Passion, People and Principles
post # 50 — April 14, 2006 — a Strategy post
For many years, I have watched as businesses try to achieve profitability by drastically eliminating support staff positions, thereby achieving significant cost savings in overhead expenditures.
These savings have come at a significant strategic price. If there is no-one to whom you can delegate familiar tasks, then you just end up doing it all yourself. There is nothing ‘economic’ about having high-priced professionals doing their own photocopying, database updates, billing, banking or any other kind of administrative work.
In their rush to be sure that economic resources are well-managed, companies try to judge the need for support people by how well utilized and how busy the support people are. This is a bad measure.
I actually do not care how busy my administrative support is. What I care about is how much of MY time they save.
Do a hypothetical. If an admin assistant costs $40,000 and I can bill $200 an hour, then how many of my hours would the admin assistant have to save me for it to be worthwhile. It’s 200 hours, right?
And what’s the probability that, if I had a dedicated person available to me, full-time, that that person could save me 200 hours of admin time that I could otherwise spend on building my business? A cast-iron certainty, right?
And yet that 200 hours would only be at 10 percent of that person’s 2000-hour year. If they helped more than that, we’re really going somewhere!
The two key strategic rules of cost management are these –
First, if something can be delegated, it must be
And
Second, you always want to have excess capacity of your cheapest resource, so that your expensive resources don’t end up doing low-value tasks.
post # 49 — April 13, 2006 — a Managing, Strategy post
Adam Smith has commented on my article Are Law Firms Manageable?
There is also a previous blog post of mine with really good comments from other visitors here
I thought I would pick up he conversation and my reply with this new blog post.
In Adam’s summary of my arguments, he asks me a direct question as to whether a group of like-minded people could create a more effective firm, and whether or not that would create a competitive advantage.
As anyone whoever took an economics class knows, you cannot always assume that virtue will triumph. Even if something confers a competitive advantage, that doesn’t mean it will always emerge.
I seem to remember from my economics courses hearing about Gresham’s Law of money, that the existence of counterfeit money will always drive out the value of good money. The bad guys can triumph by destroying confidence.
So, in a competition between trusting partners and untrusting partners, which will win – within a firm and between firms?
My life experience is that, as often as not, disorder triumphs. A trusting partnership can and does exist, but it is a delicate flower, easily torn apart unless it is carefully nurtured.
Civilization will, perhaps, eventually triumph, but in the short run the warlords can and do stamp out what appear to them to be weaknesses.
Trusting, collaborative firms can be sustained, but I am very cynical whether they can be created by transforming today’s firms.
As Clayton Christianson reported in his book THE INNOVATOR’S DILEMMA, innovations almost always come from outside the existing order of things, not by getting established players to change.
If a truly collaborative, competitive firm would have an advantage (which I first suggested back in 1985 with my “One-Firm Firm” article, later included in Managing the Professional Service Firm), then why have collaborative firms not triumphed yet? Why are the internally competitive firms so much more common and getting all the press?
Can anyone show that the few collaborative are, in fact, more profitable or otherwise successful?
I can prove it with data outside law firms (my book Practice What You Preach, and Jim Collins has proved it with corporate entities, but could it be that, when it comes to law firms, I am completely wrong. Could it be that collaboration, trust, effective functioning as an organization is, in fact, not a competitive advantage? I think it is, Mr. Smith, and I think that you think it is, Mr. Smith, it’s just that the lawyers don’t seem to think so! And they’re our clients, right?
post # 48 — April 12, 2006 — a Strategy post
Adam smith, Esq, reporting on a survey about rising salaries for young lawyers, points out that, and I quote him here – (a) paying people richly, and (b) expecting them to work like dogs in exchange, is the perfect introduction to what the life of a partner is like. Consider it akin to an 8 to 10-year hazing process; I predict that those who emerge alive and kicking at the other end of this funnel will indeed be partnership material. (end quote)
Adam is astute, as always. I was once trying to persuade an accounting firm that they should have a managed work assignment system, which could balance the competing needs of developing different people, balancing differing clients’ requirements, etc.
