Seems like a simple answer yet we truly have great people who have a passion for what they do. Employees who enjoy coming to work each day, are respected and know they are an integral part of the firm enable us to provide a work environment that sets us apart.

Recently members of our management team were reviewing software options for project management.  During a web presentation by our British friend and Verasage Senior Fellow, Paul Kennedy of O’Byrne and Kennedy of their software designed primarily for ‘pricing firms’  we were discussing CSAs.  Our document template is very similar to his, with one glaring exception.  Paul includes an automatic bank wiring authorization form.

By signing it the client instructs their bank to wire the agreed upon amounts on the agreed upon dates in advance or concurrently with the work being completed.  Simple, effective and brilliant.  While this works best for those of us who ‘price’, it has definite possibilities for you time sheet junkies as well.

In most firms, the engagement letter – conceived / drafted / revised / and re-revised by attorneys attempting to protect us from ourselves – has become the primary, and frequently only, verbal communication with our significant clients prior to performing the engagement. Yet it does nothing to inform the client of their obligations other than to pay, or what our responsibilities or requirements are. It is a legal letter. Not designed to communicate, but rather to provide a defensible legal position.

As a Firm practicing ‘pricing’ – advising the client of the cost in advance of providing the service – we automatically assume the pricing risk of ineffective engagement performance. Of course we can only influence the risk for matters over which we have control, so what happens when the client doesn’t perform as agreed? The scope of the engagement is extended. We refer to this as ‘scope creep’. Without an agreement defining the engagement it is highly likely the service provider, if a pricing firm, will unfairly suffer the financial responsibility.

Poor communication can be even more detrimental to a firm who ‘bills’ – adds up the hours charged and then multiplies the total by some arbitrary rate at the end of the month – and drops an unexpected invoice on the unwary client. (Michelle Golden a national marketing and practice management consultant to service firms referred to this process when speaking with me recently, as ‘bill and duck’.) The frequent result can include non-payment or loss of the client, but at a minimum a deteriorated relationship.  

Does the engagement letter cover either of these possibilities and define the engagement? Contractually, maybe. Operationally, absolutely not.

During my career I’ve noted that when contractual agreements lead to dispute, it is primarily because they were not drafted jointly, but rather unilaterally. One of the fundamental tenets of effective leadership is convincing all parties necessary to a transaction or course of action to take ownership of the process. Undeniably you are more likely to take ownership of decisions you have participated in making than those that have been forced on you. It is no different with written agreements. Unilateral decisions are simpler to make, more convenient and easier to implement, but less likely to be embraced. In other words, they are sometimes more efficient, but typically much less effective.

Engagement letters are unilateral. They are without input from arguably the most important party to the contract. The client. We essentially are telling the client to take it or leave it rather than striving for concurrence. In our Firm, while we obtain engagement letters for every engagement, we’ve also implemented the use of Client Service Agreements.  Ron Baker refers to them as Fixed Price Agreements in his book the Firm of the Future.

We’re primarily an audit firm, and most clients have a very rudimentary understanding of the audit process. The CSA gives us the opportunity to explain the engagement process. Simultaneously, it provides the client with an opportunity to educate our audit team so that we don’t inadvertently or unnecessarily interfere with their work flow. The CSA is not a unilateral agreement. We develop it jointly with the client.

Typically our CSAs cover our approach and what we need the client to do for us to be successful; what the client needs from us to make the engagement tolerable and successful from their perspective; scope of services; timing; responsibilities of all parties; the additional financial cost and potential for missed deadlines if the client doesn’t meet their responsibilities; detailed schedule of payment for services; and our service guarantee. Little of this, if you think about it, is covered in a typical engagement letter but all of which is critical to a successful engagement. Finally, in addition to our service guarantee we include a termination clause allowing either party to void the CSA if they become dissatisfied.

For us, the improved communication embodied by our CSAs has led to significantly improved engagement performance with happier clients. We have completely eliminated invoicing disputes and increased our accounts receivable turnover which has resulted in improved cash flow and profitability.

]]> http://www.markbaileyco.com/blog/practicemgmt/client-service-agreements-low-cost-big-returns/feed/ 4 http://www.markbaileyco.com/blog/practicemgmt/firmbranding/the-best-thing-you-can-hear/ http://www.markbaileyco.com/blog/practicemgmt/firmbranding/the-best-thing-you-can-hear/#comments Thu, 12 Jun 2008 22:50:41 +0000 staff http://www.markbaileyco.com/blog/?p=62 Just read Michelle Golden’s post on sending out mass mailings.  I thought it was very funny, and says so much about why we are so turned off by most of the mail we get today.

