need them for cost accounting
- We need them for project management
We’ve refuted every one of these defenses, and even replaced them with superior methods, more conducive to a professional knowledge firm that sells intellectual capital, not time.
Not only that, many firms have implemented our ideas, with salutary results.
Empirical Evidence—Facts are a Stubborn Thing
John Maynard Keynes once wrote:
When somebody persuades me that I am wrong, I change my mind. What do you do?
Apparently, for defenders of timesheets, the answer is nothing.
This has always confused me. If I see something that works but contradicts my worldview, I’ll investigate it, seeking to understand the anomaly.
Yet proponents of timesheets engage in no such behavior. All swans are white to them, even if they encounter a black swan in their own country, state, or city.
There are over 1,000 firms that we know of—and I’m sure there are many more—that don’t track time.
These firms exist in all professional sectors—advertising, consulting, CPA, IT, and law firms. Some are among the most profitable firms in their sectors.
How do these firms do it?
Why do proponents of timesheets continue to advocate a theory that others have replaced with a superior theory?
I’m fascinated by this behavior. For firm leaders, maybe it’s fear of the unknown, or just satisficing—doing good enough, as posited by economist Herbert Simon.
Witch Doctors or Consultants?
But what about consultants to the professions?
Supposedly, these are thought leaders to the professions, who should not be happy with “good enough.”
These are the folks allegedly at the cutting edge, who take the time to think, create, and innovate superior strategies to help their customers. After all, any competitive advantage would be worthwhile to pursue, would it not?
What’s a bigger competitive advantage than pricing commensurate with value, along with not having your knowledge workers track every six minutes of their day as if they were prisoners?
Wouldn’t this act like a lightening rod to attract both customers and talent?
Given the fact that pricing has a larger impact on profitability more than any other factor, why would anyone continue to advocate firms sell time rather than value?
Why the dogmatic insistence on maintaining timesheets without any acknowledgment of firms that operate successfully without them?
Why do they insist on linking timesheets and cost accounting when time recording is not the only way to perform cost accounting?
Why don’t they recognize that project management is based upon looking into the future, not backwards with lagging indicators?
Why do they continue to expound an “efficiency” argument, when what matters in firms is effectiveness?
And why do they continue to believe that timesheets even measure efficiency? This is the illusion of control.
Why haven’t any of them studied firms that have implemented a ROWE (Results-Only Work Environment). This is no timesheets on steroids, and many organizations now have one, even some professional firms.
Why do they continue to deny the black swans right under their very noses?
And some critics say VeraSage is a religion. Please.
We are in constant pursuit of empirical evidence. The only difference is we aren’t afraid to challenge the status quo and upset people’s worldviews.
“Idiot” is Greek for “private,” “merely personal.”
The consultants’ views seem to be based on their own internal worldview, impervious to external empirical evidence.
Education has been known to relieve the individual of his idiocy.
When I see a prominent consultant write on pricing, I want to ask them: How many books have you read on pricing? Which ones? Who are your pricing mentors? Ever attend a pricing seminar?
I rarely see any of them quote from a leading pricing book or leading pricing expert.
When I see a consultant write on the necessity of timesheets, I want to ask them: Do you know the difference between a Key Performance Indicator and a Key Predictive Indicator?
Do you understand the difference between a leading and lagging indicator? The difference between efficiency and effectiveness?
I have seen very few of the consultants even refer to knowledge workers, or how they are different than manual laborers, which is who timesheets were developed for.
Why is this? Peter Drucker coined this term in 1959; it’s not exactly a management fad. (Of course, that may explain why they don’t use the term).
Why do they refuse to engage in debate those of us who advocate a different business model for the professional knowledge firm of the future?
The most plausible theory I’ve heard so far is this:
The consultants are worried that if they advocated replacing timesheets they would alienate their customers—and hence, their revenue base.
If this true—and I suspect it is until I hear a superior explanation—it’s a sad commentary on the ethics of these supposed change agents.
They are perpetuating a status quo that is already dead, and keeping their customers from entering the knowledge economy.
Most companies in every other sector besides professional firms don’t use timesheets to track projects, perform cost accounting, or determine productivity, but this argument is dismissed by proponents as being irrelevant, or worse, with the retort, “professional firms are different.”
But why are they different? Procter & Gamble has to produce results, yet no one there is filling out a timesheet. Ditto Microsoft, Apple, and practically every other organization on the planet.
If you have a counter theory on why the consultants continue to believe all swans are white, I’m all ears.
After all, if these consultants continue to deny black swans, why should we listen to them?