His reply was that the unmanaged ‘Gotcha!’ system (whereby juniors ended up on jobs – or not- only by having partners act like independent warlords, playing favorites or looking for cannon fodder) was critical as a screening process for partnership characteristics.
He pointed out that, in an unmanaged system, the only people who end up getting developed are those who can sell themselves and otherwise ingratiate themselves; those who are self-starters willing to take the initiative; those who can play politics, spot the good people to get to know, spot overdemanding problem people early and avoid them, etc., etc.
These were all essential partner skills, he pointed out. Anyone who sat there saying ‘develop me, develop me’ was, by definition, a loser who would not make it. The firm, he argued, MUST NOT look after people, but must test them in action and see who survives. Anything else would mean a generation of useless, wimpy partner-candidates.
That kind of thinking has mostly (but not entirely) disappeared from accounting firms and (most)consulting firms, but it’s alive and well in law firms.
And it’s a good argument, isn’t it? Or is it?
It’s not. It’s actually rhetoric, not logic. The fatal flaw of the reasoning is that what it’s really saying is that, under the unmanaged system, winners win and losers are rejected.
But the test of a system is not what it does to the extremes – winners would win and losers lose under MOST systems.
The real question that tests a management approach is not whether it rewards good performance and punishes underperformance, but whether it creates performance.
What does the system do to develop the ones who are neither natural winners, nor natural losers? Does it help us end up with MORE people who have skills?
To argue that something ‘screens’ for talent (or anything else) is to reject the organization’s responsibility to create something. Professional businesses are not (or should not be) wholesalers who buy talent at one price and just re-sell it at another. They must create value.
post # 47 — — a General post
The great advantage today of the Internet is the opportunity to create dialogues, and not just one-way pontifications. This blog has now been live for over two months, and I would like to thank the many friends, old and new, who have contributed to the conversation here with your comments and ideas.
David Alev, Andreas, Mark Baker, Martin Bamford, Jim Bennett, Mel Bergstein, Friedrich Blase, Anne Braudy, Nigel Burke, Shawn Callahan, David Campbell, CarSinger, Sebastian Carey, Peter Darling, David, Dean, Dennis, Shaula Evans, Peter FRIEDES, Brad Farris, Doug Fletcher, John Flood, Fouro, Dean Fuhrman, David G, Gareth Garvey, Michelle Golden, GordonG, Phil Gott, Andy Havens, Beverly Hedrick, Lori Herz, Dennis Howlett, Huda, Jaylpea, Jld, John, Stuart Jones, Cem Kaner, Rita Keller, David Koopmans, Miriam Lawrence, Wendy Leibowitz, Moe Levine, Howard Lovatt, Suzanne Lowe, Bruce MacEwen, Greg Magnus, Mason, Matt, Ed Mays, Patrick McEvoy, Patrick McEvoy, Mike, Matt Moore, Ludwig Ng, Paul O’Byrne, Mike O’Horo, Orikinla Osinachi, Jan Pabellon, Bill Peper, Lars Plougmann, Joe Reevy, James Robertson, Rolf, Roman Rytov, Rusty Scupper, Rajesh Setty, Michal Sobczyk, Brian Sommer, Nut Suwapiromchot, Ted, Coert Visser, Barbara Walters Price, Ian Welsh
I recently set up the trackback feature on this site in mid March.
Trackbacks are a wonderfully courteous practice peculiar to the blog world that makes a conversational link between blogs, similar to comments.
Most people find the name confusing and they could be more accurately called a “link flag” or a “link notification.” When bloggers links to another blog, they can send that blog a notification saying, “Look! I’m talking about your ideas and linking to your site.”
The blogger who receives the trackback can publish it on his or her site (usually near the comments), so readers can follow the conversation between one blog and another in the blogosphere.
I would like to also thank the bloggers who have been kind enough to link to this site and send a trackback in my first few weeks in the trackback community.
Adam Smith, Esq.
Adventure of Strategy and here and here
Anecdote
Community
Legal Sanity
The Bell Curve Scar and here
Votala.com
Whether you are being given work to do by a client or a boss, it’s common that people will assign work to you badly, and that will cause you problems.
How can you do what they want if they don’t tell you clearly what they want?
The key is to take responsibility and ask permission to ask questions.
