In Recent News, it was discovered that billing by the hour causes cancer in professionals who adopt these billing practices. The problem is said to start with cancerous "time-billing" cells in the brains of consulting and law firm partners. Since these cells infect the brain, causing irrational behavior in the partners thereby causing them to lose all common sense (to healthy hosts). For instance:
Common Sense:
- The more effective I can be for the client, the more value this will have to the client.
Thinking of Cancer-Infected Partners:
- The more I drag this out and the more hours I can bill, the more this must be worth to the client. Yahoo! Let's burn the midnight oil!
The problem discovered by J. Doctor Marston was that organizationally, the cancer is infectious from the top down. Therefore, once the brain cancer infects the host partners, it quickly spreads to the other partners and junior staff in the firm. Interestingly, the cancer operates differently in those infected at lower organizational levels. Dr. Marston's research discovered that the brains of associates are highly resistant to the cancer of the partnership initially. Unlike the partners, who actually believe they are operating under a economically sound billing model (although it is well documented that Karl Marx's Labor Theory of Value has long been refuted!), associates and laterals do not immediately experience a chemical change in the brain causing them to believe that clients actually want to buy TIME! Studies show that the cancer first infects the associates in other body parts effecting motor skills and the nervous system. For example:
-- Big firm associates who become infected experience a "treadmill effect," constantly worrying about not meeting their billable hour quotas. They think about time they spend with their loved ones as an opportunity cost . . . feeling like they "could be billing for that time instead." They hate feeling that way, but cannot help it.
-- The cancer in associates also causes lethargy in partners and associates alike. Consequently, outside counsel and clients are left having to manage their consultants and attorneys by giving them deadlines to avoid over-consulting, over-lawyering, drag-outs, unnecessary 50-page memos, briefs, etc.
After years of billing by the hour, infected consultants, attorneys, and lateral partners eventually get "billable brain cancer" and begin to believe that the only way to run a firm is bill by the hour. It is an unfortunate fate for those who experience it. Fortunately, some associates manage to escape the hamster wheel in time to get cured (most by leaving the profession and some by escaping to in-house legal departments where they watch from afar as their former colleagues become further entrenched by the nasty billable hour cancer at large firms!
Fortunately, Exemplar (http://www.exemplarcompanies.com/) has created cancer-free professional services and law firms where the partners operate under economically sound principles, think of working effectively and adding value (not acting as fungible commodities billing time increments). Increments are Excrements! Adding value is what drives our attorneys to leverage their unique skills, rise to new heights, and please clients time and time again. A healthy lifestyle option has arrived in the legal profession. Exemplar Companies has found the cure to billable hour cancer!
Saturday, August 23, 2008
Thursday, August 07, 2008
Power and Accountability: Take Two of These and Call Me In The Morning!
Is your firm suffering from a lack of innovation? Is your firm slow to change? Do you labor over the simplest decisions in your partnership meetings and sometimes feel you are dealing more with politics and personalities than important matters that drive your business forward? If so, then your firm clearly lacks a PA system! What the hell is a PA system? No, not a speaker system, a Power and Accountability System. Without BOTH of these in place at the same time, you will have problems innovating, enjoying what you do, and impacting positive change in your organization. Power . . . . Accountability. Take Two of these and call me in the morning. Here is why you need BOTH:
No Power, No Accountability:
This is a typical partnership: Nobody (not one person) has authority (and likewise, nobody really has ultimate accountability) You operate by consensus, and when you make crappy decisions you can all throw your hands up in the air and say "hey, I just voted like everyone else. It wasn't my decision" Most of the time that you are in firm meetings you are dealing with challenging personalities, everyone thinks they are an expert on everything, you take the lowest common denominator of risk and innovation because the majority vote want to retire within 5 years and you cannot innovate at their expense. You are in a room full of mostly old white guys all of that talk like a have a dozen testicles and act like they have none! Why can't you innovate? Because NOBODY has the power to change and NOBODY is accountable to making the right decisions in your firm. Two words: Stale mate!
