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Passion, People and Principles

Does Your Organization Add Any Value? How Do You Know?

post # 54 — April 21, 2006 — a Managing, Strategy post

In yesterday’s post, there is the beginning of a discussion about networks or ‘hubs’ of professionals . I don’t want to bring that discussion to a halt, but in this post, I’d like to explore one specific question that arises from the discussion.

If you are an organization (let’s say a company or a firm) made up of professionals who are mobile and can take both their skills and their book of business elsewhere, how would you go about judging or measuring whether your organization was adding any value above and beyond the sum total of the individual talents (or books of business) of all the individual players?

In other words, how do you tell whether the organization is contributing anything?

It’s been a long time since I was an academic, but I do remember that there was a lot of work around measuring the EVA (economic value added) in corporations. Does anyone know if this can be readily be applied to professional environments?

I can imagine asking people whether they THINK their organization is helping them succeed more than they could either on their own or (probably a better question) at another firm. I can then imagine asking them IN WHAT SPECIFIC WAYS do they think they are benefitting from belonging to one organization. But that’s pretty sooft stuff.

I know there are real differences between firms in this regard. My old model of “Hunters and Farmers” (written in 1985 but included in Managing the Professionals Service Firm ) analyzed the difference between firms of autonomous entrepreneurs (‘hunters’) and firms where the value was emebedded in the organization and everyone worked to make the overall entity succeed (‘Farmers’ or ‘One-Firm Firms’)

I can usually tell pretty quickly when I visit a firm where on that spectrum they are, but I haven’t (yet) thought through a way of assessing it so that (a) managers inside the firm can judge whether they are making progress in building a firm that is cohesive and adds value beyond bringing in the right warlords and (b) observers and analysts could compare the progress of different firms in this regard.

Does anyone want to propose some metrics on measuring or judging ‘value of the organization?’


1styearassociate said:

This is an excellent question.

The best measure of the value added by the firm is the satisfaction of clients with their interactions with (and the quality of services provided by) non-rainmakers. Difficult to quantify, but very important: Associates and “Service partners” performance in the eyes of the rainmaker’s client is the only way to tell if the firm is seen as more than the sum of its parts.

Another difficult to quantify but important factor would be the ratio of ancillary matters to core business services. Every big corporate client has its typical core business transactions, but they also generate ancillary personal and other non-core billable work. That’s a good metric for value added, because it serves as an assessment of the level of trust clients feel with the firm’s overall competence.


posted on April 21, 2006

David (Maister) said:

Whoops! I seem to have lost the end of this post -could you please re-post, so we cxan all know what your final point was? Thanks! David

posted on April 21, 2006

Mott Williamson said:

How about the simple shape of the bell curve of revenue generated by each partner and other measures of revenue dispersion around the mean? That would work well in large firms with a significant number of partners. It would seem that firms where partner revenue generated is relatively tight around the mean represent cohesive one-firm cultures. That could be measured on a total book of business basis, or based on personal billings alone if the business keeps time metrics. It would be interesting to compare these bell curves with the bell curves of the most “profitable” firms to see how those curves correlate too. I bet firms with big standard deviations are much less cohesive than those that aren’t. Also, the hope would be that as dispersion tightens, total firm profit is growing significantly. But, you’re the statistician right? Forgive me if I’m wrong because I only took three hours of statistics more than 30 years ago.

posted on April 22, 2006

Friedrich Blase said:

If one is looking at value building from the organisation’s perspective, one might be interested in the break-down and assessment of the organisation’s intellectual capital, being human capital (professional potential, management potential), relational capital (clients, networks, brand) and structural capital (solutions, workflows). IC is not valued as tangible assets are and should not be. It is more important to know (1) how much the organisation uses today, (2) how high the risk of loosing it is and (3) how good the organisation is in enhancing its IC for the future.

There is a process of assessing this called “IC Ratings”; it is based on the Leif Edvinsson and other IC pioneers works. Having pioneerd the IC Ratings for law firms, we at EDGE are expecting it to be of great value to many, if not all PSF’s. No doubt, it does not give you a valuation in a way that one is used it from the accounting perspective; instead it gives you a valuation which is useful for the management perspective.

posted on April 24, 2006