Does this Really Work?

Ohhhh, the frustration!

I recently posted about a seminar I attended last week.  The feedback I have received from that post has been significant.  The responses have ranged from “Oh my Lord – that’s us” to “so, there is a way forward”.  Great, but I want to concentrate on the first type of replies received.

So many firms understand that the way they operate and their business model isn’t great, but it’s all that they know.  To try and move them to a new, more effective model takes a great leap in mental construct on behalf of the owners and managers in those firms.

One of the responses I received was from a bloke I know well who has just taken over as CEO of a professional knowledge firm.  Well established, reasonable size and “good, traditional” brand.  And he is frustrated up the wazoo!

It would appear from his email that the following issues pervade the organisation:

  • staff are rewarded with bonuses for hitting “productivity” targets;
  • The transfer from WIP into debtors (you know – actually billing the customer) is fraught in that, once the bills are raised, the customers get pissed off;
  • Consequence of this is that a lot of work remains in WIP as the senior people responsible for billing the WIP are too scared to raise the bill as they don’t want to have to deal with an angry customer;
  • Debtors ledger is out of control as there are a large amount of accounts “in dispute” which means that the whole thing is taking a massive amount of time and effort to clean up.

Now, from my view, this appears to be the antithesis of everything a professional knowledge firm should be.  Let me posit my view of the warped thinking that enables such an environment to exist, let alone continue:

Productivity

We want our people to be working – agree on that.  But, do we want them to be working on things that make a difference to the customer and are valued by the customer or do we want them doing things that waste a heap of time on customer accounts?  The behaviour you reward is the behaviour that continues.  By tying rewards (bonuses) to productivity targets, we are encouraging our people to bill as much time to the Holy WIP Ledger as possible.  The argument goes that, when we record everything, it gives us a basis for billing everything to the customer (more on this below).

But what is the real message that we are sending to our people when we bonus (often ridiculous) productivity?  Is it a message about effectiveness?  And is it really a message about efficiency?  Too many times, firm leaders sprout on about efficiency but the bonusing system actually penalises people from working more efficiently as their productivity targets won’t be met (the thinking goes: if I do this job more quickly, I won’t spend as much time and therefore, I stand less chance of getting the bonus).  Where is the incentive for them to be more “efficient”?

As part of this system, you get the inevitable build up of your Holy WIP Ledger.  Many firms see this as a “lead indicator” (as per last week’s post) when, in fact, it is a wish list that often bears very little resemblance to collection.

The other message you send to your people with the focus on hitting production targets as far as time spent is that they will only see a customer as something to be billed, not valued.  The training that occurs as a consequence is that the “up and comers” get taught that to get ahead, you need to focus on pleasing the partner/manager with high productivity rather than pleasing the customer by delivering great outcomes.

As an aside, it is often the case that the less senior people very rarely (if ever) get to meet with the customers.  How is this going to play out in their career development?  How is this going to assist them with understanding the file and the customer needs?  All information is “filtered” through the senior people before it gets to the actual “doers” of the work.  The outcome – they flog their guts out to get promoted and then have no experience in dealing with customers face to face.  I know of one firm in town here where the only people who see customers are the partners.  Talk about rate limiting factors!  An obvious outcome of this is that there is more rework required and heavier partner involvement in getting a file “customer ready” as the instructions are, more often than not, “lost in translation”.  This though, in the warped world of timesheet based billing, is good – more chargeable hours to bill, higher “productivity” and a bigger Holy WIP Ledger.

Holy WIP Ledger (HWL)

So, we have a whole heap of people billing the Holy WIP ledger as hard as they can as this is the basis on which they get rewarded.  The HWL is seen as a current asset in the books of the business and the financiers and owners of the business see it as “money in the bank”.  All that needs to happen is for it to be billed.

Herein lies a bit of a problem.  I have yet to meet with a firm where they state, honestly, that the HWL is fully recoverable.  I know of one firm I have been dealing with who ran a HWL that was a pure estimate.  They had timesheets to (sort of) back it up, but they knew that they were all rubbish so they just did an estimate.  It was probably as approximately right as the timesheet based one anyway.