When someone gives you a task to do, say something like ‘I really want to do a great job for you, so can I clarify a few things?’ Most people will say ‘Yes.’ You can then be sure you understand the following details about your assignment –
- The context of the assignment – ‘Please could you tell me what you are going to do with this when I get it done, tell me who is it for, and where does it fit with other things going on?’
- Deadline – When would you like it, and when is it really due?
- Scope – Would you like me to do the thorough job and take a little longer, or the quick and dirty version?
- Format – How would you like to see the output of my work presented? What would make your life easier?
- Time budget – Roughly how long would you expect this to take (so I can tell whether I’m on track or not?)
- Relative priority – What’s the importance of this task relative to the other things you have asked me to do?
- Available resources – Is there anything available to help me get the job done? For example, have we done one of these before?
- Success criteria – How will the work be judged? Is it more important to be fast, cheap or perfect?
- Monitoring and scheduled check points – Can we, please, schedule now a meeting, say, halfway through so I can show you what I’ve got and ensure that I’m on track for your needs?
- Understanding – can I just read back to you what you’ve asked me to do, to confirm that I got it down right?
- Concerns – before I get started can I just share with you any concerns about getting this done (e.g., other demands on my time) so that I don’t surprise you later?
Yes, your client or boss should be good at delegating or assigning work and giving you this information anyway. But the truth is that many people won’t have thought through what they really want from you until you guide them through their ‘either-or’ choices.
If you have not received answers to these questions, you don’t yet know what to do, and the risk of being judged a failure is high!
Don’t rely on your superior (or external client) to give you all this information. Pull it out of him or her.
post # 45 — April 7, 2006 — a Managing post
Carl A. Singer, senior implementation manager at Information Builders Consulting, posed the following question –
In architecture, we tend to assume that the ‘alpha’ Subject Matter Expert will be the firm leader. For ten years my Army Reserve assignment was at the Army War College’s Center for Strategic Leadership. That, my B-school background and my life experiences has led me to question whether and when this conclusion is correct. Can a member of the professional ‘manager class’ who is not a top architect / accountant / lawyer (fill-in-the-blank) professional lead a professional architectural / accounting / law (fill-in-the-blank) firm?
Carl, my experiences match those of your army, B-school and life background in questioning the (apparently common) assumption that the smartest technician should be the business leader.
The manager / leader’s task is to help the organization succeed by building the capabilities of others – and that is not best done by having better answers than they have and telling them the right path.
Rather, it requires being able to guide other people through the process of building their knowledge and skills. And, of course, being good at something doesn’t automatically make you good at teaching others how to do it.
On the other hand, to successfully manage or lead, you MUST have the credibility to be received as a good coach, as someone who has ‘been there and done it.’ The professional manager from outside the discipline will rarely be accepted as a coach. It CAN be done, but earning the trust of professionals is very hard.
(I described the coaching process in my article A Great Coach in Action.)
The formula given in my book Trusted Advisor is, I hope, helpful here.
Being able to lead means being trusted, and trust is determined by four things –
- Credibility
- Reliability
- Intimacy
- Lack of Self-Orientation
You have to be credible to lead, but you don’t have to be the absolute best.
You do have to be seen as dependable or reliable, able to relate to those you are trying to influence on a one-to-one basis (that’s intimacy) and be received as REALLY trying to help the group win, not just burnish your own glory.
Many otherwise fabulously skilled technicians fail these other tests and make pathetically bad leaders.
post # 44 — April 6, 2006 — a Careers, Strategy post
In ‘The Wisdom of Confucious’ (translated by Lin Yutan London, 1958) there appears the following exchange –
Zigong asked Confucious ‘What would you say if all the people of a village like a person?’ ‘That is not enough’ replied Confucious.
‘What would you say if all the people of the village dislike a person?’ ‘That is not enough, replied Confucious.
‘It is better when the good people of the village like him, and the bad people dislike him.’
Confucious died in 479 B.C., but his lesson still applies to strategy, marketing, managing and careers.
The essence of strategy is to achieve a positioning in the market where you can be truly the best on some key dimensions that clients care about. McDonald’s is the best if what you want is clean, cheerful fast-food service. Some high-cuisine restaurant is the best in serving customers with other preferences.
