When  the discussion turned to  the current economy the general consensus was that this was an appropriate time to reduce overhead by firing marginal  team members – thinning the herd.  I have two very significant problems with this concept.

First and most importantly.  Your team is not a ‘herd’.  I realize this was probably not the literal sentiment of the speakers, but words are important.  And they influence how you interact with your team.  If you think of those you work with as an amorphous  mass, as opposed to individuals you’re missing incredible opportunities to develop the expertise and effectiveness of your firm.

Second, if you have weak team members who should be fired why are you waiting for an excuse, e.g. a weak economy?  If they need to be fired, they need to be fired.  Please name for me one advantage of keeping a weak team member around.  Great firms have great people – people who perceive themself as great.  If you keep a ‘weak link’ around it effects the professional self opinion of every other member of your firm, indirectly.  Directly it effects your firm by the perception projected to your clients and the community.

That’s not to say you throw away a member of your team without making every effort to help them.  That’s expensive and in my opinion immoral.  But if they are in the wrong profession or wrong situation, what benefit is there to keeping them around.  None to them, and certainly none to your firm

After practicing for over 30 years I can unequivocally say we’ve never had a ‘perfect client’. One who always applied the accounting principles correctly, on time and provided the requisite support. Without exception. (The other assurance partner claims he had one, once, but he drinks heavily.) The only perfect client is the one you are doing a proposal for. He’ll promise to do everything perfectly.

In the proposal process, the Company’s obligation is to get the ‘highest level of service for the lowest possible price’. So of course they are motivated to commit to a course they are entirely incapable of keeping and the assurance team has to endure the shortcomings.  In a time sheet environment this may get passed on to the client, but not likely. And of course if it does the client squeaks that it is not consistent with the original proposal, and you have what my friend and mentor Ron Baker euphemistically refers to as ‘bill and duck’ (and hope they pay). For pricing firms, as we are, it results in scope creep.

My point is that ultimately no client is perfect. Propose based on what they commit to but invoice them for what they actually do or don’t do. Don’t whine because they aren’t perfect. Just implement a system that accommodates that imperfection without penalizing your Firm or creating animosity with your client(s). You might want to try Client Service Agreements. (Oh, and to all you seniors – ‘imperfection’ is why you get paid the big bucks! If all our clients were perfect we wouldn’t need your gray matter. We’d just use checklists. )

One definition of insanity is “Doing the same thing over and over, but expecting different results”.  I have no idea who first said that, but truer words were never written.  And that’s what we seem to be doing too regularly in the accepted approach to practice management in our profession.  So after 25 years we finally recognized the need (and tremendous opportunity) to be innovative.

The catalyst was a presentation by author Ron Baker, on pricing and the Firm of the Future sponsored by CPAmerica and cpaconect.  Ron is a a shameless advocate of trashing the time sheet especially as a tool for measuring the value of the services we provide.  Ultimately, though, for us the derivative (sorry auditors I know you hate that word) benefit was the realization that time sheets are an insidious tool of micromanagement.  And micromanagement creates serious negative repercussions with professional knowledge firms (PKF’s – a Baker term).  This realization, brought about by eliminating time sheets in our firm, led to many positive changes some of which follow:

- a results oriented work environment – team members are ‘invited’ to work on specific engagements and may decline without prejudice; team members have a responsibility to get the job done on schedule, but they decide when, where and how the work will be performed.

- elimination of annual performance evaluations - in favor of a mentoring program.  This improved communication technique provides timely feedback in a non-confrontational manner rather than waiting until the end of the year.

- a true flex time environment - pick your level of commitment and be responsible for your own work/life balance.

- true team work – as a result of eliminating the dysfunctional staff competitive environments found in most firms.

- elimination of turnover – we’re nearly perfect in eliminating voluntary turnover in an industry plagued by the loss of the best and brightest talent.

There is much more.  The obvious result is a healthier professional environment, which has led to better client relationships a happier team and virtually no turnover.  Some of the ‘new’ things we’ve instituted to support this are:

- universal involvement at all levels in the committees that set the direction for the firm, whether it be audit, tax, consulting, pricing, marketing, admin, or social.

- a new pricing model supported by strong proposals, detailed client service agreements, a staffing and scheduling committee, after action reports, budgeting and profit analysis by engagement.

- a mentoring program.

Designing and replacing the system that was time sheet driven  to provide the management tools necessary to have an effective service firm in our current business environment has not been easy, and it’s an ongoing process.  There is much more to say than room on a blog to say it, but the bottom line is ‘we’re not crazy’!  And we have the results to prove it.

