When monthly billable hours are up everyone is happy, especially the partners. Managers and staff who are billable high performers are the ones that get ahead; they are the firm’s high potentials. Over many years and in several countries we have seen this across numerous firms. When this focus on billable hours becomes dominant we have also seen the following problems that have resulted in poor financial performance and even the demise of a firm.
- Who does the work? Partners, and senior associates, in order to meet their own billable hours targets, are doing work that is below them, they are doing work that should be performed by more junior staff. This is detrimental to staff development and even more crucially firm profitability.
- Short term client focus. There is more concern for next month’s billable hours than next years. This can lead to customer relationships being more transactional and transient in nature, in todays more competitive landscape this is a flashing red light for many firms.
- Siloed mentality. Partners and managers have little practical or intellectual concern for the firm as a whole instead focussing solely on their own division. In this case the firm exists only to provide some administrative economies of scale for its divisions that then operate as independent business units.
There is no dispute that billable hours are important, however billable hours will only ever be a lag measure. The most successful firms are the ones that focus on next years clients and how best to meet their needs. There are two keys actions they take to do this.
Talent and succession management. They develop and promote partners who can think strategically, work collaboratively and inspire their key stakeholder to achieve great things together. One firm we have worked with to achieve this went from being a top 20 English firm to a top five global firm over a 10 year period.
Client focus. They develop a real value for clients and all things relating to client needs in the immediate to mid and long term. Managers and staff are empowered to make decisions that benefit their clients. Client’s needs are anticipated so solutions thinking is pro rather than reactive.
In todays environment firms that focus on having the best client focused leadership will succeed ahead of their competitors. Firms in the mid tier that are large enough to have critical mass but smaller enough to be flexible are in the best position to do this. All too often it is also these mid tier firms that are most likely to fall into the short term billable hours trap.
By Simon Tedstone
Director – Leading Change Consulting
Board’s must take responsibility for managing the leadership of their organisations. The ASX Limited Board Charter states that it is the Board’s responsibility to “Appoint and assess the performance of the Managing Director and CEO, and oversee succession plans for the senior executive team.”
What constitutes performance? In recent research we conducted performance was generally considered to be financial. There is no denying that an organisation’s finances are hugely important but they can only ever be an historic measure. Lead measures are essential and there is no lead measure more critical than the leadership ability demonstrated by the CEO and the senior executive team. Two case studies clearly illustrate this:
Company A, a nation wide, well established financial services company that had a strong balance sheet, good profitability and a solid financial history. The Board were happy. What the Board didn’t know was the CEO, who had been appointed 18 months previously, was struggling. His strong and directional approach that had served him so well in the past was not working. He felt he knew the answers but others in the company did not agree. Staff were frustrated by what they believed was his micro managing. Decisions were being made that adversely impacted customers. When this all became apparent 18 months later the company’s financial performance had dropped considerably and the CEO had just resigned.
Company B, another national company. Again strong financials, again a CEO who had been appointed 18 months previously and again a very happy Board. However this Board still chose to have their CEO’s leadership appraised by us. To the surprise of the Board the CEO appraisal highlighted a number of red lights. Staff, and in particular senior staff, did not believe in or trust the judgement of the CEO. The CEO was acting unilaterally in a number of areas where he did not have the expertise. New systems weren’t achieving the needed outcomes. Staff morale was plummeting. Needless to say a very robust conversation took place between the CEO and the Board. Within three months the Board and the CEO agreed to part ways.
While neither of the above case studies have a perfect outcome, Company B were made aware of the poor leadership early enough to do something about it, and thus the impact on their financial position was negligible. Company A struggled before being acquired.
Appraising a company’s leadership annually is simply good risk management, it is part of good corporate governance. It is because Boards are responsible for financial performance that it is essential that they appraise and develop the leadership performance of their CEO and senior executives. Unfortunately too few Boards do this effectively.