I recently did some work for a customer in a professional knowledge firm regarding the exit of a Partner.  The HWL was obviously an issue to be addressed as the approach they were considering was one based on a mixture of profit and net assets.  To get a true picture of net assets, there needed to be a full review of the HWL as everyone recognised that it was not valid and certainly not all collectible.  In this circumstance, I suggested that we not go through this process.  Instead, we developed an approach which looked at what the exiting Partner was happy to receive for his equity and what the continuing equity holders were prepared to pay for the share.  As I said to the Managing Partner – “We can go through the whole process and get a result.  The real risk here is, whilst it might be very right as far as the number goes, someone is likely to be pissed off”.  The approach we used meant that my business didn’t get a whole heap of extra money for going through the valuation process, but, we did ensure that the Partners (exited and remaining) have kept very very good relationships and our customer very much values the creative approach we have adopted to solve their problem.  In short, we provided value rather than a number.  And we have further strengthened our relationship which will lead to more referrals and customer longevity.

The HWL is never right.  The term in most professional firms is “lock-up” – how many days the firm has “locked up” in WIP and debtors.  Often time, this number is horrendous – I know of some firms who have nearly one year’s worth of revenue “locked up”.  For what purpose?  You can’t spend it as it’s not real.  Why bother measuring something that is so subjective as to be useless?

Debtors

To get a bill done from your HWL, it needs to go through a process.  Often, it will be a senior person or Partner who goes through this process.  More often than not, they will sit down and agonise over the process “If I bill them what’s on the HWL, they will have a melt-down”.  So, what happens is that a bill will be raised against the customer for some portion of the HWL balance outstanding – in effect, what the person doing the billing believes they can get away with.  Conversely, if you do bill them for everything that’s on the HWL, you are almost guaranteed to get a pissed off customer on the phone three days later (or, worse, never – as they quietly leave and have no intention of using you again – or paying your bill).  There is no positive outcome that arises from this.  For anyone.

Now, the current thinking with regard to this is that firms should budget for “write-offs”.  In other words, they are saying (in words and deeds) that they know the HWL is crap.  But they then hold that the basis of their charging of the client is on time spent.  So, if the client has agreed to appoint them on time spent and they don’t bill the full time, are they really engaging them on that basis or on a “best estimate” at the end of the job?  This is where “estimated ranges” of accounts come in to it.  The client is told the cost of doing the work will be in the “range” of (say) $5,000 and $10,000.  The client hears “$5,000”, the Partner hears “$10,000”.  When the bill ends up being $8,000, both parties are pissed off.

What happens more often than people care to recognise is that there is a lot of “stuff” on the HWL that the senior guys are just too scared to bill.  I have seen some aged HWLs which record work done up to two years prior that is yet to be billed.  Seriously?  Is it ever going to be billed?  Or is it just there as a tacit admission that the system ultimately doesn’t work?  This then leads to other KPIs in firms about the ageing of HWL.  Most of these are there but not adhered to.  If the WIP isn’t billable, write it off – with all the “appropriate” consequences.

But, back to the staff posting time to the HWL.  How do they feel when the time they put in to a client is then written off?  Where is the feelgood out of this?  For anyone?  What is their thinking at the end of a job when, they are encouraged and incentivised to record all the time only to have it written off?  How will they think about the Manager/Partner who has “done this to them”?  What message does it send about the “system”?

So, after much navel gazing and internal brinkmanship, the bill is sent out to the unsuspecting customer.  The customer gets angry.  Now, one of two things happens.  The customer ring the Partner to have a whinge about the bill – the firms sends out a detailed HWL report to the customer detailing everything they have done (including the 15 minute phone call – billed as 18 minutes – where the customer recalls at least half of it was spent discussing the football results) for the period the bill covers.  Guess what, they get more angry “They’re charging me for what?”  Then they start to do the maths.  “If he is $500 per hour and he spent 8 minutes talking about the football, he wants me to pay him $100 for that?”  Not a great outcome.

Source:  geektoauthor.blogspot.com.au

Source: geektoauthor.blogspot.com.au

The other thing that can happen is that the customer simply doesn’t pay the bill.  So, they start to get harassed by the ever-vigilant accounts department in the firm.  The “friendly reminders” come out, then the “is there a problem” letters and so on until the letters get more threatening.  Really good, positive stuff about customer engagement through this whole process.

At the end of the day, it gets nasty and people start defending positions.  The firm will (usually) relent and write-off a part or the whole bill or, sadly, take the customer to arbitration.  On this note, I remember a number of years ago when Ron Baker did his “Firm of the Future” tour around Australia.  During this tour, I met with a number of the Legal Services Commissioners from various states around Australia.  Their major source of work?  Fee disputes.  Their fervent wish was that all firms priced up front as the firms that did this hardly ever had a fee dispute.