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.

There are numerous posts on this site that begin to break the surface of the difference in culture at our firm, but one of the biggest things I’ve noticed is communication. The partners in this firm reach out to us on a daily basis; simple things like, “how’s it going, “hey, nice work on that…” or “I just want to thank you for all your hard work on this.” Or sometimes they just tease me but they know I can handle it. Many firms may hold on to the philosophy that work is a fact of life and the only thing you owe your employees is a paycheck. You may be able to find enough professionals to buy into that philosophy in the short run, but it may prevent you from transforming a good firm into a great one because the best and brightest will go where they are appreciated.

So how much does a system based on time sheets and the billable hour cost?

-Did the amount of time you spent at an arbitrarily guesstimated rate reflect the value of the service (even after you wrote it up) that would have been agreed upon with the client at the beginning of the engagement? We both know the answer. That’s a cost.

-Trying to collect a surprise invoice the client NOW doesn’t agree to or see the value in? That’s a cost.

-The ‘time’ spent in calling on accounts receivable? That’s a cost.

-The delay between when you sent the surprise invoice and when they paid it? That’s a cost.

-The impact on the relationship a surprise invoice has with your clients. (You’d hate it if you were on the other end). That’s a significant cost.

-The amount of ‘time’ it takes for you and your staff to record your time if you record time. That’s a cost.

-Communicating to your staff by micromanaging their time, that you don’t trust them to make conscientious effort or fulfill the contract they have with you to be professionally responsible in taking care of your clients. You tell me.

-In a comment to my first post on Why I Hate Timesheets, Shane pointed out the negative impact of using time sheets as a micromanagement tool for productivity and competency. I’ve had multiple discussions in employment interviews with professionals (at all levels) looking to leave their ‘jobs’ with national accounting firms. It’s a common theme. What is the cost of turnover? It also reflects a ‘cost’ of supporting a management system that relies on time sheets.

There is a place for tracking time. No doubt there is some value, but we don’t think the way we’ve been doing it as a profession, or more importantly what we’ve been using that information for is appropriate. Most importantly the cost far outweighs the benefit derived. We’ve outlined some of the costs, and can name many more. Can you give us some ‘benefits’?

Why did we tolerate it? Simply speaking, there was a shortage of jobs and an abundance of candidates to fill them. If you weren’t willing to make the ‘sacrifice’ there were ten others who were. Did we have a different work ethic, ability or attitude then, than those ‘kids’ of today? I don’t believe so. We didn’t have choices that our employers had to compete with. That has changed.

In the past six years, since the passage of Sarbanes-Oxley, the amount of accounting work for professional firms has, by some estimates, tripled. The corresponding demand in industry has increased proportionately. Simultaneously, many states have stiffened the requirements for certification by implementing a 150 hour standard. So is the answer to increase compensation, improve flexibility or become more efficient as Rick Telberg advocates as our only solutions?

In the past thirty years I’ve reviewed the annual surveys done by numerous organizations, including the AICPA, and I don’t recall even one instance where compensation was the first priority of the respondents at the staff level . (Although it is generally ranked as ‘most important’ by the partner group responding.) So the exodus is not compensation related. Is it flexibility? Most professional firms have adopted flex time, and yet we continue to lose talent.

Efficiency is not the issue. We are certainly more efficient, technologically, today than we were even five years ago, yet the staffing crisis is worse than ever. Logically, with revenue based on hours worked, and time sheets, the more ‘efficient’ we become as service providers, the quicker our fees will drop, the less ability we will have to pay competitive salaries, and the faster we will all go broke. Can you improve your efficiency enough to have an impact?

In our firm we are concerned about ‘effectiveness’ over efficiency. Efficiency is a function of selling time. We sell knowledge. We are focused on the overall quality of the service we provide, rather than how fast we can provide it. So if it’s not compensation, flex time or technology what have we done as a firm that has virtually eliminated turnover; improved team member morale and client satisfaction simultaneously; increased revenue and allowed us to grow at an annual rate of more than 50%? Trust.
Thirty years ago, as a married twenty eight year old ex-Vietnam commanding officer my employer didn’t trust me. They set my schedule, and hours and forced me to report on them. I punched a time clock. Is that necessary with knowledge workers? Do we not trust our professionals to give their best and make every effort to provide quality service? Do we believe that, as management, we are more capable than our knowledge workers, of establishing and enforcing one agenda for everyone that meets the needs of our many clients and varied team members without their input? That would be ridiculous. Yet, as a profession, we have micromanaged our knowledge workers to the point where they are leaving the profession because they can’t stand the ‘job’, not because they don’t love the work. Nothing has changed in the way we were managed as knowledge workers forty years ago, or the way we manage knowledge workers today. We say we trust them, but nonetheless we try to dictate. It did not work then, and it certainly does not work now.

