Innovative Practice Management

Did you suck at ‘Economics’ in college.  I did.  So when my friend and mentor, Ron Baker, recommended that I read The Economic Naturalist by Robert Frank, I smiled politely, assured him I would, and then blew it off.  (I did buy it, just so I could document my intent and not feel entirely guilty for lying through my teeth.)  Last week, I again found myself in an airport, having mistakenly thrown this tome in my computer case, thinking it was an adventure novel.  With no other entertainment, besides trying to determine which passenger had the worst hang-over in the Las Vegas airport, I read the book.

It’s a great book!  Very entertaining.  The format is a series of questions, e.g. “Why do bars charge for water, but peanuts are free?”, or “Why do cleaners charge more for a woman’s blouse, than a man’s shirt even though they are both made of the same fabric?”, or “Why are brown eggs more expensive than white eggs?” (and it’s not a scarcity issue).  The answers postulated are supported with economic principles. 

On p. 62 he asked the question “Why does a worker’s wage often rise more quickly over time than his or her productivity?” 

One hypothesis was “employees in such firms are paid less than they are worth during the early years of their tenure, and more than they are worth during their later years.”  Is the logical extension then that staff accountants are underpaid?  And management is over-paid?  While this might be the case for laborers, it is not the case for knowledge workers. 

In my opinion, Adam Smith’s theory of compensating wage differentials in The Wealth of Nations is more appropriate.  That is ‘wages are higher in jobs that are more risky, require more arduous effort or are located in ugly or smelly locations’.

No, it’s not more risky, and hopefully neither more ugly or smelly. It’s more intellectually ‘arduous effort’.  Simply stated, you get paid for how effective you are at your job.  As your career progresses, productivity is not so much defined as how fast you complete your engagement, but how ‘effectively’ you complete it. 

The more effective you are, the more you get paid.  Being more effective requires being more knowledgeable.  And not just technically.  It can also include your skill in client interaction and supervision of subordinates which are both key components of effectiveness.  Hopefully your firm defines what constitutes ‘effectiveness’ at each level necessary for advancement.  If not, it should be the first topic you discuss with your mentor. 

I’ve posted frequently about the deleterious effect I believe time sheets have on professional knowledge workers and professional knowledge firms. Regardless of the origin, or the use for which they were originally intended they have become at once a measurement of productivity, value, worth and efficiency. And I don’t believe they do any of those things particularly well. Granted they can generate useful and important information for reactive decision making but the costs of that information to the culture of the user far outweigh any marginal benefit derived. They are a very efficient tool for micromanaging. There are other very efficient micromanagement tools as well. There are performance evaluations - which we’ve previously posted about. How about ‘checklists’?

The purpose of using checklists is to ’standardize’. By standardizing our engagements we believe we can reduce risk and simultaneously improve efficiency. Checklists are tools for ‘control’ (micromanagement).

Six years ago during the exit interview for our peer review, the reviewer criticized us for not using ‘canned programs’ in favor of the custom programs we wrote for each client. He agreed our programs were better than canned programs but if we used PPC or Cch or some other canned programs we would by default be considered in compliance with all the professional standards. (I now realize he was just lazy). We immediately converted to canned programs.

In the mid 1970’s we had very few checklists. I recall a reporting checklist, an internal control evaluation guide (ICEG), and a post issuance review checklist (PIRCL). There were probably a couple more. We used them after the fact as a double check. We understood the audit process and the objectives very thoroughly. Today, even the simplest assurance engagement requires no less than a dozen check lists, each with up to 30 pages of single spaced, ubiquitous, multi-part questions, the vast majority of which are answered ‘n/a’ for any specific engagement. And they’ve replaced the necessity to analyze and understand. Correspondingly, I believe audit skills have degenerated as well.

We are evaluating the process necessary to eliminate canned programs and checklists - at least until the engagement is complete, and then using them as a ‘double check’ only. ( I’ll let you know how that goes. I can already hear the crying, moaning and gnashing of teeth by the audit teams at the prospect of losing their security blankets.)

It’s not just the audit process. Look around your firm, at the checklists you use. I’ll bet you lunch, that in most cases your knowledge workers would be more effective after a short period of time if they didn’t rely on them, because they would have to understand what they were doing and why, rather than just being able to check off steps.

You hire and pay for intelligent, motivated, conscientious, creative minds and then smother all those characteristics with a business model based on control and doom your professional knowledge workers to be only as good as the checklist they fill out. Does that make sense?