Billable hours, the not so Holy Grail of professional service firms

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.

1. 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.
2. 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.
3. 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

Narcissism and confidence, it can be a fine line

The more narcissistic a CEO the more likely it is their organisation’s share price will lag behind their competitors.  This was the finding of the Macquarie School of Management after reviewing 18 months performance through to March 2013 (reported in last weeks Australian Financial Review).

These finding surprised some who feel that, particularly in more challenging environments, a leader who has a strong ego is essential to success.  When the interviewer Andrew Denton asked the former Australian Prime Minister Bob Hawke “How important is it to have a healthy ego? Hawke responded “Well look if you haven’t got confidence in yourself how in the hell can you expect other people to have confidence in you?”  Hawke makes a very good point but the key to understanding this is when does confidence become arrogance and then narcissism.  The answer lies in the leaders motivation, is it all for themselves or is it for overall success?

Narcissistic leaders have a common focus with leaders who are at the other end of the scale, i.e. those who are afraid.  The number one priority for both is a concern for how they will be perceived by others (see table below).  It is this personal priority that will derail their impact on organisational performance.  They will do things for the wrong reasons and they will not be trusted by others; two key issues that will hamstring their ability to add value.  While it is easy to weed out leaders who are afraid it is more challenging to identify the narcissists, particularly in business scenarios that require strong and confident leadership.

Frame of Mind	Afraid		Confident						Narcissistic
Main area of concern	Themselves		The organisation and others						Themselves
Score	1				5					10

A confident leader will not be afraid of taking a stance for the wider good, they will seek the input of others, they will be happy to explain themselves and when they do get it wrong, they will have the confidence to admit so.  The old adage that a good leader will talk about themselves when addressing poor performance and the collective when referring to successes is always a good indicator.

By Simon Tedstone

Staff Rationalisation in Challenging Times

You would have to be living under one very large rock not to be aware of the current economic stresses faced by many organisations, public as well as private. Some organisations are looking to cut staff costs by in excess of 20%.  As noted in the Economist, as a general rule cutting 10% of your workforce can lead to a leaner more efficient organisation, more than 10% can detract from an organisation’s ability to operate as its remaining customers expect.  

You can call it restructuring, rightsizing, realigning, organisational rationalisation or any of the other catch phrases that organisations use to make staff retrenchments sound more palatable.  What ever name you use there are three key and sequential steps to staff reduction; firstly what’s your business strategy, secondly where to reduce resources and finally which resources to reduce. 

The sole purposes of the second and third steps, is to drive the first step.  It is therefore crucial that this first step is done effectively and done first.  The second step involves looking for the fat spots in relation to your strategy.  The third and most painful step is to decide which individuals you want on your bus and conversely, who you do not. 

There is a high degree of emotion in these decisions.  At the top of the organisation a decision needs to be made as to what sort of leadership you need to drive your strategy.  This is a difficult task, particularly for those who are close to the outcome.  Outside consultants who are experts in interpreting and quantifying leadership needs and individual abilities can provide significant value.  Not only do they help make a difference to the quality of decisions but they also add a level of transparency and objectivity that makes the outcome easier to justify and implement.

Organisations who have the right leaders remaining will be able to identify opportunities in the market place.  They will have the ability in their staff to leverage those opportunities far more quickly and effectively than their competitors.  Therefore firms need to understand the capacity they need from their human capital, the capacity they have and how to close the gaps through staff rationalisation and development.  Making the wrong decisions, or no decision at all, will simply widen the gap. 

Blinkered Boards doom organisations

Cut 20% of costs out of a business and you will be considered a great leader, with an equally impressive bonus.  This is currently a common message to CEOs from their Boards. 

Irrefutably there are situations when the need to cut costs does exist.  But why do so many CEOs put their blinkers on in relation to everything else in their inevitably complex organisation when they have to cut costs.  Because this is the one thing for which the equally blinkered Board will punish them, as such it is the Board that dictates how holistic or simplistic a leader they want their CEO and senior executives to be.

No organisation is so simplistic that cost is the only business priority.  Any Board or CEO who manages their organisation along those lines dooms it to very poor performance in the mid to long-term, regardless of the cost savings they make.  More often than not the price is paid, in declining profitability and job losses, long after the Chair of the Board and the CEO have gone onto pastures new.

Boards must decide what sort of leadership they want from their CEO and senior executives.   They then need to support and actively encourage this sort of leadership to build a strategically leaner business that gets more, rather than less opportunistic value from their senior managers.  The Boards that do this well will be the ones that cut costs today but simultaneously build foundations for tomorrow’s success.