We Hold This Truth to be Self-Evident

In the Spirit of the Fourth of July when we celebrate our country’s independence as so eloquently written in our Declaration of Independence, I feel the need to add another self-evident truth to the VeraSage Declaration of Independence.

In the past week, we’ve been answering critics of eliminating timesheets (unfortunately I can’t tell you why yet, but we’ll be able to in October). Every critic invokes the metaphor of a manufacturer to defend timesheets for cost accounting purposes.

Not only does this metaphor ignore the fact that Toyota has never used a standard cost accounting system—which doesn’t seem to have imperiled it in terms of innovation, growth, and profitability—it’s offensive on a completely different level.

PROFESSIONAL KNOWLEDGE FIRMS ARE NOT MANUFACTURING PLANTS!

Sorry, I don’t mean to scream, but this is getting very annoying. Why in the world do people equate an accounting, law, advertising, or IT firm with a factory? Do they really think knowledge workers work to the rhythms and cadences of an assembly line? Do they really think that efficiency in knowledge work is as easily measured as observing someone doing a repetitive job on an assembly line? Knowledge work is iterative, not repetitive.

Just this past month in the Practical Accountant there is a cover story entitled “Project Management: A Means to Efficiency.” The entire tone is to apply Six-Sigma and other manufacturing concepts to an accounting firm. (Ed is going to have more to say about this ridiculous article, so I’ll restrain myself from commenting further).

Would we want to do this with surgeons? Would you rather have an efficient heart surgeon, or an effective one?

In a factory, the worker serves the system, but in a knowledge office, the system serves the worker. In fact, the knowledge worker doesn’t even need to be in a fixed location, since they are able to do their work sitting at home, in a Starbucks, on a boat, or on the top of a mountain. So why the hell does everyone keep invoking the manufacturing metaphor?

This Gospel of efficiency can be traced back to Frederick Winslow Taylor in the late 1880s, who was famous for conducting time-and-motion studies and increasing the productivity of factories throughout the country. It was Taylor’s Scientific Management Revolution that we owe an enormous debt to for creating a large part of our standard of living.

But his principles are obsolete in a knowledge environment, yet they refuse to die in the minds of many leaders of—and consultants to—professional knowledge firms.

Not only must we rid ourselves from the billable hour, we also have to excavate ourselves from the manufacturing metaphor. It simply does not apply to knowledge workers. This doesn’t mean that certain systems, processes, or procedures used in manufacturing can’t be useful—every PKF could learn an enormous amount from Toyota. But Toyota behaves more like a PKF than most PKFs!

What we can’t do is let those manufacturing principles become the talisman for running a PKF. Here’s why. Consider the father of the modern assembly line, Henry Ford. Here is what he wrote in his autobiography My Life and Work in 1922:

Factory organization is not a device to prevent the expansion of ability, but a device to reduce the waste and losses due to mediocrity. It is not a device to hinder the ambitious, clear-headed man from doing his best, but a device to prevent the don’t-care sort of individual from doing his worst.

Not exactly an enlightened view of industrial organization, let alone a PKF!

Knowledge workers are not factory workers, and PKFs are not manufacturers. This is as important to understand as Value Pricing and why timesheets must be trashed.

It’s time to declare our Independence from the Ghost of Frederick Taylor. PKFs are not manufacturing plants!

And that’s a self-evident truth.

Enjoy your Independence Day!

Comments

  1. I’m all for value based pricing and use it in my work. It’s a beautiful thing. That said, I find this article fallacious. Value based pricing is all about charging the customer based on the value of your contributions (outputs) not the cost of the inputs. This makes good business sense and is a win-win for you and your client.

    You then stretch this principle to make a rhetorical attack without any supporting facts on the quality improvement efforts championed in the article ?Project Management: A Means to Efficiency? that focus on reducing the cost and waste to generate that output. If value based pricing is good (a method to charge for outputs focused on value not inputs) then is any effort to monitor or improve inputs required to produce the value are bad?