Power without Accountability:
This is a problem without a doubt and you have seen it before. This is the asshole that works down the hall from you. He treats everyone like shit, many people have left the firm because of the way they were treated by him, few would admit it, and the people who reported the problem to other Partners will tell you that everyone looked the other way because he is a large producer of business -- he can do whatever he wants, right? After all, what business do you have to tell him how to act when you can't originate $4Mil in business/year? What is more likely to be happening is that you are scared to death that if you tried to confront or change the "asshole" that his $4mil book, which you benefit from, will walk out the door with him when he leaves at night. There are people with power and no accountability at all. . . these people are a cancer to your organization, a disease. They will keep you down, ruin your culture, and prevent you from becoming the firm that your people wish it could be. You are cheating the next generation of lawyers by keeping these people.
Accountability without Power:
This is a curious situation to be in as well, and more common that you may think. Your non-lawyer executives, like your Chief Operating Officer or Chief Marketing Officer. Sometime it is even your Managing Partner. You are a growing firm and know you need structure and more help, but you all have huge egos and became Partner so you do not have to report to ANYONE! BUT, because you know you need help you Hire a COO, CMO or elect a Managing Partner and expect RESULTS! You brought them in to increase revenue growth or efficiency, or deal with problems, you are setting goals and expectations of them in their roles and their compensation may even be tied to them. What's worst, your firm does not give them the Power (authority) to be effective in their own roles! Your Managing Partner may be expected to change the culture, but is no empowered to fire the asshole partner or to manage other partners, right? Your COO is expected to increase productivity and efficiency, but he does not have the Power or Authority to tell your partners how to use their administrative staff in a less wasteful way! Your CMO has a great budget and can make great promises to the world about what you can do, but does not have the POWER to reprimand lawyers who do not live up to the brand promise! Anyone who is in this category, I feel sorry for you. Do yourself a favor and get the hell out of there! Apply to Exemplar where you can get both!
You see: The only way to innovate and change with the times is to get the right people on the bus, identify their strengths, empower the hell out of them, give them the tools to succeed, and THEN hold them accountable! It takes TRUST which is not in the vocabulary of most lawyers, yet is built into the very fabric of the Exemplar organization. With a good PA (Power and Accountability) System, you can go a long way, but they are travel buddies. So, if you do not have them in you firm, or one is missing, please take two of these and call me in the morning. Once you realize how successful you can be, you'll wonder why you didn't do this 10 years ago!
No Power, No Accountability:
This is a typical partnership: Nobody (not one person) has authority (and likewise, nobody really has ultimate accountability) You operate by consensus, and when you make crappy decisions you can all throw your hands up in the air and say "hey, I just voted like everyone else. It wasn't my decision" Most of the time that you are in firm meetings you are dealing with challenging personalities, everyone thinks they are an expert on everything, you take the lowest common denominator of risk and innovation because the majority vote want to retire within 5 years and you cannot innovate at their expense. You are in a room full of mostly old white guys all of that talk like a have a dozen testicles and act like they have none! Why can't you innovate? Because NOBODY has the power to change and NOBODY is accountable to making the right decisions in your firm. Two words: Stale mate!
Power without Accountability:
This is a problem without a doubt and you have seen it before. This is the asshole that works down the hall from you. He treats everyone like shit, many people have left the firm because of the way they were treated by him, few would admit it, and the people who reported the problem to other Partners will tell you that everyone looked the other way because he is a large producer of business -- he can do whatever he wants, right? After all, what business do you have to tell him how to act when you can't originate $4Mil in business/year? What is more likely to be happening is that you are scared to death that if you tried to confront or change the "asshole" that his $4mil book, which you benefit from, will walk out the door with him when he leaves at night. There are people with power and no accountability at all. . . these people are a cancer to your organization, a disease. They will keep you down, ruin your culture, and prevent you from becoming the firm that your people wish it could be. You are cheating the next generation of lawyers by keeping these people.
