A Tale of Three Countries

Between the latter part of May and mid-June, my VeraSage colleagues and I spoke at conferences in Australia, Ireland, and the United States, on alternative pricing strategies. Since our Quest is to bury the billable hour and the timesheet, it goes without saying that we are met with various levels of resistance to our ideas. This despite the fact there are firms successfully operating with these principles.

I'm not sure what it is about the Land Down Under, but I have always been impressed with the firms we meet from Australia and New Zealand. They seem to be far more progressive, and willing to experiment, than their counter parts in the rest of the world. Maybe it's because they reside in a relatively isolated part of the world, and adopting ideas from other cultures is just a natural part of their DNA.

There are many firms in Australia and New Zealand that have embraced the concepts of Value Pricing and no timesheets, and of course, New Zealand is home to the world's first Chief Value Officer—VeraSage Senior Fellow Brendon Harrex, now chairman of his firm. Also present at the conference we spoke at were members of both institutes of chartered accountants, who readily embraced the concept that accountants are knowledge workers and in order to attract the best and brightest the profession simply must change the way it thinks about, and treats, its human capital. Needless to say, Paul O'Byrne and I left Australia with a renewed level of enthusiasm and commitment to our Quest.

But then we landed in Dublin, Ireland, for a Legal CFO Forum, attended by the CFOs of many of the UK Magic Circle law firms, as well as some Big 4 accounting firm partners who work in the legal arena. Perhaps it was a harbinger of the conference when I received my San Francisco KPMG Alumni Relations newsletter the night before, with this statement by Lou Miramontes, Managing Parnter: "In recognizing that our people are our strongest asset."

This was made after the appropriate drivel regarding work/life balance: "...we are also mindful that we don't 'live to work,' we 'work to live.'" How can these firms continue to think of their people as assets (or, just as offensive, resources)? The beginning of wisdom is to call things by their proper names, and what employees really are is knowledge workers. In truth, they are volunteers, since whether or not they remain with any one firm is totally volitional.

In any event, at the cocktail party the night before the Ireland conference, I'm chatting with the Big 4 partners. They are lamenting how hard it is to attract and retain talent. Our discussion covers the range of topics currently impacting the profession, from SOX work, billable hour quotas, to work/life balance. They recognize SOX work is pure crap, not challenging, and is boring their human capital to death.

So why doesn't one of these firms simply stop doing it? Why do they insist on making their surgeons pierce ears? Because it's lucrative, and most firms have never met a billable hour they don't like. Never mind the effect it has on their talent. Some enlightened firms have refused to do SOX work, walking away from millions of dollars of opportunities, but it seems none of the Big 4 want to take a stand for their people.

Then over dinner, Paul and I were informed by the other Big 4 partner of their business model: "We buy time wholesale, and sell it retail." Unbelievable. These are smart people, but they are trapped in an old idea, the same idea I was taught by Peat Marwick in 1984: "You sell time." What nonsense. No customer buys time. So how we can sell something the customer doesn't buy?

But it's precisely this attitude that is burning out their human capital, and they seem oblivious to the connection. They can prattle all they want about work/life balance, but if you price by the hour, you are forced to work longer hours to make more money. These partners epitomize what is wrong with the profession. They are killing our profession, and the offense is serious.

How many more generations of professionals are going to be taught "you sell time." Are these partners going to have to die in order for us to make progress, or is there a chance that someone in their 50s can actually learn something new?

The next day, Paul and I talk to the group regarding Alternative Pricing Strategies: fixed prices, change orders, focusing on value, knowledge workers, no timesheets, etc. We are, for the most, met with staring ovations. Although these people want to attend conferences where they here ideas "out of the box," when you deliver those ideas, they resist them with all their mental faculties.

When Paul answers questions regarding how his firm operates with 100% Value Pricing and no timesheets, they dismiss it since his firm is "relatively small." Others resist the idea by saying they can't get their partners to change. Others worry how they could possibly know what their lawyers are doing if they didn't do a timesheet everyday, as if a timesheet was the most important characteristic of a successful lawyer. As if the more we measure, the more effective we are.

Of course, most of these CFOs are Chartered Accountants and Certified Management Accountants, so they are mired in the cost accountant's view of the world—that is, they know the cost of everything, but the value of nothing. Value Pricing scares the hell out of them because they have never had to focus on the value their firms create, but rather just tally the hours it spends, as if there was a correlation between the two.

To say the least, the conference was depressing. Professional service firms are intellectually hermetically sealed from ideas outside of their professions. They are simply bathing in each others bath water, through benchmarking reports and so-called "best practices," which essentially means playing catch up to those firms brave enough to try something for the first time.

Few of them understand strategy means taking a stand for your firm, defining yourself by the customers you don't have, and offering a competitive differentiation to their customers. They are all drowning in a sea of sameness. When confronted with major change, they retort their partners are making $500,000+ per year so why should they rock the boat?

Because, as Peter Drucker was fond of pointing out: "Who the Gods destroy, they first grant forty years of success." The time to make major changes is when times are good, not when you are standing on a burning platform. Unfortunately, most industries don't change, they are simply made irrelevant by a superior offering.