    Value based pricing is a way to improve the top line on your income statement.

    By what methods do you propose that PKFs improve the bottom 1/2 of their income statements?

    You do a disservice to your cause.

  2. P.S.: Your d*#m right I’d use a heart surgeon who uses Six-Sigma and other quality management principles over one who doesn’t. Leading health care providers are using these strategies now to become become more efficient and more effective.

  3. Alex,

    Ed Kless will have much more to say about the article, and why it’s not really project management, but let me understand you. Are you really arguing that professional knowledge firms should be run like factories?

    PKFs are fixed cost environments, so there’s not much you can do about the bottom-half of your income statement. What costs (inputs) do you propose can be cut? Most of the costs are labor and rent–fixed.

    I am making a case for effectiveness over efficiency in a PKF. I defy anyone to measure the efficiency of a knowledge worker the way we do a manufacturing employee. How would you measure the efficiency of Picasso? Einstein?

    My argument is laid out in various articles on this Blog, as well as my book, Measure What Matters to Customers and Mind Over Matter. There’s an enormous difference between knowledge workers and manual/service workers.

    One of the reasons PKFs are suffering a talent crisis is they are treating their people like machines, not knowledge workers. Fighting against that mindset is what we are all about.

    That’s not a disservice to the cause–that is the cause.

  4. Alex,

    Six-Sigma, TQM, Statistical Process Control, etc., are all fine tools, but at the end of the day I want a doctor who is effective. An obsession with efficiency can come at the expense of effectiveness, especially in a knowledge environment.

    The track record of these qualities tools applied to knowledge environments isn’t very good, as Karl Albrecht, Peter Drucker and many others have pointed out for a long time.

    How do you propose we measure the efficiency of a heart surgeon? [efficiency being a ratio, like outputs divided by inputs].

  5. ?Ed Kless will have much more to say about the article, and why it?s not really project management, but let me understand you. Are you really arguing that professional knowledge firms should be run like factories??

    I?m saying quality management can help PKFs provide more value to their customers, be more profitable and improve the quality of life for their employees.

    ?PKFs are fixed cost environments, so there?s not much you can do about the bottom-half of your income statement. What costs (inputs) do you propose can be cut??

    You?re kidding, right? Are you saying employees of PKFs have guaranteed employment for life? Are you saying PKFs shouldn?t look at how to improve the bottom ? of their income statement?

    ?I am making a case for effectiveness over efficiency in a PKF. I defy anyone to measure the efficiency of a knowledge worker the way we do a manufacturing employee. How would you measure the efficiency of Picasso? Einstein??
    Both are important. I agree that if you?re not doing the right thing, how well you do it doesn?t matter. Are you saying it is an either or question between efficiency and effectiveness?

    ?There?s an enormous difference between knowledge workers and manual/service workers.?

    Just curious, what?s the enormous difference? Quality management principles focus on processes, not the people. Are you saying that process isn?t important and that they can?t be improved in a PKF? Are you saying that in the case study in the article where they perform thousands of tax returns a year they should not use quality management principles to improve efficiency or effectiveness, including revenue, profits and value?

    ?One of the reasons PKFs are suffering a talent crisis is they are treating their people like machines, not knowledge workers. Fighting against that mindset is what we are all about.?

    Are PKFs the only organizations that suffer a talent problems because they treat employees badly? I?m all for improving the quality of work life for everyone. Are you saying that quality management principles can?t be used to create a better work environment, profits and value in a PKF?

    ?How do you propose we measure the efficiency of a heart surgeon??

    Drucker defines efficiency as doing the job right and effectiveness as doing the right job. I?m not sure where you?re going with this, but the primary measure would be survival rate. Other measures would include defects and waste. What’s the relevance?

    What exactly was wrong about the improvement efforts in the article ?Project Management: A Means to Efficiency?? If they were not good, how should they make improvements?

