Wednesday, October 31, 2007

The Universal Principle of Value -- What's Missing in a Profession That's Missed The Point

I have been putting a lot of thought lately into what it is about the profession of law that has gone astray and left so many professionals either miserable or driving them out altogether. The perceived "roots" of these problems have long been the subject of scholarly articles and current discussion: Lack of work-life balance, unchallenging work, systemic under-delegation, no diversity (and no more than lip service to solving the problem], competitive individualistic work environments, eat-what you kill systems, and, of course, the dreaded billable our system with it's evil sister [quotas]. I have become passionate about Exemplar and the fixed-price model based on the subjective theory of value because executing on the business model Is DOMINO ONE to all of the other "symptoms" of a broken system. That's right -- the business model fixes and addresses each and every one of the factors that represent the deterioration of an honorable profession.

Many people have trouble understanding how to execute on a model that is based on the subjective theory of value so they depend on a far inferior model that is based on COST or TIME. The Time-based model has been long refuted by business experts and bear no relation to what the customer wants and values and yet the profession that is trained to ask the most questions asks none with regard to why we operate this way. Henry Ford put it quite well when he wrote:

" We do not bother about the costs. The price forces the costs down. The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold?”

What has become even more clear than the impact of Exemplar's pricing model is that every once in awhile an industry or profession varies from the Universal Principle of Value and bad things begin to happen. The business model of billing by the hour started in the late 195O's and since then the way they manage, measure, and compensate knowledge workers has changed. What our industry has seen in the past 5O years is the wholesale deterioration in quality of life, work-life balance, challenge, meaningful client relationships, and loyalty to people in general, but particularly the next generation. Our industry has missed the point. . . . it has gone too far astray from the Universal Principle of Value. We are an industry that is NOTHING without its people and yet it is leaving its own behind where financial gain can be attained. It is no wonder at all that so many professionals choose to vote with their feet and simply walk away. It is also no wonder that professionals like myself have taken a stand for what they believe in. for bringing our profession back into alignment with clients and with the Universal Principle of Value. . . . Because Exemplar is about so much more than a pricing model. . . it is about changing people's lives. There is nothing more rewarding and humbling all the same than to lead our profession back to the center, the core, and one day reach the summit of Excellence at the crossroads of Great People and Profitability. Author James Davis Carter put it well when he wrote:

". . Discovery of the power to aim at ideal ends freely chosen by his own free will and intelligence is the supreme achievement of man, and in that, more than any other in any other single fact, lies hope of the future"

Friday, October 12, 2007

Why You Are In Business: Maximize Profit or Hourly Rate?

So many lawyers simply lack the business sense to understand the purpose of a business. It is widely known that the reason for a business to exist is to maximize shareholder value. In a professional services firm the shareholders are the Partners. All of this sounds logical, right? Well, you would think so until you talk to some attorneys about changing to a fixed price model and hearing them complain, with great business ignorance, about what it might do to their effective hourly rate. Again, they confuse the true goal of business with the "illusion" of profitability, the "effective hourly rate". By this I mean that lawyers seem to obsess about backwards calculating their time to figue out their effective hourly rate based on the fixed price they charge as if it is ANY indication of profitbaility at all! You see, most law firms do not understant the difference between revenues and profit and do not really understand their true profit margins. This lack of business savvy causes attorneys to wrongfully focus on metrics that sometimes run counter to profitability. For instance, top line revnue growth does no equate to increased profitability. Often, in fact, attempts to increase top-line revenues are at the expense of a firm's profit margins. However, because law firms do not truly understand profitability, they have put into place metrics and incentives for their people to increase top-line revenues without regard for profitability: Need an explanation:

Attorneys get paid more when they:
1 - Bill more hours (increases revenues and encourages quantity over quality, pisses clients off, reduces loyalty, increases attrition and burns out your people}
2 - Hoard Work at the Top {increases revenue because Partners bill at higher rates, creates intellectual atrophy by having a work force that is doing work that is well below their competence level at the expense of the client, ultimately compromises the ethics of the profession, and produces low professional satisfaction}
3 - Originate more business - - - SALES COMMISSION! How do you feel about salespeople? So do I!! This promotes a "sell it at any cost" mentatlity. . . . raising revenues, but lowering profit by bringing in clients that are not a fit, will not pay the bill, and are destined to be disappointed and tell everyone they know how much you suck. Your people will hate serving them, will not return heir phone calls, and will resent you for making them serve these clients. The work will be produced slower and ultimately they only create the "illusion" of having more business.