We gave this thought experiment to the group: What would happen to your ability to attract (and retain) top talent if you could say your people don't do timesheets. They all laughed, but unanimously agreed that it would be an incredible lightening rod in the war for talent. How much would that advantage be worth to them? So, why aren't they doing it? Why isn't one of them doing it?

I don't want to leave the impression that every CFO in the room was resistant to these ideas, since a few embraced them enthusiastically. Whether or not they can translate that enthusiasm into effective change remains to be seen, and we will be following up with those who expressed an interest. But I left Dublin depressed, wondering if the professions will remain hopelessly mired in the mentality they sell time.

Then it was off to Las Vegas for the AICPA Practitioner's Symposium. I got to do two pre-conference sessions on a Sunday with my colleague Michelle Golden, from 2pm to 7pm, so at least we knew the people who attended were ready to embrace the ideas; what we at VeraSage call a self-selected audience.

And they did not disappoint. Many have adopted Fixed Price Agreements and Value Pricing. Some have even trashed timesheets. The questions they asked did not revolve around "how to" or shift responsibility to faceless others for making this change, but reflected a desire to fine-tune the experiments they were already conducting. It restored my faith in the professions, and reminded me that we don't need to get 100% of each audience to embrace these ideas. We only need 20%, until we reach a critical mass of firms that will get the train moving, leaving the rest of the firms with the option to hop aboard or be under it.

One attendee in Vegas, Bruce Dwire, from Grand Junction, Colorado, has adopted these ideas and is doing quite well. I received this email from him after I left the conference, and he stayed behind to attend the rest of it. I thought it was so well written, and expressed the same frustrations that I have with our profession, I asked Bruce if I could post it in its entirety, and he kindly agreed:

Good Morning Ron,

I enjoyed the time we were able to spend with you in Vegas - it gave us a little new insight and reinforced that we are doing a lot of the right things.

I probably enjoyed Vegas (the part away from the Conference) too much. This was the 5th of the Practitioners Symposiums I have attended (beginning with the first one in this format at Ballys in 1996). For the first time I found myself greatly disturbed the further I got into the conference. I think this was due to the fact that my business model of what public accounting should be doing and what is going on in the profession are so far apart that I fear the profession is going to die rather than change. I don't think I have all the answers but I do think I've discovered a few of them.

I do know that a profession that has the following job description for its new hires is continually going to have a problem attracting and retaining the best and the brightest:

"Wanted - person to work 60 to 80 hours per week for 3 to 6 months out of the year (the remainder of the year is only 40 hours per week). The work you will do for the first one to two years will be dull and mundane and have few challenges to your intellect. Don't forget the plus of traveling away from home 50 to 80 percent of the time. We will pay you pretty well and give you as many benefits as most other places, but in return you must account to us for your day in 6 minute increments. How many of these six minute increments you can charge to our clients will determine your worth to the firm. We do not want your creative thoughts we just want you to charge as many hours as possible because we have not bothered to come up with a more creative way to bill our clients."

With all the talk at this conference on staffing, not once did I hear the idea advanced that what people of all generations want in a career is meaningful work that at the end of the day makes you feel fullfilled and needed. If we could find a way to do that we would have much less problem with staffing issues.

Thanks for letting me vent and we will keep in contact.

Bruce

I think Bruce is right on, yet I'm afraid the leaders in the profession just don't see it this way. They see no reason to challenge their core assumptions or theories on how to run a successful firm full of knowledge workers. Most of them don't even know what a knowledge worker is, let alone how to increase their effectiveness. They are still mired in the Frederick Taylor view of the world, where efficiency and time-and-motion studies ruled the day.

After Vegas I was in Chicago doing a American Association of Advertising Agencies program with Tom Finneran and Tim Williams. Tim is a strategy consultant for advertising firms, and is a great thinker. In fact, he is the latest Senior Fellow of VeraSage, agreeing to join during our cab ride back to O'Hare airport.

It was a great conference, and many of the agencies there were experimenting with pricing strategies other than the Almighty Billable Hour. We were very encouraged, even though a lot of agency CFOs are CPAs, much like the CFOs in the UK law firms. I can't put my finger on why one profession is more willing to change than another, but I do know the first rule of holes: When you're in one, stop digging. And the billable hour is a hole, and trying to extricate yourself from it by working more hours is the equivalent of trying to get out of quicksand by pulling your hair.

But until firms take personal responsibility for this change, and stop blaming their "partners" or their "customers," this change will never happen. It's too easy to put the responsibility on factors outside of your control. But deep, meaningful change only comes from within. You have to decide what type of future you want to create and what price you are willing to pay to create it.

VeraSage will continue the Quest, no matter how frustrated, depressed, angry, and disillusioned I become, because I know we are on the right track. Good ideas can be ignored, but they won't go away. Colleagues like Bruce Dwire and those we met in Australia and New Zealand are what keep us going.

As always, the future is already here, it's just unequally distributed. Never has this been more true than with respect to the various levels of progress being made in these three countries. The odds are Down Under.