So, we have a debtors ledger that is somewhat suspect as to the real collectability of the balance.  Which means, when coupled with the HWL, the “lock up”metric used by a number of firms is inherently questionable.

After all of the above, is it any wonder why my firm dumped timesheets in 2007?  It has saved innumerable hours, it has reduced customer complaints and has meant that the team in here are far more focused on delivering positive customer results rather than inputs.  As stated above, the behaviours you get in your firm are the ones that you reward.  Is your reward program incentivising the right behaviours?  Is your firm business model one which is team and customer focused?

There is a better way of running a professional knowledge firm.  Far less stressful, more enjoyable and one where you actually want to come to work.  if you look after your people and customers, the profits will (generally) look after themselves.

The frustration of firm management can be reduced and/or removed.  There are a band of highly experienced guys and girls at the Verasage Institute who can help you make the move.  But you have to make the first step.  I strongly encourage you to do so.

What PKFs Can Learn from Country Music

Modern country music blends the best of traditional American values of hopes and dreams with classical rock rhythms and melodies.  It is difficult for even the most ardent anti-cowboy listener to avoid toe-tap while listening to some of the classics and modern hits alike.  Country stars crossover to rock and pop a even some country singers are involving aspects of rap (with a better vocabulary and message, of course).

Yet, even if you aren’t a fan of modern country music, there are lessons to be learned.   Studying (and implementing) their success benefits all aspects of our firms and professions.

First, the historical legends are never far from center stage.  Those trailblazers that helped established a fledgling musical style are honored and revered.  The history is rebuilt into the future.  The young stars and hopefuls know their history, know how their music was developed, and proudly expand their offerings to a new generation without abandoning what came before.  Innovation and collaboration are two hallmarks that separate country music and most professionals.

Country, more so than rock and pop,  certainly appears to collaborate frequently.  They produce duos and join forces for songs and tributes that expand their individual capacities.  I rarely witness true collaboration in CPA, Law, or other Knowledge firms.  PKF’s are fearful of collaboration believing there is no benefit and only risks of losing an edge over the (perceived) competition.  In fact, this stubbornness by leaders of these professions creates excessive waste in human capital, fixed capital, and redundancy.  What we all need to do is constuct more duos and collaborative services where we align to serve new  and mature markets, alike.

Country music stars of today coach the stars of tomorrow, as they were coached by former stars. Even though they have separate bands, labels, and musical styles, the leaders of today invest in relationships by assisting the newcomers.  And when the newbie wins a prestigious award that the stars of today were nominated for, these leaders hoot and holler, clap and cheer, and genuinely support the winner without whining about their current popularity or success.

PKFs rarely, if ever, help develop the talent of their future competition.  PKFs see the world as a zero sum game instead of one of abundance.  They don’t value sharing their love of their work and guard their ideas like they wholly own them.  PFKs struggle to even share within their organizations and frequently treat each of their own in ways akin to how a Piranha treats a fledgling fish.

Envision how PKFs could change the world by working together rather than apart?  How firms could coordinate talent across party lines to serve the public good?  How firms could end duplication and specialize where they are strong and collaborate where they are weak?  How leaders could spot the young talent and help nurture even if it is a long-term strategy?

You can’t fake true admiration and awe.  I was privileged to attend Entertainer of the Year, George Straits’ final large venue concert.  He is clearly loved and beloved by fans and fellow performers alike.  He shared his stage with nine (9) other superstars of today and yesterday.  Each of whom he had collaborated with, toured with, coached, and supported.  The tears of joy shared by, between, and among these stars was genuine and moving. Even when one of the stars slipped on a lyric, there was laughter and happiness.  The value of being a family; and not just a competitor.

Leaders of PKFs should learn from the success of country music.  Learn to share with others the love of your profession.  Find talent wherever it is and coach, teach, and admire their future growth.  Find other firms and professionals to collaborate with and share your joint talents for the benefit of all.

Silo thinking is rotgut of the professions.  It is time to expand our horizons and partner up for a stronger and more collaborative future.

William Cobb on the Cobb Value Curve

At the Sage Firm of the Future Symposium in March 2013, William Cobb, devisor of the oft cited Value Curve, was on hand to explain his concept to the attendees.