Accountability without Power:
This is a curious situation to be in as well, and more common that you may think. Your non-lawyer executives, like your Chief Operating Officer or Chief Marketing Officer. Sometime it is even your Managing Partner. You are a growing firm and know you need structure and more help, but you all have huge egos and became Partner so you do not have to report to ANYONE! BUT, because you know you need help you Hire a COO, CMO or elect a Managing Partner and expect RESULTS! You brought them in to increase revenue growth or efficiency, or deal with problems, you are setting goals and expectations of them in their roles and their compensation may even be tied to them. What's worst, your firm does not give them the Power (authority) to be effective in their own roles! Your Managing Partner may be expected to change the culture, but is no empowered to fire the asshole partner or to manage other partners, right? Your COO is expected to increase productivity and efficiency, but he does not have the Power or Authority to tell your partners how to use their administrative staff in a less wasteful way! Your CMO has a great budget and can make great promises to the world about what you can do, but does not have the POWER to reprimand lawyers who do not live up to the brand promise! Anyone who is in this category, I feel sorry for you. Do yourself a favor and get the hell out of there! Apply to Exemplar where you can get both!
You see: The only way to innovate and change with the times is to get the right people on the bus, identify their strengths, empower the hell out of them, give them the tools to succeed, and THEN hold them accountable! It takes TRUST which is not in the vocabulary of most lawyers, yet is built into the very fabric of the Exemplar organization. With a good PA (Power and Accountability) System, you can go a long way, but they are travel buddies. So, if you do not have them in you firm, or one is missing, please take two of these and call me in the morning. Once you realize how successful you can be, you'll wonder why you didn't do this 10 years ago!
Wednesday, July 16, 2008
The Numbers that Really Matter: Leading Versus Lagging Indicators
As someone who knows finance, I cannot tell you how widespread it is for businesses to look at the wrong data to determine how to make critical business decisions. For instance, if you look at the efficient market hypothesis you can see that past results are not indicative of future performance. After all, if that were true we would all be rich because we would bet on the future based on the past. I think we all understand this concept intuitively, but so few law firms actually put this into practice.
What professional service firms really need to understand is the difference between Leading and Lagging Indicators. So unless you want to drive your car by looking in the rear view mirror {I certainly won't be a passenger in your vehicle}, then I suggest you listen up!
Here is an example of Lagging Indicators: (Dumb Data)
Profit - This is lagging indicator of how you managed the cost of your revenues last year
Revenues -- This is a lagging indicator of what customers did last year and says nothing about the future.
Billable Hours -- This is a lagging indicator of what people did with their time last year. It is not predictive, and since you have to consider write-offs, learning curves, loss leadership, mentoring, etc, it is not even a useful tool to truly understand the past!
Write Offs -- This is a lagging indicator of customer dissatisfaction in the past year (Note: It is NOT a sign of satisfaction. . . by the time they are crossing out your line items, they are already pissed off!}
Attrition Rates - This is a lagging indicator of how happy/miserable your people were last year.
Here is an example of Leading Indicators: (Smart Data)
Employee Happiness Index: This is a leading indicator of this coming year's productivity, attrition rates, and customer satisfaction (because happy people make happy clients!)
Hand Written Card Index: This is the number of hand-written thank-you cards your firm got from clients this year. This is a leading indicator of revenue growth through referrals, increased wallet-share per client, and customer loyalty.
Accounts in Pursuit: This is the total sum value of clients that the firm considers to be leads or prospects. This is a leading indicator of gross revenues in 30-90 days.
These are just some examples and there are hundreds of each. There will be only a handful of Key Predictive Indicators that will matter the most to your business. Now, there is a strong tendency to discount or fail to value Leading Indicators at all. There is an easy explanation for the phenomenon: Leading Indicators are far more challenging to quantify that lagging indicators. Most organizations fail to even try because they believe that if they wait and just let the future become history then they can reduce the acquisition cost of the data and make decisions based on the Lagging Indicator data. That practice is not only laze, but a highly costly mistake. The ability to know the future is a power that can be leveraged to far exceed the cost of acquiring the data, not to mention the fact that with a little creativity getting "golden data" does not have to cost much at all!
