By Tim Williams
Paradigms take a long, long time to change. The mental maps we carry around in our heads are etched in neural pathways that both dictate and predict our behavior. If our paradigm is that the world is flat, we navigate very carefully to make sure we don’t sail off the edge.
Here lies the billable hour. It died a slow and predictable death, brought about by natural causes. The billable hour would have turned 100 in just a few years. Born in 1919, it is the offspring of Boston lawyer Reginald Heber Smith, who was hoping his creation would help him diagnose and correct certain ills in his firm.
The most highly-regarded firms on the planet aren't just good; they're different. They stand out not just because they're excellent at what they do, but because they have a deliberately different purpose, principles, and set of practices. In professional services, this is the 1%.
Can the same kind of "feature fatigue" made famous by over-engineered electronic devices apply just as well to a professional services firm? Absolutely it can, and it produces largely the same effects.
Is it possible to trade retainer-based client relationships for project work and still do great work, keep people happy, and earn healthy margins? In the increasingly disintermediated world of professional services, it's essential for firms to more effectively adapt to the new ways client organizations are parceling out work.
The attempt by some major marketers to launch "0% profit" agency reviews is a spectacularly relevant example of the real problem that underlies agency-client relationships.
When creating an investment portfolio for retirement, no reasonable person would put all their money just in gold, just government bonds, or just stocks (especially in today’s economic climate). In a professional services firm, your client compensation agreements are your most important financial asset. If they are all based on the same remuneration system — just fees based on hours, for example — it means you’re not diversifying your portfolio, and by definition not maximizing your firm's profitability.
Professional firms who have come to terms with the fact they don't sell time still fear the prospect of trying to manage their staffing, workflow, and finances without the information provided by timesheets. They fear they'll be operating in the dark, devoid of the data they need to evaluate and manage their success. But trading hourly billing for modern pricing practices provides the perfect opportunity to start measuring the things that really matter -- effectiveness, innovation, accountability, profit growth, and true productivity.
Since the turn of the century, a global pricing revolution has been underway. Companies of all stripes now employ not just finance professionals who calculate the cost of products and services, but also pricing professionals who know how to determine the value.
Are you selling what's scarce? One of the most basic principles of economics is that products and services which are difficult to find, in limited supply, and available from only a few providers, are able to command a premium price. For professional services firms, there's a valuable lesson in the law of supply and demand.
Can you imagine taking a test drive in the breathtaking new BMW 7 series, turning to the salesman and asking "Wow, I'm really interested in buying this 750, but how many hours did it take to build it?" This question is out of place because buyers don't generally expect to know what something cost to build before they buy it. They judge the price based on a variety of factors -- the quality of the product, the reputation of the brand, and a whole set of other rational, emotional and sensory factors -- but not the actual cost of making the product.
Grow or die. It's embedded in the capitalist psyche. But is there such a thing as "bad" growth? Or more to the point, "bad" profit?
When procurement professionals source chemicals or other commodities, its a matter of defining specifications and then finding the best price from the available suppliers that can meet the list of requirements. The plastic required to build a smart phone can be fabricated by a wide variety of suppliers, all manufacturing to the same exact specifications. In this case, the job of procurement professionals is to find and hire the most cost-efficient supplier; the one who can meet the required specs at the lowest cost.
Since the turn of this century, the “Agency of Record (AOR)” concept has died a not-so-slow death. With new channels and technologies born every day, marketers no longer have the expectation that any one agency can stay up with it all. Instead, they assign a federation of “best-in-class” resources not only to help solve marketing problems, but more importantly, to identify new opportunities.
Peruse virtually any contract between an advertising agency and its clients and you’re likely to find the language “work for hire.” Essentially this means that any work the agency produces is owned by its clients. Not only are there no contractual provisions for agencies to retain ownership of some of the intellectual property they create, there’s not even room for discussion.
