Sunday, July 02, 2006

Note To The CFO: Lighten Up A Bit, Will You?

As someone who has served as a CFO and holds two degrees in finance you would think that I am a person that lives by the numbers. What I have come to realize in my professional experience as a Chief Financial Officer is the true limitations of numbers in providing guidance for running a company. We have all heard that numbers can tell you whatever you want to see in them. I remember reading in Ron Baker's Book "The Firm of the Future" that "according to numbers, everyone in this country has one testical" (half of us are women). With technology and data capacity so great, it seems like we collect data just because we can and not because someone sat down and did the math and determined that the cost of keeping such vast amounts of data and creating hundreds of jobs to interpret it actually produces a positive return on investment. Take law firms, for instance. They measure their entire operation in 6-minute resolution, forcing their entire workforce to adhere to a regime that by all accounts "changes the way you live your life." The partners who operate the firm actually believe they need to count this way to be profitable in spite of the fact that the most profitable companies and industries in the world operate just fine without knowing where every minute went. In the meantime, countless hours are spent just counting time instead of actually doing something productive with your life.

The biggest question that skeptical and fearful attorneys ask me is "how do you know you are profitable if you do not count every 6-minutes." After a moment of internal giggling (because I have worked the real world and understand quite well that no other business runs this way) I answer "Lighten Up A Bit, Will You? You don't need to know whether every single project you did made you a profit. What you need to know is that your business is operating profitably." The savvy questioner understands what I just said while the not-so-savvy one just sits there with a blank look on his face as if to say "Huh?". For those of you finance people out there, it is called portolfio theory. An investor has a portolio of stocks (just like a law firm does clients) and the job of the portfolio manager is not to make sure every stock goes up, it is her job to make sure that the portfolio is profitable as a whole. This entails managing the portolfio as a "big picture," eliminating non-performers and increasing the investment in the winniners (in law firms, this is called forced churn) Clearly, every organization has metrics that help guide you in making informed decisions for the organization, but Exemplar recognizes that myopia will not make the firm more profitable; that making thousands of highly educated people count their lives in 6-minute increments and sending them home to their loved ones trained to think of personal time as an "opportunity cost" is not just cruel but inhumane. At Exemplar, we are happy to come to work every day because of the opportunity to use every bit of our intellectual capital on activities that help our clients achieve success in the marketplace. We recognize that there is a high correlation between happy people and customer satisfaction (See Southwest Airlines), and thus profitability. My message to those who live by the clock is to "Lighten up a bit. Let your hair down. Manage your portolfio and stop driving your people crazy. They will love you for it and your clients will notice the difference. Ours certainly have!"


Anonymous said...

This is what I don't understand: You're a business, and to be taken seriously by your clients, your competitors, your industry and the media, you need to show a record of profitablity.

If the numbers don't add up, then you're not a business -- just a young punk with a good idea.

I'm an attorney. And I believe that law is a primarily a service-oriented business -- a business that must be profitable.

It's hard to take you seriously as a business man or a lawyer when you post musings on your blog about numbers not being important.

As far as I'm concerned, Exemplar Law Partners doesn't have a fighting chance against your more business-savy competitors. At the end of the day, people want the counsel of an attorney with a proven track record. And one of the primary ways of evaluating the track record is to look at how profitable the firm is.

The CFO needs to be tough. Your customers -- and the lawyers you hope to hire -- will look to see how solidly your business is run. If the CFO has "lightened up" then most of us will avoid you like you have the Avian Flu.

Anonymous said...

This blog was not about running a business without numbers. It is about profitability being derived from client and employee satisfaction - the picture as a whole. Being able to make money from every single minute you bill your client or you force your associate to bill is not about profitability, it is about greed. When you focus on the numbers alone, you fail to see the picture as a whole. Every fresh young lawyer coming into the profession today needs to know that they can be valued and respected not for the time they put in alone, but also for their creativity, initiative, smarts, teamwork and passion for the noble work that they have chosen to undertake. By putting numbers first, law firms undermine the benefits that those strengths can bring to both the business in terms of profitability and for the clients in terms of overall value and satisfaction.