As companies keep discovering to their cost, it is certain business decay if you try to please both of these distinct customers. To have some people really like what you have, it is necessary that some other people do not like what you offer.
Picking a strategy takes courage, which is why so few companies stick to their own. They can’t stand anyone not liking them. It’s like a customer walks into their McDonald’s store and asks for a curry, and, since it’s cash, we can’t resist trying to adapt the restaurant to accommodate the new request.
And that, of course, will quickly make you cease being a finely tuned operation to deliver what you originally chose. You’ll stop being the best at anything.
The same is true in marketing. Marketing is not about the number of people you can reach, nor the number of proposals you get to make. The essence of marketing is that you know exactly what your positioning is, and you don’t waste time marketing to people who don’t want that.
Just because millions of people despise Coca Cola and would never think of drinking it (the snobs!), it doesn’t mean Coke does bad marketing –quite the opposite. It knows its constituency and plays to it.
All this also true of managing. It is not the job of a manager to be liked, nor to create a culture that can accommodate the broadest possible range of work and employee preferences.
As my research has shown, managers serve best when they create a clear (internal and external) ideology that says – this is what we believe in around here. If you can believe it too, come on in and welcome. If you can’t subscribe to our beliefs and way of doing things, please go elsewhere.
Done this way, companies achieve what Jim Collins in Good to Great called ‘getting the right people on and off the bus’- right up front – and have fewer subsequent management problems.
Since everyone has signed up for the same thing, the organization can focus on getting to work fulfilling its purpose. The bad people did not like it there and either did not join or they left – what a brilliant conclusion!
Finally, Confucious’ lesson applies to each of us in our career and life. I remember being in college worrying that I didn’t know enough about ballet, football, philosophy, what was on TV, modern art, jazz, my appearance. The list was endless on things SOME people would judge me on, and I couldn’t possibly shine in all those things.
I also discovered that every discussion everyone alienated someone. The socialists annoyed the feminist who annoyed the environmentalists, who annoyed the religious groups.
There was only one solution, and it wasn’t trying to please or be loved by everyone. The right answer turned out to be figuring out what I truly believed in, passionately throwing myself into that, and then seeking out the company of those who liked that, and avoiding the company of those who did not.
So, the test is – do the good people like you and the bad people don’t? If so, all’s well!
Good strategic, marketing, managerial and career advice, after all. Thanks, Confucious!
post # 43 — April 3, 2006 — a Managing post
The disadvantage of pay-for-performance compensation systems is that they provide a wonderful excuse not to manage. If someone’s performance is down, instead of management seeing that there is an obligation to go help that person, they have a wonderful cop-out. They say – “We cut his pay. We’ve done our job. The rest is up to him or her.”
Contrast this with what happens in a system where everyone gets a relatively fixed salary or share of profits, which changes as you get more seniority – if you survive.
In such a system (often called a lockstep system because people move in lockstep up the pay scale), if someone underperforms, you have only two choices. You either (a) work with that person and help them improve to deserve the same income as their peers or (b) if you cannot restore them to full share, you have to ask them to leave. Notice that having lockstep without the guts to deal with performance issues is clearly a disaster! A fixed-share or fixed salary system FORCES YOU to manage, ie to be intolerant of underperformance.
In other words, by not paying for performance, you end up with higher performance by tackling performance issues. By paying for performance, you get less performance because the system allows you to accommodate underperformance.
As Gilbert and Sullivan said in The Mikado – A most ingenious paradox!
There are further problems with pay-for performance systems. If you have lived for the last 20 years in a performance-based system, which is almost always based upon individual pay, then by definition you will have no institutional loyalty.
The system has said to you for the last 20 years – the heck with the firm, you will be paid on what you do. We neither require of you to have any loyalty nor do we give you any loyalty, because if your numbers are down, we cut your pay.
So, the individual pay system is designed to minimize firm cohesion and thereby create the sort of “jumping ship” syndrome that we have seen in every profession.
If, however, you have lived for the last 20 years in a system where everyone is in the same boat together, and have all risen and fallen together, based upon sharing in firm-wide results, the probability that the people will stay together through hard times is measurably higher.
