Innovative Practice Management

In a recent post on Trendlines, Gary Boomer held forth on the staffing crisis in our profession.  Succinct and to the point, Boomer lists four reasons.  While all four are valid, my experience over the past five years has identified one as being most significant - Firms with low retention and high staff turnover work their associates too many hours.  It’s not rocket science.

When you employ a business model that is predicated on billing by the hour, your alternatives to increasing revenue are basically limited to increasing hourly rates, or working more hours.  The knee jerk reaction in most firms is to ‘work more hours’.  Short term, this may work, but ultimately our young associates realize they have a ‘job’ rather than a career - and they leave. Very few of us ‘live to work’, but rather we ‘work to live’.  When the Firm takes away your time, they take away your life.  Knowledge workers are too savvy to allow that for long.  Carl Sandburg summarizes it nicely.

“Time is the coin of your life.  It is the only coin you have, and only you can determine how it will be spent.  Be careful lest you let other people spend it for you.”

We have addressed this as a firm, but until we address this as a profession we will continue to see the best and brightest leave.

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?

In my recent post, Beware the Jabberwock, I intended to suggest that as practitioners we always question what is the ‘common body of knowledge’ and accepted management philosophy we have been indoctrinated with over the past 50 years.  My comments were not directed specifically at Ric Payne or Principia, but rather at traditional thinking, while I did use one of Ric’s posts as an example.  My comments were apparently interpreted as a personal attack based on Ric’s comment which we have posted.  After again reading my post, I do see it could be interpreted as a personal attack.   That was not my intent, and I sincerely apologize.

Our purpose is to provide a forum where practice management theory and experience can be shared and discussed with the ultimate goal of improving our profession.  Personal attacks, intended or perceived, will not accomplish our goal of providing a forum for the exchange of ideas.   They are not acceptable and will not be published.

 That said, I don’t agree with some of Ric’s thought and it is my singular intention to ‘take him on’ and expose the fallacy and inconsistency in his logic, as I’m hopeful he will attempt to do with mine.  We will start in this space,  and as he has suggested we will continue ‘mano y mano’ in Reno when he returns.     Your participation is welcome, necessary and  encouraged.

“Twas brillig and the slithey toves did gyre and gimble in the wabe,  all mimsy were the borogoves, and the mome raths outgrabe.”

Written by Lewis Carroll, his poem “Jabberwocky’ in “Through the Looking Glass and What Alice Found There” is considered the most famous nonsensical poem in the English language.  It was certainly one of my favorites during my alcoholiclly impaired college years in the 1960’s.  It re-occurred to me today as I read a post by Ric Payne on the Principa blog titled Time Based Billing is Unethical - What Rubbish. 

I wouldn’t recommend reading the entire post.  Payne talks in circles.  He at once advocates advising clients of the proposed fee in advance (which I agree with) but supports using timesheets as a necessary tool in doing so.  He has thoroughly confused the importance of knowing what your resource cost is with the value of the project.   He naively seems to believe that the majority of clients who receive invoices based on time sheets know in advance how much those bills will be and they are “happy with a bill based on hours” because they were some how able to divine how much it would be prior to receiving it.  That is counter intuitive.  He rants on and on trying to justify time sheets, but at the same time advocating ’pricing’ in advance as a superior alternative.  It all seems to make sense, until you realize the methodolgy he is proposing can’t get you to the results he seeks.   That’s my point.  Don’t take everything you read at face value - especially if it comes from a consultant - think about whether or not it makes sense.  Question authority.

Most consultants I’ve met are regurgitating the same tired old garbage they were taught in college 40 years ago.  They wouldn’t recognize a new idea if it bit them.  The practice management methodology they espouse is antiquated and without innovation.  You can’t get better doing the same old thing.  Yes it’s safer, but remember the reward for risk is profit.  People like Ric Payne know there is opportunity for improvement, but they will consistently try to justify old methodology because it is safe, they are cowards and they don’t know any other way. 

Like Jabberwocky it sounds good and seems to make sense.  It just doesn’t work.  Oh, and if anyone wants to debate the specific issues of his post I’m happy to do so.  Just comment.

Earlier this week David Maister posted Satisfaction Guaranteed on his website.  You can read it for yourself, but the essence is committing to a service and performance guarantee for the services you provide.  Several years ago we began including this language in our client service agreements:

                 ”Our work is guaranteed to the satisfaction of the customer.  If you are not completely satisfied with the services performed by Mark Bailey and Company, Ltd., we will, at the option of the Company, refund the price or accept a portion of said price that reflects the Company’s level of satisfaction.”

Initially this sentence caused serious concern among my associates, and I’ve have heard numerous ‘warnings’ from peers.  But what is it that we have to be afraid of?  It’s our work, and certainly if we don’t have enough confidence to back it up we shouldn’t be a service provider.  Should we be concerned about the unscrupulous client who arbitrarily decides not to pay, and uses our guarantee as an excuse?  We’ve never run into that problem, and don’t expect to.  We ‘price’ our services in advance so that our client agrees up front and is not ’surprised’ by a bill they didn’t expect.  Realistically you are already giving this guarantee, whether you realize it or not, because it’s usually not worth a lawsuit.