Value Curve ClntPwr

The Cobb Value Curve

He was kind enough to let us record it. Enjoy!

Hawaiian Seminar-At-Sea

Seminars-At-Sea presents “Knowledge is Profit” CPE cruise, October 26 through November 2, 2013.

We will be onboard Norwegian Cruise Line’s “Pride of America.”

This will be fully tax deductible and provides 32 hours of CPE credits.

For more information, contact: 1-888-377-7962

For Good and Evil

This is the single best book ever written on the history of taxation.

Here’s my recent book review from the Minnesota Society of CPAs publication, Footnote.

Also, you can watch a one hour interivew with the author, Charles Adams, from 1993.

If you have any interest in taxation and how it alters history, you find Adams fascinating.

The Bottom Line: Beyond the Billable Hour

I’m happy to be the cover story in this issue of the State Bar of California’s Law Practice Management and Technology Section. You can even earn an hour of MCLE reading my article (I flunked).

VeraSage is quoted throughout the issue, including Mark Chinn and Jay Shepherd, and Exemplar Law gets a mention, too.

It’s also encouraging to see so many “director of pricing” folks who are quoted throughout the articles.

But reading through the articles has been less than encouraging. Here are some brief comments on each article.

Will Hoffman: I’ll let our lawyers comment on the “comprehensive petition pending” to the California Supreme Court. But the fact that the Bar should acknowledge and encourage Alternative Fee Arrangements (AFAs) is, I suppose, progress, even though it lags way behind the free market.

Ed Poll: “All pricing is arbitrary.” What? This would come as a shock to the thousands who work as professional pricers. Why are they needed then? We’ll just let computers do it all.

Poll is still stuck, like most of the other authors, in an Industrial Era mindset of efficiency and cost cutting. There’s no mention of why or how knowledge work and knowledge firms work differently then Henry Ford’s factories.

This worldview invalidates nearly everything he writes about value and pricing.

Dr. Silvia Hodges: Silvia interviewed Mark Chinn for her article, along with Pat Lamb, and she mentions Exemplar Law. She quotes the ACC’s definition of value, which is unnecessarily complex. The ACC has yet to understand that all value is subjective, and they continue their quest to provide a checklist to quantify and qualify value.

She writes:

The purpose of AFAs is not to reshape a firm’s business model—although this is exactly what it might do in some firms—but to meet clients’ needs.

But Value Pricing is a business model change; it’s much more than just meeting the needs of clients. It’s also about meeting the needs of the professionals who work in those firms, as well keeping the profession relevant.

One of the reasons why so many of these articles are muddled is because they seem to get the idea of value being externally determined, but they miss the concept when the work comes back into their firms. They insist on applying Industrial Era, Six Sigma, and cost accounting principles to that same work. This is a prescription for failure, since it’s a contradiction to the theory of a Professional Knowledge Firm.

She also cites Pat Lamb, and if he’s right that most firms’ work is not customized, then their value is on the low-end of the Value Curve. But even here, a firm can utilize Value Pricing—see Southwest’s pricing on any flight offering a wide range of offerings.

But I believe Lamb to be wrong. The work that adds the most value is, by definition, customized and represents the applied judgment of experienced lawyers. To apply cost accounting principles to such work is to misunderstand—at the most fundamental level—the patterns and cadences of knowledge work.

Henry Turner, Jr.: Henry is with Valorem Law Group, and writes:

A proper value fee will not involve adding up the number of hours you think a matter will take and then quoting a fixed fee based on those hours. That is simply a “wolf in sheep’s clothing.” If you commit to pricing on a value basis, you can no longer think about pricing in terms of hours.

True. Why, then, does Valorem continue to maintain timesheets? He who says A must say B, and if hours are meaningless externally to the customer, they are also meaningless to the internal workings of a knowledge firm.

He uses the Apple store and iPhone as an example, but here’s the point that he and the rest of these authors are missing: the Apple store employee is not told to spend less time with you to lower costs and make more profit.

Rather, she’s taught to spend as much time with you as necessary, and Apple considers this cost an investment in the lifetime value of the customer.

Tracking time, and cost accounting, destroys this attitude, which is Paul Kennedy’s point in this brilliant essay. Read this essay and you won’t have to pick up a book on Lean Six Sigma.

Donna Seyle: Jim Hassett is quoted as saying he’d switch to hourly billing for his business in a heartbeat?