    Are you saying efforts to monitor or improve the process to create or produce value in a PKF are bad? If not, what methods do you recommend? Just for clarification I?m not talking about the process to determine the value, but creating it.

  6. It seems this idea just never dies! PKFs are in NO way, shape or form a manufacturer! Comparing a knowledge worker to a manufacturing worker is at the least insulting and at the worst unethical.

    I don’t think anyone would argue that every company in the world, regardless of type, couldn’t improve the quality of its management. However, the idea of applying an approach such as Six Sigma to a PKF is crazy. Consider instead a management approach designed for knowledge workers by knowledge workers….a Results-Only Workplace Environment (ROWE) (www.culturerx.com).

    Talk about improving the second half the of the income statement…..just ask Best Buy about the incredible savings they have experienced. They focused on improving effectiveness not efficiency.

  7. Ed Kless says:

    @Alex – I will write a post on the project/product management article. I will probably do it tomorrow morning. Right now I am too busy being an effective parent. Would six sigma have some suggestions on how I could improve my efficiency in that area?

    Do you get the point? Effectiveness trumps efficiency every time. To suggest that survival rate of surgeon is an efficiency measure is ludicrous. It is clearly an effectiveness measure and that is what we are saying.

  8. Alex, my comments in response to yours, which are shown in [ ].

    [“I?m saying quality management can help PKFs provide more value to their customers, be more profitable and improve the quality of life for their employees.”]

    I don’t disagree with this, per se, but it has not been the experience of firms that have implemented these types of programs. Karl Albrecht has documented quite well that most of these programs are way too internal focused, not external on the customer experience, let alone customer value.

    [You?re kidding, right? Are you saying employees of PKFs have guaranteed employment for life? Are you saying PKFs shouldn?t look at how to improve the bottom ? of their income statement?]

    I am not kidding, deadly serious, wrote 2 books about it. No way am I arguing PKFs should have guaranteed employment–straw man argument. If you’re familiar with this blog, you know we are all rabid free marketers. An economy doesn’t exist to provide jobs, but wealth. If we wanted jobs, we could all go back to pen and paper and post a guard on each mailbox in the country.

    [Both are important. I agree that if you?re not doing the right thing, how well you do it doesn?t matter. Are you saying it is an either or question between efficiency and effectiveness?]

    To a large extent, yes I am saying effectiveness and efficiency are mutually exclusive. You quote Peter Drucker on the difference, and he also said that there’s nothing more useless than doing the wrong thing efficiently, which is what a lot of quality programs lead to in a PKF environment.

    [Just curious, what?s the enormous difference? Quality management principles focus on processes, not the people. Are you saying that process isn?t important and that they can?t be improved in a PKF? Are you saying that in the case study in the article where they perform thousands of tax returns a year they should not use quality management principles to improve efficiency or effectiveness, including revenue, profits and value?]

    If you don’t know the differences between manual/service and knowledge workers, you need to read more Peter Drucker, Henry Mintzberg, and Gary Hamel. My books also rely on these thinkers to explain the major differences. They are huge. One major difference is knowledge workers own the means of production, which means they are ultimately volunteers. Ed will explain why the case study in the article is measuring the wrong things, certainly not customer value!

    [Are PKFs the only organizations that suffer a talent problems because they treat employees badly? I?m all for improving the quality of work life for everyone. Are you saying that quality management principles can?t be used to create a better work environment, profits and value in a PKF?]

    No, PKFs aren’t the only organizations that suffer, but they are what VeraSage is concerned with. And yes, our experience with the majority “quality management principles” have been quite negative, focusing on internal processes at the expense of external customer value.

    I’ve worked in environments focused on process, and you’re right, it’s not about the people. The work environment sucked, because the organizations aren’t human. Another difference that knowledge workers crave. No one is inspired by process. Read Gary Hamel’s The Future of Management for why this is so.

    […but the primary measure would be survival rate. Other measures would include defects and waste. What?s the relevance?]

