By Tim Williams
If you agree that time-based billing is a suboptimal way to capture the value you create, consider the implications of machine learning. Will you be sending your clients an invoice for the five seconds it took for artificial intelligence to review an elaborate contract, prepare a complex tax return, or produce multiple versions of a digital ad campaign?
When Oscar Wilde penned his famous definition of a cynic -- someone who "knows the price of everything and the value of nothing" -- he might as well have been talking about today's professional services executives.
When it comes to remuneration agreements, are you setting the table for an all-you-can-eat buffet? That’s what usually happens when a professional service firm agrees to sell FTEs or staffing plans. In the absence of a predetermined set of outputs or outcomes, clients can load an almost unlimited amount of work onto the plate of the same limited group of people.
A few thousand years ago, the average human would have to chop and gather wood all day every day for a week to produce 1,000 lumen-hours of light. That’s the equivalent of one modern light bulb burning for about an hour.
We are what we measure. In life and in business, it’s human nature to align our behavior with the metrics by which we are judged. So if the key measurement in our firm is billable time, guess what kind of internal behavior we’ll get?
It’s human nature to dislike uncertainty. Your flight is delayed, but for how long? If the information on the departures monitor just says “Delayed,” our sense of malaise is high. But if it reads “Delayed by 35 minutes,” this precision makes us feel less concerned. Similarly, when searching for a restaurant that can serve us in time to make an 8:00 p.m. concert, most of us would gladly pay a little more for an eating establishment that guarantees delivery of our meal in time to enjoy it.
“Brewed inefficiently since 1984” proclaims the Twitter page of Samuel Adams beer. This classic Boston beer brand allows extra time for its hops to fully mature in order to craft its full-flavored lager. Sam Adams could have a more “efficient” brewing process, but it would result in a much less satisfying product.
If you’re a professional service firm dealing with procurement, the only way to win the game is to change the game. Odds are you’re selling the wrong thing in the first place, in the wrong way.
The work and solutions provided by your firm have likely created millions of dollars of value for your clients. How much of that value have you captured?
What is the strongest predictor of success in business? According to one of the most comprehensive studies of business management ever conducted, the answer is a clearly stated, focused business strategy…
If you’ve ever watched an episode of the television series Mad Men, you have no doubt noticed that advertising executive Don Draper and his colleagues were quite well paid. They worked in large, well-appointed offices and entertained the clients with lavish dinners. While the narrative behind this Emmy Award winning show is fictional, the story it tells about the nature of the agency business in the 1960s is true to life. That’s because most agencies in the Golden Age of Advertising were very healthy, profitable businesses.
The constant forecasting and recasting of revenue is a colossal waste of time in most professional service organizations. No doubt every firm needs a periodic estimate of expected income and expenses, and the closer the estimate is to the actuals, the better. But the time devoted by senior professionals to the relentless forecasting process in most firms doesn't yield the expected incremental value. As the Scottish proverb goes, “You don’t make sheep fatter by weighing them more often.”
During the 16-hour flight from Los Angeles to Sydney, 90 percent of the activity in the cockpit is ensuring the plane is staying its course with the help of automated navigation systems. But the other 10 percent — the takeoff/ascent and approach/landing — is where a pilot’s skill and experience are essential. It’s during these two brief periods that pilots really earn their money.
It’s performance review time, and John Adams is being praised by his boss for being 89% billable. His colleague Jane Austin — who has similar experience and plays a similar role — was only 62% billable this year. Which is the most productive employee?