Wow, this is truly ignorant, as hourly billing is suboptimal for capturing value. The entire pricing revolution was started to move away from cost-plus pricing, not to hold it closer.

It also makes me wonder why he is spending so much time writing on Value Pricing and encouraging firms to make the change? The cognitive dissonance is indefinable.

Donna suffers from the same efficiency and cost containment mindset as the others in this issue. She also writes that a lawyer’s knowledge has “intrinsic value.” But nothing in this world—except for human life—has intrinsic value. Value is subjective.

Reading these articles illustrates the importance of linguistics. These authors will never truly understand the subjective theory of value if they continue to hold on to their existing vocabulary of commodization, cost control, efficiency, lean six-sigma, etc.

What do you think?

HSD from an attorney

Yesterday was a huge HSD. I received the following email from a sole proprietor attorney who specializes in elder care and estate law:

Dear Ron,

I tweeted a few weeks ago that I was reading your book, Implementing Value Pricing. Let me tell you a bit about how this began.

I am a Certified Elder Law Attorney (CELA) and today limit my practice to elder law and estate planning, with the exception of Residential Real Estate Settlements, something that the previous attorney that practiced here did and I continued doing it.

At all times I had my eye on limiting my practice since taking over this firm in 1995. I have stopped doing divorces, civil litigation, landlord-tenant, all the types of “threshold” law that I inherited.

This year I am moving the real estate practice into a stand-alone settlement company with another attorney that he will manage, leaving me to fulfill my goal of simply being an elder law/estate attorney!

As part of this, I have been reviewing all my firm practices. That led me to Atticus and Atticus led me to you and VeraSage! I had been using fixed fees for a while because I have always hated keeping a timesheet.

When I was a 2nd year law student clerking at a litigation firm, I was taught how to do a timesheet before anything else! Further, I wasn’t very good at it. I would find myself trying to go back and recreate timesheets for the client or the Court. Yet, it was not until reading your book and listening to the audio recordings that I knew that fixed fees were not enough. It’s all about VALUE and I was leaving money on the table!

A few weeks ago my secretary placed a stack of old files in my office for review. One was from January. I had met with a gentleman about asset protection planning, specifically sheltering assets from the cost of long term care costs in the future. I had quoted the fixed fee range and he had “sticker shock.” The next day he called back to say he did not wish to go forward. When I saw his file two weeks ago, I figured I would put value pricing to the test.

I wrote the gentleman the attached letter [see below]. Within two days he had made an appointment and yesterday, he wrote the check for $11,250! This is trust planning that I had been charging a fixed fee of between $2000-$2500.

I can’t thank you enough for your books, speeches and blog posts! I will continue to let you know how the implementation of value pricing progresses in my solo practice.

Here is the letter he sent to the customer. It’s an excellent example of communicating value and handling sticker shock:

July 5, 2012
Mr. XXXXXXXX

Re: Asset Protection Planning

Dear Mr. X:

Upon reviewing files, I came across yours. I realize you had previously decided not to move forward, I just wanted to touch base one last time to complete my due diligence.

If I recall, you were concerned about the price of my services. I realize some clients have “sticker shock” when such a price is quoted, but if one balances that with the value the client receives, all previous clients have moved forward.

The one certainty is this: if you require long term care, recent surveys by Met Life reveal that in our area, the average cost of a semi-private room is $198.00 a day and a private room is $225.00 a day; that translates to $72,088.00 and $82,125.00 annually for long term services. Knowing these costs, it then simply becomes a matter of how long you live in need of assisted living/nursing home care. You can see, at approximately $6,000.00 or $6,800.00 a month, my fee is less than two months of care.

For example: three years in assisted living would cost approximately $125,325.00. Three years in the nursing home would be about $234,000.00. Thus, if you saved a mere two months from needing private pay, it would more then pay for the value you receive.

Think of it this way, if you knew an investment of $11,250.00 would yield an return of almost a quarter of a million dollars you would certainly make the investment!

Of course, the choice is up to you. If we do not hear from you in 30 days, we will close your file and wish you the best!

Very truly yours,

This is what amazes me about attorneys, and consultants, who continue to denominate everything into hours. How could he have received a price nearly $9,000 over average hourly rates by focusing on realization rates and not value?

Will this job be profitable? Does he need timesheets to know this with certainty? Give me a break. As we’ve said a million times, focus on value and time becomes superfluous.

