The Yank Strikes Back

David Connell is a consultant to accounting firms in Australia. I debated him back in 2000 while I was touring with Paul Dunn. He recently wrote about the timesheet debate in his newsletter, with not very pleasant comments about Yours Truly (though he never named me, but you can judge for yourself who he was referring to).Well, as you know, VeraSage loves a good debate, since we take our Quest of burying the billable hour and timesheet very seriously. In that spirit, I wrote the following letter to David today.We will see if he responds. In the meantime, I'd love all our Fellows to weigh in on this debate, and make points I inevitably missed.Buckle up, folks, this is a high speed ride, not for the faint of heart.January 17, 2008Hello David,I'm sure you remember me, we crossed swords many years ago, regarding firms trashing timesheets, after a series of presentations I gave in Australia on Value Pricing.It's sure nice to see your Nov/Dec 2007 newsletter, "Future Directions and Practice Solutions," where you admit that "value pricing is the direction that many if not most firms will take in the years ahead."Since I'm the person who put Value Pricing, Fixed Price Agreements, Change Orders, and Trashing Timesheets on the map around the world in what we at VeraSage Institute call Professional Knowledge Firms (PKFs), that's a nice tribute to my work. Thank you. I'm happy to see the consultants to the profession down under, such as Andrew Geddes, Dave Smith, Rob Nixon, among others, finally join the parade, even if they are trying to get in front of it.However, I notice that your thinking hasn't evolved since our debate years ago, nor have your colleagues mentioned above. Ours has. It's obvious you haven't kept current with our work, the books I've written since, or all of the firms that have trashed timesheets since then—quite successfully I must say.Just so you're clear what I'm responding to, I'm going to quote you at length:

"Just be sure that you have the basics right first and by this I do mean making sure that your timesheet system in particular is properly used with ALL staff and partners having a clear understanding why. Readers will be very aware of my views in regard to maintaining a proper costing/timesheet system. Whilst 'throwing timesheet systems out' sounds like a marvelous idea it often means throwing the baby out with the bathwater. Don't fall for the over simplistic advice to get rid of timesheets by one or two (very much in the minority) so-called Yank experts/authors. By all means let me have your views on this important subject—to date I have received many, many responses—all positively in support of this view."

I understand the positive responses you've received; after all, the tailless dog often praises taillessness. But you are conveniently ignoring a plethora of contradictory evidence, which can't be dismissed by labeling my argument "simplistic," or me a "so-called expert," or even a "Yank."You see, David, there are over 500+ firms around the world that have trashed timesheets, across all PKF sectors—advertising agencies, consulting firms, IT firms, accounting firms, and law firms. These are black swans to you, because you think all swans are white. Your theories cannot explain these black swans. Many of these firms are the most profitable firms in the world. (For an understanding of what I mean by the metaphor of black swans, see Nassim Nicholas Taleb's book, The Black Swan—that is, if you're still reading).For someone who believes Value Pricing is the wave of the future, I'm amazed that your thinking hasn't evolved beyond the timesheet. It's obvious that you haven't innovated a new idea for running a firm since the Soviets launched Sputnik. Do you not have any intellectual curiosity at all about how these firms have achieved what even you yourself call a "marvelous idea?"Let me attempt to educate you. I see from page 1 of your newsletter you are a fan of Toyota. So am I. Are you aware that Toyota does not have a standard cost accounting system? If you're not aware, I suggest you read Profit Beyond Measure, by H. Thomas Johnson, an accounting professor who studied Toyota in depth, as well as launched the Activity Based Costing movement with his earlier book, Relevance Lost. You see, if you utilize price-led costing (what Toyota calls Target Costing, part of its famous Toyota Production System) you don't need to have standard, average cost, cost accounting systems.Timesheets are no different. Timesheets cost by using average, not marginal or incremental, costing, an egregious error that leads to pricing mistakes. They are lagging indicators, yet firms need leading indicators, an enormous difference that you don't seem to address at all, except that you cling to your benchmarked lagging indicators of realization, hours, etc. Not to mention that being a more accurate cost accountant does not make one a better pricer. Only understanding value and economic price theory does.I refute every one of your arguments for maintaining timesheets in my books, The Firm of the Future, and especially, Pricing On Purpose and Measure What Matters to Customers. Have you read any of these?Now, the difference between you and me, David, is when I read, hear, or see something that contradicts my firmly held beliefs of the way the world works, I will thoroughly investigate it. If empirical evidence proves there's a better way, I will admit my error and change my mind. What do you do?Apparently, you dismiss the evidence because it's from a Yank, or because it's just a minority of firms that do it. But that's not how science, economics, or business management progresses. Wisdom and truth are not determined by seniority, nor majority vote.Under your logic, the fact that only a few automobiles were made in the early years of the combustion engine was proof the buggy whip manufacturers had nothing to fear. The fact that vacuum tubes were at the apogee of their market penetration was proof the transistor was just a fad. But the efficacy of new technologies, theories, or management ideas are not determined by how many people are using them, but whether or not they work—it's the availability and efficacy, not penetration, that counts. It's not a show of hands, majority vote process.Technically, it's called diffusion theory. And with respect to new theories, it can take decades, generations, or even centuries, before a population accepts them.For example, germ theory took nearly 100 years (some scholars say centuries) to diffuse within the medical profession, and that was the simple idea that doctors should wash their hands between examining patients. The fact that a majority of doctors did not believe this theory, or abide by it, did not make it wrong. Nor did it mean that by following its precepts, they would have been throwing the baby out with the bathwater. It does means their thinking and efficacy would have progressed the sooner they accepted the theory.So, you may ask, what replaces timesheets—that stale and putrid bathwater you insist firms continue marinating in? Here's the answer:

• Price-led costing
• Project management
• Key Predictive (not performance) Indicators
• After Action Reviews
• Before Action Reviews
• Fixed Price Agreements, Change Orders
• Chief Value Officer and/or a Pricing Cartel

The advantage of these methods are they actually enhance the intellectual capital of a firm, something I don't see mentioned at all in your work. If you are not familiar with these methods, you have some serious learning to do. You also have some serious thinking to do.Today, and for the last 50 years, accountants live and operate in a knowledge (or intellectual capital) economy, not an industrial or even a service economy. Do you know the difference?Knowledge workers own the means of production, unlike in the Industrial Era where, say, Henry Ford owned the means of production and workers had to work to the rhythms and cadences of an assembly line. According to the World Bank, and other economists who study human capital, 75% of a country's wealth resides in the head's of its people. This is true at a macro level, and at the micro level of an accounting firm. My latest book, Mind Over Matter, explores this topic in tremendous detail.Another difference between a knowledge worker and an industrial or service worker is this: We don't know how to measure their "productivity." All the metrics you cite—realization, utilization, hours, etc—are inadequate to measure the effectiveness of an accountant because these only measure inputs and activities, not results and value.You cling to these metrics because you know nothing else and they can be easily measured. But weighing ourselves more frequently, or accurately, doesn't change our weight. The fact is, we don't know how to measure the efficiency of a knowledge worker because we can't see what's going on inside their heads. We have to discern it from the quality of their work. It requires judgment, not measurement.Someone can look great on a timesheet, but have a lousy customer service attitude, perform work so sub-standard it has to be redone, or be disruptive to colleagues. So what good is measuring hours logged on a timesheet? Do you think you can measure the value of a Picasso, the deliciousness of a meal prepared by a five-star chef, the splendor of a building designed by an architect, or the acting ability of an actress, by looking at the hours they work? As they say, it's easier to count the bottles than describe the wine. You remain mired in counting and costing the bottles, while we are interested in the quality, taste and subjective value of the wine.Knowledge workers aren't inspired to track every six minutes of their day. No one entered this profession with the objective of logging the most hours. Not only is it the wrong theory of value, it's also demeaning, demonstrating a lack of trust, treating them like children. The Marginalist Revolution of 1871 proved hours/costs are not determinants of value, refuting Karl Marx's labor theory of value, which you also seem to cling to for dear life. We've proven it in hundreds of firms that don't use timesheets. Some of these firms are in your country. Some are in New Zealand, some in the UK, some in Canada. Most are Yanks.I was taught in 1984 by Peat Marwick Mitchell that I sold time. Yet no customer buys time, hence no accountant sells it. How can we possibly sell something the customer doesn't buy? This nonsense on stilts has been perpetuated by two generations of firm leaders and consultants to the profession. You are advocating a status quo that is already dying.You wonder why there is a talent crisis in the profession? Well, stars don't work for idiots. Knowledge workers now understand—certainly better than you and I did when we entered the profession—that the value they create is not predicated on the time they spend. It's based on the quality of their work, their passion, dedication, professionalism, customer service ethic, innovation, creativity, mentoring, communication, interpersonal, listening, coaching and learning skills. None of these characteristics can be measured by your sacred timesheets. Timesheets do not capture the most important traits of a successful knowledge worker.