by Tim Williams
It’s performance review time, and John Adams is being praised by his boss for being 89% billable. His colleague Jane Austin — who has similar experience and plays a similar role — was only 62% billable this year.
Which is the most productive employee?
The answer is that we don’t have the right information to make that judgment. Time recorded on timesheets (which is never accurate in the first place) is not even a remotely effective proxy for evaluating productivity. So why do firms spend up to 20% of their time, energy and resources supporting a time-tracking system? If your answer is so the firm will know what to bill its clients, I would invite you to think more carefully about what you're really selling -- and what your clients are really buying. No reasonable buyer of professional services wants to pay for activity.
The Real Problem With Numbers
The obsession with tracking, recording, analyzing and reporting units of time represents a substantial investment of managerial resources. Harvard’s Clayton Christensen estimates that 50-90% of a manager’s time is spent on “the assembly of numbers” at the expense of innovating and growing the company. The resulting spreadsheets are what Christensen calls “the fast food of business” — quick bites of backward-looking data that do little to nourish the forward-looking success of the company.
As my colleague Ron Baker observes, the real problem with numbers is what they don’t tell us. Hours on a timesheet tell us nothing about the productivity and effectiveness of the person that recorded them. Worse, hourly billing has the deleterious effect of fostering a production mentality, not a spirit of proactive innovation, which places professionals at odds with the interests of the clients they're pledged to serve.
Today, the average "billable hour" is shattered into micro-segments driven by a steady stream of interruptions fed by technology and the open office environment. Rare are the individuals who have the discipline to say no to these distractions and instead stay focused on the task at hand. Peter Drucker famously believed that a block of 90 uninterrupted minutes is required to get anything important done; in other words, to be truly productive. The opposite of this disciplined approach -- multitasking -- creates the illusion and feeling of being busy, but several decades of research have conclusively shown that multitaskers are far less productive, not more. Yes, it's possible to physically multitask -- walk and chew gum while at the same time patting the top of your head -- but it's impossible to apply to cognitive work. The brain can only focus on one thing at a time.
Value of Outputs vs. Sum of Inputs
The story is told of Henry Ford showing a visitor through the company’s headquarters when they come upon an office occupied by an executive leaning back in his chair, staring out the window. “Why do I pay $50,000 to that man over there with his feet up on his desk?” remarked Ford to the visitor. “Because a few years ago he came up with something that saved the company two million dollars, and when he had that idea his feet were exactly where they are now.” The true measure of a professional is the value of their outputs, not the sum of their inputs.
For companies that lean on the unreliable crutch of hours worked to assess productiveness, time accounting can create the illusion of a profit on paper that doesn’t correlate with the true monetary profit earned by the company. Pricing professional Tim Smith argues that the ultimate profit goal actually shouldn’t just be an “accounting profit,” but rather an “economic profit.” Accounting profits — revenues minus costs — can sustain a company for a time, but to propel the company forward, economic profits are required. In an economist’s terms, explains Smith, economic profits are accounting profits less opportunity costs. How are opportunity costs accounted for on a timesheet? They’re not.
So what’s the right way to evaluate the productivity of a professional? The same way your clients do: the quality and effectiveness of the work.