Congratulations to this attorney for being willing to try something new, and thank you for letting me share the story with the VeraSage community.

Book Review: How Will You Measure Your Life?

image

Harvard professor Clayton Christensen is one of my favorite business thinkers, right up there with Peter Drucker, Henry Mintzberg, Gary Hamel, and a couple of others.

Unlike most business writers, Christensen understands the importance of theory. He writes:

MANY BUSINESS RESEARCHERS, consultants, and writers create and sell us static views—snapshots—of technologies, companies, and markets. [These] tell us little about how they got there. Nor do they tell us what is likely to happen in the future. My colleagues, my students, and I have eschewed the profession of photography. Instead we are making ‘movies’ of management.

This book applies the same concept of using theories to what’s important in your life. He begins by talking about knowing some of the leaders caught up in recent scandals, like Jeffrey Skilling from Enron, a Harvard graduate. The book sets out to help you answer three questions with respect to “How will you measure your life”:

  1. How can I be sure that I will be successful and happy in my career?
  2. How can I be sure my relationships with my spouse, my children, and my extended family and close friends become an enduring source of happiness?
  3. How can I be sure to live a life of integrity—and stay out of jail?

The last one about staying out of jail may seem unnecessary, but given the number of Harvard MBAs who have ran afoul of the law in recent times, perhaps not.

What’s interesting about this work is that it applies the same logic of using theories, which Christensen uses in his work with business leaders, to your personal life. It’s only theories that allow us to peer in the future, since conclusive data is only available about the past.

I Don’t Have an Opinion, the Theory Has an Opinion. When people ask me something, I now rarely answer directly. A good theory doesn’t change its mind: it doesn’t apply only to some companies or people, and not to others. It is a general statement of what causes what, and why. Good theory can help us categorize, explain, and, most important, predict.

You shouldn’t need Liz Taylor’s record on marriage to know what it takes for a good marriage. Theories help us explain what will happen before you experience it. He suggests you ask:

What are the most important assumptions that have to prove right for these projections to work—and how will we track them?

You’ll learn a lot of interesting things about business strategy, which surprised me at first given the subject of the book. Yet given his approach of using theories, it makes perfect sense.

One of the most intriguing discussions is the “full versus marginal thinking” that will help assure you live a life of integrity. He compares Netflix with Blockbuster.

Netflix didn’t have an existing profitable business model to compare to, it’s baseline was no profit. Blockbuster, on the other hand, based its decisions on marginal costs and revenues, which is dangerous because it

biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future’s different and Blockbuster should have been thinking: If we didn’t have an existing business, how could we best build a new one? What would be the best way for us to serve our customers?

He then asks an interesting question:

Why is it that the big, established companies that have so much capital find these initiatives to be so costly? And why do the small entrants with much less capital find them to be straightforward?

The answer is when you’re new to the scene, the full cost is the marginal cost. This is the beauty of creative destruction, and it’s why economists don’t care if a business exists in the long run or not. Something will always come along that’s better.

So what’s this have to do with integrity?

The marginal cost of doing something ‘just this once’ always seems to be negligible, and hence it’s easier to hold to your principles 100 percent of the time than it is to hold to them 98 percent of the time. Decide what you stand for. And then stand for it all the time.

Good advice. Teaching ethics has convinced me of the wisdom of Oscar Wilde: “No man is rich enough to buy back his past.”

He ends on the importance of purpose, for which he recommends three parts:

  1. What do you want the enterprise to have become at the end of the path it is on?
  2. Commitment
  3. One or a few metrics that can measure progress

God, in contrast to us, does not need the tools of statisticians or accountants. [He has] no need to aggregate. His only measure of achievement is the individual.

Christensen, like Mitt Romney and Harry Reid, is a devout Mormon. He also discusses being diagnosed with follicular lymphoma, a cancer similar to that which had killed his father. It went into remission, then he suffered an ischemic stroke right after beginning this book. He’s learning to speak again, one word at a time. I wish him well, and pray he has a speedy recovery.

He’s certainly helped clarify my thinking, and this book, while not your typical self-help book, is quite useful (in fact, all of his books are). Rather than telling you what to do, he helps you construct a theory of cause and effect. It’s much more difficult than reading platitudes, but far more useful. Highly recommended.

Why the Consultants to the Professions are Whipping us into Irrelevance

The following is from one of our latest Practicing Fellows, Matthew Tol, from Australia.