An Exemplary Example: At Exemplar we have studied the best business models in the world and their best practices to get a sense of how we can do better. Southwest Airlines, for instance, understands that the Employee Happiness factor is key in their business. The CEO said "I only hire happy people" and to date it has paid off. They know (as we do) that happy employees make happy customers and happy customers make higher revenue and thus higher profit due to the increased productivity. You see, this one factor has a ripple effect through both the inside and outside of the organization. How, you ask, do you figure out your Employee Happiness Index? Well, it can be different for every organization. We have adopted a practice that I learned about by reading Ron Baker's book "The Firm of the Future". We are instituting the "HSD Button" program, called the "High Satisfaction Day Button". We wanted to know, on average, how happy our people were on an ongoing basis. The cost of doing surveys is too high and hard to normalize and quantify, so we needed something fast, simple, and effective. So, we are putting a small button on the computer screen desktop called "HSD", and at the end of every day before people sign off they are asked to think about whether they had a satisfying day, and if so they would press the button. You can see that everyone would use their own subjective standard to evaluate this and that is OK. The absolute number and standard is less important than data trends, spikes, and changes over time. Now, we have our heads around a Key Predictive Indicator for the business that will help you avoid problems before they become a part of your "history" and helps us to make profitable decisions because we know where we are headed. At Exemplar, we lead by looking forward to the future. Don't drive your car by looking out the rear view mirror. If your people found out that you were running your organization that way, they might jump ship! I certainly would!
What professional service firms really need to understand is the difference between Leading and Lagging Indicators. So unless you want to drive your car by looking in the rear view mirror {I certainly won't be a passenger in your vehicle}, then I suggest you listen up!
Here is an example of Lagging Indicators: (Dumb Data)
Profit - This is lagging indicator of how you managed the cost of your revenues last year
Revenues -- This is a lagging indicator of what customers did last year and says nothing about the future.
Billable Hours -- This is a lagging indicator of what people did with their time last year. It is not predictive, and since you have to consider write-offs, learning curves, loss leadership, mentoring, etc, it is not even a useful tool to truly understand the past!
Write Offs -- This is a lagging indicator of customer dissatisfaction in the past year (Note: It is NOT a sign of satisfaction. . . by the time they are crossing out your line items, they are already pissed off!}
Attrition Rates - This is a lagging indicator of how happy/miserable your people were last year.
Here is an example of Leading Indicators: (Smart Data)
Employee Happiness Index: This is a leading indicator of this coming year's productivity, attrition rates, and customer satisfaction (because happy people make happy clients!)
Hand Written Card Index: This is the number of hand-written thank-you cards your firm got from clients this year. This is a leading indicator of revenue growth through referrals, increased wallet-share per client, and customer loyalty.
Accounts in Pursuit: This is the total sum value of clients that the firm considers to be leads or prospects. This is a leading indicator of gross revenues in 30-90 days.
These are just some examples and there are hundreds of each. There will be only a handful of Key Predictive Indicators that will matter the most to your business. Now, there is a strong tendency to discount or fail to value Leading Indicators at all. There is an easy explanation for the phenomenon: Leading Indicators are far more challenging to quantify that lagging indicators. Most organizations fail to even try because they believe that if they wait and just let the future become history then they can reduce the acquisition cost of the data and make decisions based on the Lagging Indicator data. That practice is not only laze, but a highly costly mistake. The ability to know the future is a power that can be leveraged to far exceed the cost of acquiring the data, not to mention the fact that with a little creativity getting "golden data" does not have to cost much at all!