For the last 20 years firms have gone out of their way to say, “You are on your own. Never forget that.” That’s the message that every partner in the majority of professional firms gets from their firms.
There has been a very unfortunate history with all this. Many countries (for example, the UK and the Netherlands) had two ancient traditions, which proved to be unfortunate in combination. One was a tradition of lock-step compensation. They also had a tradition of being “tolerant”. Collegiality in Europe meant – you leave me alone about my flaws and I will leave you alone about yours.
The combination of these two approaches were disastrous. If everyone gets a fixed share regardless of how they perform, and trhere is no tackling of performance, you get the famous “free rider” problem.
About twenty years ago, firms began to realize that they had to either start managing their people, or they had to start dropping the equal salary or equal share system, introducing pay for performance. The bad news, of course, is that instead of doing the sensible thing, which is going toward an intolerant, fixed share or salary system – in other words, start MANAGING – they decided to go the other way and remained tolerant (unmanaged)and switch to pay for performance to accommodate wide ranges of contribution. It has been disastrous.
Compensation as an incentive system is a cop-out or a crutch, just an excuse for not providing proper management.
There are two ways to assess the effectiveness of a compensation scheme. First, is the money going to the right people and, second, what is the system doing to create desired behaviors and prevent bad behaviors?
A compensation system is and must always pay those that have done well. Most systems end up paying the right people. However, the design of the system also influences how people behave, i.e. what aspects of performance they pay attention to.
In assessing a pay scheme, you have to ask whether the system is getting people to do the right things. Most are not. Any time you try to use compensation as an incentive scheme, it will backfire.
The minute you tell a bright person what three things will be rewarded, you give them permission to ignore the ninety-seven other things they should be doing to make the firm work. People do like specificity. Every year people will come to you and ask what three things they have to do to get a good bonus. And every year, you must say: “Gee! I don’t know, and if I knew I certainly wouldn’t tell you.”
You must pay people as well as you can. You must be generous and fair, but you must never reduce the compensation system to a formula based upon a limited number of things. With a formula, you give people the permission to be an ugly human being and no one can do anything about it.
The problem is that firms are trying to use compensation as a means of raising performance, which it is not well-equipped to do. Most compensation schemes in professional firms are basically saying, “If you succeed we will pay you.” This is a wonderful system for someone who is already a natural superstar and knows how to win, but in a sense unneeded for the superstar. It doesn’t add anything to the success of the firm because the superstar is going to win anyway.
For someone who is not a superstar – and doesn’t know how to win, doesn’t know how to develop business, doesn’t know how to delegate, doesn’t know how to get organized – then just saying, I will pay you if you do it, is not exactly a tactic that is going to work. For the person who doesn’t know how to raise his or her performance, changing the incentive won’t help. And what about the person who underperforms? Is cutting their pay really the right way to energize them to perform better?
If you really want to raise firm profits by increasing performance, what you must do is manage people, and that involves one-on-one interactions. Talk to people and help them raise their game, by encouraging them, exciting them, lift their enthusiasm, and help them deal with their issues.
post # 42 — April 2, 2006 — a General post
Update
To accommodate Easter Weekend schedules, the launch date of my new podcast series, “Managing Professionals: Attitudes, Skills & Behaviors,” is moving to Tuesday, April 18.
Just added to my audio page an interview with me on a podcast series called The Cranky Middle Manager Show.
Also, we are coming to the last episode of my podcast series on Marketing Professional Services. Starting on April 14, I will be launching a 15-part podcast series ‘Managing Professionals: Attitudes, Skills & Behaviors.’
As before, this will be available on my podcast page and through various podcast outlets. (The last series was featured as ‘New and Notable’ in the Apple iTunes music store). I’m hoping for similar exposure — it’s like having your new album displayed at the front of the record store. Quite a rush!
post # 41 — — a General post
A hearty welcome to those of you joining the blog discussions through www.accountingweb.com who have decided to make this their ‘official’ blog.
Many thanks to Rob Nance for this act of faith. Together, I hope accountingweb.com and I can continue to serve the accounting community (along with the other professions who read these chicken scratchings!)