If a client claims to be dissatisfied with your service and refuses to pay your invoice are you really going to pursue it in court?  Hopefully not.  Most lawsuits against accountants are filed as counter claims to collection attempts.  The legal costs, including the wasted efforts, frustration and stress on your part generally just aren’t worth it.  Negotiate a settlement that makes everyone unhappy, and  move on.  (And then fire them.)  Certainly if your service was sub-standard you would already have agreed to negotiate a write-down. 

The confidence our clients gain from receiving our ‘guaranty’ extends not only to the price, but also to the quality of work we are doing for them.   Offering performance guarantees has set us apart, and  has been nothing but positive for us. 

Unquestionably, large mature accounting firms can have some distinct advantages.  As smaller firms can we overcome them and compete on the same level?

When I left the ‘Big 8′ (yes children, before it was the Big 4 it used to be the Big 8 back in the olden days) to practice with several other big firm refugees we were certain of the many opportunities that existed to invoke positive professional change, and do it better.  Like most teenagers, we knew it all - especially everything that was ‘wrong’.  We missed no opportunity to criticize.  And like most teenagers, we somehow missed all the things our former Big 8 employers had done that were ‘right’.  The naivete of youth.  And we were professionally youthful having only been recently emancipated. 

Most things were easily overcome.  Questionnaires, checklists, time and billing, general ledger, due date monitoring and scheduling were all available from multiple vendors.   Continuing professional education which had been so strongly emphasized by the big firms as their special strength was (and is) provided on a far superior basis to small firms through the various state societies and the AICPA.  (The big firms tout their advantage but with few exceptions the programs available and taken advantage of by us little guys are far superior with respect to the quality of the presenters and variety of topics.)    

Anyway, everything was easily overcome - except the depth of technological talent and resources available.  How can you compete with the level of expertise a national firm can assimilate to address a difficult tax or accounting issue, and yet if you are going to be a top tier firm, you must.  We sell knowledge and expertise, (not time).  So we need to find and develop that knowledge and supplement that expertise.

I already mentioned our advantage as small firms with regard to superior cpe.  We also found a tremendous resource in our local university.  We have always had at least one accounting professor retained to assist in technical review,  provide supplemental in-house training, and coordinate recruiting.  They are paid on a contract / hourly basis.  CPE is tailored to our firm needs and client base.  We almost have an unfair advantage when it comes to recruiting.  From the standpoint of technical expertise, no one is more current.   I have two PhD’s available.  Can your local office of Big 4 match that?  (This week we have an in-house seminar on the IFRS for our audit teams and interested clients.)  When we were smaller we shared this cost with other local firms who were also too small to justify the cost.

Finally, what about your competitors?  If you’re honest with yourself you’ll admit you can’t be all things to all clients.  For those engagements we can’t or don’t want to undertake we’ve formed strategic alliances with other firms / practitioners.  There are also some very strong professional associations you can join.  We were previously a member of cpaconnect.  Great folks and a very worthwhile affiliation.  We benefited greatly.  Unfortunately we’ve out grown that, but we’re looking for a new affiliation.

Here’s what we’ve done to not only level the playing field with the Big Firms, but to give us the advantage:

     1.  Take full advantage of the cpe offered by the state societies and the AICPA

     2.  Contracted with local university professors to give us the best technical expertise available, provide unparalleled in-house training and assist with recruiting.

     3.  Affiliated professionally with organizations like CPAmerica and cpaconnect. 

This has worked for us.  We feel we can more than compete with any firm.  What works for you?

Our premise for this blog is that no matter how perfect the practice management model is in accounting, it can be improved by the collective minds, experience and efforts of the members of our profession.  No management model is perfect, and one that hasn’t changed substantially in more than 50 years, such as ours, certainly must have some room for improvement. 

 Change is always difficult if not traumatic.  It’s also inevitable if we want to improve our situation.  We freely admit that some of our theory is just that - theory.  Almost inevitably it flys in the face of what is traditionally accepted practice management philosophy.  To be validated it must first be falsified.  That is precisely the purpose of this forum.  If you want to contribute to our profession challenge the accepted - challenge the proposed.  We will publish all opinions not just those we concur with.  Give us a topic or thought, and we’ll find ‘experts’ to comment and debate with.

If this is your first day in the profession or your 35th anniversary, as it is mine, your thoughts are critical to formulating a positive change.

This is not a forum for our opinions.  It is a forum for an exchange of opinions and theory which will hopefully result in positive change to our profession.

Recently I was asked by a former tax partner of an international firm how we measured the productivity of our associates given that we no longer keep time sheets. Ignoring for the moment that Peter Block has already answered that question in his book The Answer to How is Yes, I have more than one issue with this question. » » » more

Recently, Bob Nugent the Chief Financial Officer for Scolari’s Markets, a chain retail grocer in Northern Nevada and one of our favorite and most valued clients, gave our firm a compliment that created a HSD for me. (HSD is the acronym for High Satisfaction Day - a phrase I first heard from author Ron Baker.) We had recently completed several projects for Scolari’s, which had involved several of our team members. Bob, not known for lavishing unsolicited praise in the thirty years I’ve known him, told me how impressed he was with the knowledge, professionalism and service level he had received from our associates. » » » more