    Really, survival rate? How would you measure defects and waste for a surgeon? What is waste for a surgeon? Time? Supplies? But it’s deeper than that. If you’re confronted with two surgeons to choose from for your surgery, and surgeon A has a 95% survival rate and B has a 55% survival rate, which one would you choose? Would you want to know anything else, or just the “efficiency rating?”

    My books recommend using KPIs that are leading indicators of knowledge worker performance. The focus on efficiency is misplaced, and as I say, should not be the talisman for running a PKF. This is not to say some programs wouldn’t be useful, but my experience has been the costs usually outweigh the benefits for most of these programs, though not all if focus is on value.

    Google gives it employees 20% free time to work on whatever they want; 3M and Gore provide 15%. How efficient is that? It is, however, quite effective for innovation and creativity, since you can’t “process” innovation–have a great idea by 7am!

    It’s not efficient for Nordstrom to put pianos in its stores, but highly effective. Walt Disney could have made Snow White and the 3 Dwarfs, would have been a “process” man’s dream–less drawings, less time, but not nearly as effective. Study Pixar and tell me they focus on efficiency, with animators climbing into a whale carcass in order to make a scene in Finding Nemo more realistic.

    CPAs follow “check the box mentality” processes doing audits, leading to less thinking, judgment, wisdom, and tacit knowledge being applied. This leads to audit failure, like Enron. Don’t think, follow the process!

    Painting by numbers is a process, but leads to real shitty art. Knowledge work is art, not process. Doesn’t mean some of it can’t be processed, but that’s not where the majority of the value lies. The value lies in the judgment, wisdom, experience, and tacit knowledge of the professional.

    Also, just to clarify, my original post was more about the use of timesheets being justified for cost accounting, which is absurd since their are other ways to do cost accounting in a fixed-cost PKF.

    Alex, I’d be happy to send you a copy of my book, Measure What Matters to Customers that details my thinking on this. This post is not a flame, but a reasoned response to your very reasonable questions. I appreciate the dialogue and I only ask you keep an open mind.

  9. I probably missed the point too (about the use of timesheets being justified for cost accounting) but I’ve heard alot lately about this idea of a PKF running itself like a manufacturer.

    It makes absolutely no sense and it just drives me crazy!

    However, Ron, you’re exactly right about the other idea never quitting either. The problem is that people are lazy and don’t want to move out of their comfort zone and actually manage their businesses.

    Managing a PKF properly is extremely hard work and there are very few roadmaps (which is why you and Ed are so valuable to us!). Maybe I should say there aren’t any roadmaps at all and that you, Ed and the Verasage trailblazers are the modern day Lewis & Clark’s.

    For them to ever make the change to managing their businesses and PKWs properly, IT consultants, CPAs and attorneys would actually have to stop what they’re doing and think about why they’re doing it.

    The best way to prove our point is to keep making our business (Aries Technology Group) more and more successful. Every project that we get using the new business model flies in the face of traditional wisdom. The rest of them will finally get it when we run over them!

  10. We have been using a value pricing approach in our firm for a while.

    If we do not use timesheet to determine how much time we are spending on particular clients, how do we guage the profitability of the client? It is easy for me to guage how much time I am spending on the client, but they could be burning many employee hours that could be better spent on a more profitable client.

  11. Hi Chad,
    This is the number one question we get regarding no timesheets. It’s amazing to me since I’ve never seen firm fire a client for lack of profitability as recorded by timesheets.

    The answer to this question exists all throughout this blog, and is going to require some deep reading (and thinking) on your part. Trust me, the answer is not that difficult.

    Here are some necessary readings:

    http://www.verasage.com/blog/ask_verasage_how_do_you_measure_client_profitability_and_employee_productiv/

    http://www.verasage.com/blog/no_timesheets_vs_utopia/

    http://www.verasage.com/blog/the_yank_strikes_back/

    After you’ve read the above, if you have any questions, please let us know.

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