Apparently, the 50 Shades trilogy is one of the fastest selling books (for those with matching chromosomes) ever. Quite a feat when you see that all “serious” reviewers describe it as appallingly written. It must have something to do with the escapism that the books engender—something a lot of writers apparently strive for.

In many respects, the consultants to the professions (and I”m mainly talking about accounting and legal professions here), fall into the same mould as that adopted by E. L. James in her books. They offer up a fantasy, some escapism and possibly a somewhat removed from reality view of what a “normal” firm should look like. Although, I do think that a large number of firms out there have a number of “Red Rooms of Pain”—they’re known as Partners’ Offices at review time!

Having endured a range of sessions with consultants to the accounting profession over the past 20 plus years, it appears that they have a view of the world which is based largely on some experience they had many years ago. They have leveraged off this to create a story which they sell to everyone in an attempt to enable them to believe that they are able to do what the Consultant had done. Similar to Anastasia Steele, in the book, the submissives are taken on a journey for which they are unprepared and are convinced to adopt certain behaviours even if they are outside their comfort zone.

Whilst there are some things that the consultants to the professions do well—mainly cause people to think, their approach is possibly not relevant in the current environment. They have updated their stories based on stories they have been told rather than learnings they have experienced.

Take the younger staff engaged in professional firms. They are very different to where I and my colleagues were when we started out! They have a greater focus on results, less need to be measured and a greater desire to “make a difference.” They don’t like being managed with a stick and they have been taught that they are good enough.

How do we then reconcile that with the command and control processes that are promoted by the consultants? How do they “fit” with their performance being measured by productivity rather than results? Do they feel like Ana who is satisfied after received 20 whacks on the bum because that is what makes her “owner” feel good?

For the consultants to the profession to be truly effective and act as the catalyst they should be, they need to assist the firms they work with to develop new and innovative strategies to manage and inspire their staff. Sorry, but a goal of 80% productivity just doesn’t do it!

A large part of this revolves around being aware of the “soft” skills needed in developing people. Most of us have been trained to be technically very competent and have further developed that with many years of practice. When you get good enough technically, you get to a senior or ownership position and you are often simply not aware of the methods that need to be adopted to mentor and develop younger staff.

“When your only tool is a hammer, the rest of the world looks like a nail” is an old adage. Lots of firms base their existence around timesheets. This is a measurement tool that is so subjective as to be fictional and which bears no connection to quality or creativity in problem solving by the people on the job.

Senior people in firms have been managed and developed using the blunt object that is the timesheet and are now passing this insanity on to the next generation. The trouble is the next generation is not buying it.

I received an email the other day from one of the consulting groups to the profession talking about concepts like “value billing” and the like. Great. But then they go on to discuss the need to measure the time spent on the job to see whether it is profitable.

Taking this the other way—you agree a price with the customer based on the results you’re going to deliver. You then spend time recording the time you spend so that you can get to the end of the job to spend more time determining whether it was profitable? At what hourly rate were you working? This is like driving your car in the rear vision mirror.

Don’t get me wrong, there are significant benefits from doing after-action reviews at the completion of a job. If it’s done based on time spent, you’re losing the value you can get from these. You need to look at the qualitative factors instead. This is what the younger people in professional firms want.

We also need to remember that the younger people entering our professions have spent a large part of their developmental years playing computer games. These games teach them strategy and process and help them to understand that there are ways around things for those “in the know.” How good would it be if we were to utilise these skills in problem solving for our customers (or, heaven help, our own firms!)?

I must admit that I have not read any of E. L. James’ books—and probably won’t. The information I have used in here has come as per a consultant—I have spoken to people who have read it. Hence, I am not an expert on that topic.

However, the message that is in those books about consensual agreement to being flogged bears a striking (couldn’t resist the pun) resemblance to the way the professions are going and the perpetuation of this silliness by the consultants to the professions.

At some point in the not too distant future, the 50 Shades trilogy will be consigned to the discount bins. I can only hope that the focus of the consultants on timesheets and forgetting about the new generation is also remaindered. For the sake of the future of our professions, we need to move from the Greyness that leads to Darkness and be Freed.

Book Review: Negotiating with Backbone

Reed Holden is my mentor, so I’m extremely biased. Still, this is a great book, especially for any firm pricer who has to deal with procurement, which Reed writes is the new normal.