[I also suggest you read The Future of Management, by Gary Hamel (you'll be happy to know he's not a Yank). Read anything by Peter Drucker, especially his work on knowledge workers, emphasizing the difference between efficiency and effectiveness. Also, check out Stephen Covey's The 8th Habit].The talent crisis we face is the fault of current firm leadership, and consultants such as yourself, who keep the profession mired in the mentality that it sells time. We at VeraSage do not want one more single generation of knowledge workers to be taught these economically fallacious theories.Therefore, we operate a think tank, not a consulting firm. We are dedicated to improving the posterity of the professions by removing the billable hour and the timesheet from all PKFs. We are disseminating our message far and wide, with emphasis on young professionals. We teach them they don't have to be galley slaves on the SS Billable Hour. We teach them their value lies in their creativity and ideas, not accounting for every six minutes of their day like prisoners.Our 15 worldwide VeraSage Fellows advance our cause in the arena of ideas, posit and test new theories, constantly read, think, and revise our theories. Most of them operate accounting, law, or consulting firms where they Value Price and don't have timesheets. We have already transcended you and your old, anarchistic theories, moving on to greener pastures. Your ideas are past their sell date. You've done enough damage to our profession. It irritates the hell out of me that you continue to teach this nonsense to the younger generations. But that's alright, the world needs its museums. The sunlight of truth is the best disinfectant.In any event, we will free the professions from the tyranny of time. It's merely a question of how long it will take to diffuse these theories. Comparing our progress to historical precedents, I'm encouraged.You can bury your head in the sand, you can call us names, label us simplistic, ad nauseam. The one thing you can't do is refute facts. Facts are stubborn things. And while you are entitled to your opinions you are not entitled to your facts.For more information, you can read our Community Blog and Trailblazers Section of our Web site, where we have case studies from firms that are doing what you say can't—or shouldn't—be done from around the world.It's nearly impossible to debate with someone who claims that what is being done cannot be done. It's not how civilization advances, and it certainly is not how the professions advance. Maybe Max Planck was right: Science advances funeral by funeral. So be it. The younger generations will be the ones who transform this profession, and they will be around a lot longer than you and existing firm leaders. Our job is not to leave them outdated legacy systems and negative intellectual capital, but rather useful theories and concepts they can build on to progress.In the meantime, rest assured that the validity of a new theory is not determined by how many people are doing it. A theory stands or falls on its own strength. And the evidence is overwhelming that our theories work. Everyday, more and more enlightened firms adopt them. Some you may even know.Of course, if anyone falsifies our theories, we will revise them, as this is how we progress. But you have failed to do that since your theories have already been falsified. We are always open to new and better ways to implement our theories. But so far you have contributed nothing new to the debate in the seven years since I became aware of you.If you do respond to this letter, please make specific refutations of the evidence presented, not merely label it "simplistic." I've provided incredibly deep specificity refuting your arguments, and the only way this debate will advance is if you do the same. Though I'm doubtful you will be able to refute anything contained herein since you clearly are not aware of most of the evidence.A leading indicator will be if you post this letter on your Web site. I am posting it on ours. Feel free to respond to it there and let the debate continue. But be warned: You will be debating with people who live and breath this topic as much as I do, who do it every single day of their lives, who educate others about it, all of which means they understand it a level of depth you cannot even fathom. I wouldn't show up to a gunfight with a butter knife.If I were you, I'd be very nervous about my precarious worldview that has already been shattered by empirical reality. It's not a matter of me being right and you being wrong, David. It's an empirical test of what works. I have the courage to face the evidence, to be wrong, and subject my theories and ideas to the test of the marketplace. Do you?I think you do.After all, by your own tacit admission, this Yank was right about the future of Value Pricing. What makes you think he's wrong about the inevitable death of timesheets?Respectfully,Ron Baker, FounderVeraSage Institutewww.verasage.comron@verasage.com