Attorneys also have serious self-esteem problems that lead to a misunderstanding between revenues and profit. What, you ask? Well, attorneys absolutely hate it when they are not busy. . . they feel unwanted and unvalued. Attorneys generally do not think to work ON the business instead of IN the business when they have free time, so they look frantically for ways to fill their time, including lowering their prices to keep busy, or bringing in the wrong clients just to say you have them. Instead, it would be far better to be selective, stand up for your true value, and only work for clients who value you highly and spend the rest of your time working ON the business rather than IN the business. This will significantly improve your operating margin and will make your people much happier.

Monday, October 01, 2007

Who Is At The Top of Your Pyramid?

Take a look around you! Look at the Associates at the same level in your organization. Look at the make-up of gender and cultural diversity. Now, stop. Look up! No, dummy, not to the sky, but to the top of the Pyramid of an organization you work in. Look at the gender and cultural diversity up there. . . . . .now stop crying. I know it is hopelessly sad, I know. Now it is time to get smart. Listen up: The people at the top of your pyramid say an awful lot about what you firm values in its people and what kind of people (white males, egos, etc} make it to the top. Although nobody will explicitly tell you what it takes to make partner or when you will even be evaluated for it, the answers are all around you. . . . . they are written on the walls of the office you work in everyday. Look up. Now, look in the mirror. Do you look like they do? You might want to ask yourself some tough questions about the people up there, like:

-- How do they treat each other up there?

-- What types of values do they have?

-- Do I feel like they care about me?

-- Do they treat us Associates with respect?

-- Have they taken the time to show me what a future can look like in this firm?

-- Have they even given me a good employee review so I know how I am doing? NO! Not a spreadsheet with my numbers, but some quality time with me to make sure I am headed in the right direction to make partner?

-- Do I have a CLUE what these old white guys are doing to develop leaders? Or their successors? Do they even care?

-- If I told the Managing Partner of this firm how much of a jerk one of those Partners is do I think HE will do anything about it? Do you think he would fire the attorney if he refused to change?

If you are like every other Associate I know at BigLaw, then the answer to all of these questions is a resounding NO!! Most associates look up and see an old white-man's club at the top of their pyramid with a small smattering of women who have sacrificed their family and social lives to be there and are unsympathetic to women in our generation who want balance, and a couple self-proclaimed "token" minorities who do not feel valued as equals in the partnership. Most associates look at the top of the pyramid and see big egos, some real jerks who treat their people like crap but develop all of the business. The answers are written on the walls. The answers are all around you. Look at how the biggest rainmaker partners in your firm treat you and ask yourself. . . what does your firm value in its people? What is most important in your firm to succeed. Almost all associates say it is ONLY about the money. . . . that the biggest rainmakers treat everyone around them like crap. . . and everyone. . . yes EVERYONE knows that these people are no there BECAUSE of their values. They are there IN SPITE of their values. There will come a time when you have to ask yourself the tough questions. . . like do you aspire to be what those people are? Is that what you want your life and your working environment to look like 5 or 1O years from now? Do you want to be at a firm that does not value its people? Do you? One thing is for certain. . . . if you do no change it, you will become it.

To this day I have lived by the saying "You've got to stand for something or you'll fall for anything." Ladies and Gentlemen, do you know what you stand for or is your firm taking you for a ride? It may just be your time to figure out what you stand for and stand up for it! There are firms like Exemplar that do care about its people, where values, good character, respect, and success in business development can coexist. The difference is one of courage and vision. It takes courage to stand up for change and vision to pave the way for a better future. We are operating in a time where professional satisfaction in the law is at all-time lows. Attrition rates and depression rates are at all-time highs. Billable hour requirements are reaching a tipping point. Partners at BigLaw have Mortgaged their Associates to the hill to line their golden parachutes for retirement and your pilots will be jumping out of your plane before you. [NOTE: The most profitable corporations achieve significant leverage without these deleterious effects on its people] If you do not see strong young leadership in your firm. . . or a "flight plan" on what you career can look like in the firm, it is because there is no flight plan. So, while you are at the gate of decision it might be the right time to take a different flight. To stand for something instead of falling for anything. There are colleagues around you who are waiting for someone to lead the way. . . even dreaming of it. With courage and vision, together, we can be a part of the future of the profession. I will stand with you in your journey!