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The final frontier of good pricing is the customer negotiation, and Reed explores this with verve, and an enormous amount of tacit knowledge accumulated from years as a salesman and pricing expert.

He points out “that 80 percent of procurement managers give the other 20 percent a bad name.” I have to say, this has not been my experience with the procurement folks I’ve met, but that’s probably because I only deal in the professional sector, not with general procurement.

What makes this book so useful is Reed documents all of the games procurement plays—from delays, waiting for the end-of-period discounts, to using vendors as “Rabbits” simply to drive down the price of the preferred vendor. There’s many effective tactics offered to deal with each of these scenarios.

And this advice needs to be shouted from the rooftop:

Discounting is a fool’s response. Those who live and die by discounting don’t live very long. Trad[ing] margins for revenues, they undermine the success of their business, which needs profits more than revenue to survive.”

The most important strategy, though, is to know your value, and to be an equal with procurement, not a supplicant. Only equals can negotiate. If you don’t know your value, procurement will drag you to the one topic they know well: price. You must change the conversation to value.

I also love this advice:

Spending the time on the proposal is actually easier than going to the customer with the tough questions.

Here are some of the questions Reed insists you answer before submitting a proposal:

  • What is the process for evaluating vendors and proposals?
  • What are the names and positions of everyone in the process?
  • Who is the ultimate decision maker?
  • What is their timeframe for evaluating vendors and finalizing the deal?
  • How many other vendors are approved to supply the product or service?
  • What are their names?
  • Do any of those other vendors have existing relationships with the decision maker?
  • Which vendor is the preferred vendor?
  • What are your criteria for selection of vendors?
  • Are you interested in vendors that might be able to provide more value to your firm?
  • When and how do we get an opportunity to understand how we can add more value?
  • Are you satisfied with your current vendor?
  • If you have no prior relationship with the customer, why are they asking you to bid?
  • Do budget dollars exist for the requested products and services?
  • How much is the budget?
  • What is the process to get approval to use budget dollars?

If you don’t know the answers [to three or more of these], pack up your bags and look for another opportunity.

The book documents eight different scenarios you can find yourself in. You’ll learn excellent strategies for dealing with price buyers, value buyers, and relationship buyers. The tough buyer is the poker player, who are value or relationship buyers in drag.

Counter intuitively, price buyers may be the easiest to deal with, since at least they are upfront about their expectations of the lowest price. Reed cites research that only 30%-35% of buyers were real price buyers, and that’s in commodity markets. For professional firms, it’s much less, probably single digits.

Reed’s ten tactics for winning the procurement game are exactly right:

  1. Qualify, qualify, qualify
  2. Understand your foundation of value
  3. Develop give-get options [lower price, strip out value]
  4. Map the buying center
  5. Where appropriate, build trust
  6. Use the policy ploy
  7. Delay, delay, delay
  8. Redefine risk
  9. Dealing with reverse auctions
  10. Do your homework

Being a William F. Buckley fan, I appreciated the story of when he was hired to speak at the University of Texas in the mid-1960s, when he was just starting his career as a lecturer. The Daily Texan university newspaper criticized the amount young Buckley was being paid, which was a record amount.

At his talk, Buckley read the most accusatory part of the article aloud, and said to a thundering applause:

I never said I was worth it. I only said I wouldn’t do it for less.

My only quibble with this book—Reed and I have discussed this before—is his use of the poker analogy. He writes:

The way is to consider the negotiation with the economic buyer as a game of poker.

Wagering, like a customer negotiation, is a zero-sum game. That is, every dime that ends up in one pocket is taken out of another.

Remember, you’re in a zero-sum game. The goal of procurement is to grab as much of the pot as possible.

Yet enterprise is not a zero-sum game, otherwise their could be no growth or value created. In the long run, both parties to a transaction benefit, no matter what price is finally agreed upon.

The zero-sum mentality has many deleterious effects, and I believe this analogy needs to be buried. Linguistics matter—a lot.

We must change the conversation to value, something both sides want to maximize. It’s the one area where interests are aligned—the opposite of a zero-sum game.

That quibble aside, this is a fantastic book, and a must-read. Even if you don’t deal with procurement, you will learn strategies from one of the world’s foremost pricing experts.

It’s also an optimistic book, as Reed believes that high value products and services are not dead. With all the talk of the “new normal,” this is a refreshing and empowering message.