We hire because the desirable candidates are intelligent, committed, hard working, honest, energetic and motivated. And then we smother them with a system of micromanagement that limits all of those qualities. It is not surprising that within a short time they seek other opportunities. We are going to continue to see an exodus from our profession until we make it a desirable career. We have to quit micromanaging, (as hard as that is) and provide our knowledge workers with the opportunities and respect they deserve, if we want them to stay.

After over thirty years in the profession, shackled to a business model predicated on selling time and tracking it on time sheets, we finally realized we weren’t selling time, and abandoned the time sheet – the most insidious micromanagement tool ever employed. The impacts are summarized above. We have adopted a business model, outlined by Ron Baker in his book Firm of the Future. It is a radical departure from the way we had done business for so many years. Sounds frightening? It is, but what we’ve done in the past isn’t working; doing nothing isn’t acceptable; so what choice do we have?

Some years ago, author Ron Baker began his crusade to ‘bury the billable hour’ in his book Professional’s Guide to Value Pricing, now in it’s sixth edition. A prevailing theme in much of Ron’s writing is his disdain for setting value based on time spent. He is well known for equating the billable hour to Karl Marx’s Labor Theory of Value, which obviously created such a successful template for communism it’s appropriate to apply it to our own little ‘business autocracies’. While I happen to agree with Ron, that’s not my biggest gripe with time sheets and the billable hour. If practitioners are committed to billing by the hour, so be it as long as they are only hurting themselves. My gripe is that the billable hour is hurting our profession by driving the talented young professionals out.

We typically have moved away from ‘assigning’ staff to client projects. Alternatively, once our pricing committee accepts a client, the engagement partner will select the manager or supervisor he would like – manager / supervisory senior / senior. After defining the engagement to them, he will then invite them to be a part of the engagement team. They can decline without prejudice. They in turn will invite other associates to be a member of the engagement team. Why would we do this?

Typically, we all are much more likely to take ownership of projects we have personally committed to, which equates to better client service. We are more stimulated by projects that interest us, and hopefully, therefore, more satisfied professionally. Ultimately, we have a more effective engagement team and a happier client. Equally as significant, we have more highly satisfied and motivated associates, who have been given the responsibility of maintaining their own work / life balance, and not micromanaged by a ‘scheduling coordinator’ who can’t possibly know what everyone’s needs, prejudices and demands are, at any given time.

Our belief is that professional knowledge workers are conscientious, committed and motivated, just as we were when we were ‘baby accountants’. We wouldn’t have abused our freedom of choice, and neither will the young professionals of today.

In an article published December 5, by smartpros.com, PricewaterhouseCoopers characterized the results of a recent survey as validating the work schedule requirements of the firm. Seventy-five percent of the respondents to the survey, (some 2793 entry level professionals offered positions by PwC), indicated they expected to work a ‘normal work week’. The survey further indicated that on average each graduate expected to have between 2 and 5 employers in their lifetime. The article and related link to the PwC survey are at http://accounting.smartpros.com/x60006.xml.

Interestingly, neither the article or the survey defined ‘normal work week’. Typically, the normal work week in the United States is considered to be 40 to 45 hours (move to France if you think 30 to 35 is more reasonable and want the government to pay for it). What PwC failed to advise their survey respondents of was that the company typically considers 50 to 60 hours as being ‘normal’, and of course there is no additional compensation over and above the base salary for hours in excess of 40. Once they realized they have been at worst ‘lied to’, or at best ‘intentionally mislead’ by their new employer, is it any surprise that they’ll move on to employer number 2 of 5?

While it is commendable and encouraging that this global professional accounting titan recognizes that “future business models will need to anticipate change and address how they will attract, retain and motivate the people they will need in the future” it is unconscionable that they continue, as does our entire profession, to employ management tenets that were fomented in a different age and are completely and totally unresponsive to the business and social environment of today, simultaneously ignoring the needs of those very same people they will need in the future.

It’s not just PwC. Until we as a profession, make professional accounting attractive as a career opportunity rather than the job that it currently is for most entering it, the exodus of young professionals to industry will continue. What is it going to take? Let us know your thoughts.