But most of all, I thought it also shows the value of criticism.  I read the other day, that the best thing you can hear as a company is a criticism, because that’s when you have the chance to improve.  If you never hear them, you can never get better.

So many times we dismiss them and make excuses for them (like this partner in her story), but a lot of times they can be the most valuable thing we can use to improve our company as a business.  The problem is a lot of times our customers don’t tell us what they don’t like about us, or even more often, we discount them when they do.

As Client Services Manager for my firm, I would love to be able to capture them from the clients and figure out a way to go above and beyond in making them happy, and also changing the way we run our business.  A bank rep once told me that if they make a customer upset, they have a basket with gift cards to restaurants, movies, Starbucks, etc.  I think they ought to go a step further and implement procedures, etc. to make sure that that situation never happens again to the client.

I imagine how I feel as a customer when I am upset about something.  I want to rant and rave to all my friends about.  But if I’m given something to appease my by the company, I rant and rave to all my friends about how generous they were and how much they made up for their mistake.  This makes the company look great- even though they made a mistake.

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?

First, his question presumes time sheets are an accurate indication of individual productivity. I don’t agree with that assumption, and I’ve addressed my feelings about that in a previous post. Second, his question presupposes productivity is a critical factor in performance evaluation.

My response was to ask him if during his tenure as a partner he could rank the associates working for him. He, being somewhat offended, responded that of course he could. When asked if he looked at traditional productivity reports such as charge hour summaries or budget to actual analyses to do this, he responded that he didn’t have to. Checkmate! The most common measurements of productivity in our profession aren’t needed to know the relative effectiveness of your associates or peers. So is measuring individual productivity, at best, over-rated or at worst a waste of time?

Measuring productivity is a management tool which may or may not be relevant to your firm depending on your management style and your client base. For our firm we are more concerned with ‘effectiveness’ than with productivity. We don’t do ‘piecework’ nor are we a tax or accounting mill ginning out high volumes where efficiency may be more important than overall client service. Productivity is a measure of efficiency, and while efficiency is relevant, it is only one very small aspect of overall individual performance. As accountants we default to it because it is easily measureable – and you know how we like to measure. We have found that the attributes that are the most easily measured are also the least significant in achieving the strategic priorities we have set for our firm.

We agree with the concept of the importance of effectiveness over efficiency advanced in Ron Baker’s book, The Firm of the Future. The effectiveness of our associates is a function of how well they address the strategic priorities and mission of our firm, and not necessarily how fast they do so. The personal characteristics necessary to be effective include such traits as commitment, loyalty, selflessness, common sense, concern for client, concern for associates, professionalism, and more. All of which are, for the most part, subjective in nature and correspondingly not easily measurable. More importantly though pursuing effectiveness is frequently precluded by the never ending quest in our profession for efficiency / productivity.

Productivity is about efficiency and speed. Effectiveness is about quality – quality service, quality relationships, and quality environment. Certainly measuring productivity has some value, and it’s not always mutually exculsive of effectiveness, but in terms of evaluating performance because it is easily measured it receives far more import than is justified. In my opinion effectiveness receives far less consideration than it should. Yes, it’s more subjective and harder to quantify, but who said management of a professional accounting firm was easy?

It certainly seems many firms sacrifice the welfare of their associates on the altar of client service, rationalizing that the client needs – the engagement – always comes first. Maybe in the short term that is manageable, but over an extended period the Firm runs the risk of losing valued experienced team members. Without experienced team members the quality of a Firm’s service is impaired, if not destroyed. But then what about the importance of great client service? Without great client service, a Firm won’t have quality clients, and without clients won’t need team members. So which is it?

The answer is obviously BOTH are critical. In his book Practice What You Preach, first published in 2001, David Maister points out the critical importance of recognizing ‘Reinforcing (not opposing) Forces’. “Caring about clients AND caring about employees”. Of the many books written by this preeminent management guru, this is one of my favorites. If you are involved in management, this is a must read. The lessons and characteristics needed for a successful firm to ‘create a high achievement culture’ listed in the last several chapters of this book are invaluable. It’s worth reviewing regularly.

So we attempt not to lose sight of the necessity of taking care of our associates AND our clients. It’s a challenge sometimes to do both simultaneously, but if every member of the team is engaged you can do both, and you’ll differentiate your Firm at the same time.