An Exemplary Example: At Exemplar we have studied the best business models in the world and their best practices to get a sense of how we can do better. Southwest Airlines, for instance, understands that the Employee Happiness factor is key in their business. The CEO said "I only hire happy people" and to date it has paid off. They know (as we do) that happy employees make happy customers and happy customers make higher revenue and thus higher profit due to the increased productivity. You see, this one factor has a ripple effect through both the inside and outside of the organization. How, you ask, do you figure out your Employee Happiness Index? Well, it can be different for every organization. We have adopted a practice that I learned about by reading Ron Baker's book "The Firm of the Future". We are instituting the "HSD Button" program, called the "High Satisfaction Day Button". We wanted to know, on average, how happy our people were on an ongoing basis. The cost of doing surveys is too high and hard to normalize and quantify, so we needed something fast, simple, and effective. So, we are putting a small button on the computer screen desktop called "HSD", and at the end of every day before people sign off they are asked to think about whether they had a satisfying day, and if so they would press the button. You can see that everyone would use their own subjective standard to evaluate this and that is OK. The absolute number and standard is less important than data trends, spikes, and changes over time. Now, we have our heads around a Key Predictive Indicator for the business that will help you avoid problems before they become a part of your "history" and helps us to make profitable decisions because we know where we are headed. At Exemplar, we lead by looking forward to the future. Don't drive your car by looking out the rear view mirror. If your people found out that you were running your organization that way, they might jump ship! I certainly would!
Tuesday, January 22, 2008
Ready. Fire. Aim! Ooops, I Missed. . . There Must Be Something Wrong with the Gun!!
Happy New Year everyone. In this New Year I am making a wish for you: I wish our profession would be more careful when handling weapons! When I thinking about professionals who have tried to "dabble" in fixed pricing I am reminded of the chant from the movie The Christmas Story "You'll shoot your eye out, You'll shoot your eye out" when I hear some of the stories from professionals who simply don't get it but try it anyways. It is almost humorous to watch because they are essentially taking a "Ready. Fire. Aim." approach, missing, and then literally claiming that there must be something wrong with the gun! I suppose it is good that the gun could not speak because it allows their psychologically protectionist approach to keep them from admitting that they don't have a clue what they are doing. One commenter put it well when he wrote: Fixed-Pricing is like teenage sex. There are more people talking about it than doing it, and those that are doing it don't know what the hell they are doing!"
Professionals who are considering adopting a fixed-priced approach need to understand that it is not a pricing strategy, it is a business model. In order to be profitable, you have to re-engineer your operations, IT, HR, Compensation structure, hiring practices, mentoring program, and resources, among many other things. Remember that under a value pricing model Project management and Scoping is key to successful implementation and many professionals who try to do a couple of projects on a fixed price do so without properly scoping out the work or examining resource utilization to determine how to maximize profitability on the project. So, while I am aware that fixed pricing can change your life, create a winning situation for your clients, and be more profitable for the professional all at once, I warn you that this gun called "value pricing" says conspicuously on its box: "WARNING: Please read instructions before using. failure to operate properly could result in a misfire and you may lose a limb." So, the next time you read something about a professional who took a "Ready. Fire. Aim." approach, blew a limb off, and without fail that the gun was the problem, THINK TWICE! There are very few professionals in this country who have truly become proficient in the business model and it should be "handled with care". That being said, the rewards for professionals with the courage to take a shot at it are both high and sustaining with patience and dedication. Law firms who refuse to change will find, over time, that they are still hunting foul with a bow and arrow while the rest of us are feasting on the benefits of using the tools of the modern economy!
Professionals who are considering adopting a fixed-priced approach need to understand that it is not a pricing strategy, it is a business model. In order to be profitable, you have to re-engineer your operations, IT, HR, Compensation structure, hiring practices, mentoring program, and resources, among many other things. Remember that under a value pricing model Project management and Scoping is key to successful implementation and many professionals who try to do a couple of projects on a fixed price do so without properly scoping out the work or examining resource utilization to determine how to maximize profitability on the project. So, while I am aware that fixed pricing can change your life, create a winning situation for your clients, and be more profitable for the professional all at once, I warn you that this gun called "value pricing" says conspicuously on its box: "WARNING: Please read instructions before using. failure to operate properly could result in a misfire and you may lose a limb." So, the next time you read something about a professional who took a "Ready. Fire. Aim." approach, blew a limb off, and without fail that the gun was the problem, THINK TWICE! There are very few professionals in this country who have truly become proficient in the business model and it should be "handled with care". That being said, the rewards for professionals with the courage to take a shot at it are both high and sustaining with patience and dedication. Law firms who refuse to change will find, over time, that they are still hunting foul with a bow and arrow while the rest of us are feasting on the benefits of using the tools of the modern economy!
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