by Tim Williams
During the Vietnam war, Robert McNamara, the U.S. Secretary of Defense, used a notoriously flawed metric to judge the success of the war: body count. For years, McNamara tried to convince the American public that the United States was winning the war based on the fact that far more North Vietnamese soldiers were dying than American or South Vietnamese soldiers. But Americans could sense that despite these figures — even if true — this armed conflict was getting much worse, not better.
Exact, but exactly wrong
In effect, “body count” was a self-reinforcing metric that seemed logical but measured the wrong thing. McNamara, who came from a manufacturing background, thought methodical statistical analysis should guide decision making.
Body count was an easily calculated measure. It was exact — but exactly wrong. As my colleague Ron Baker observes, “McNamara could count the bodies, but he couldn’t describe what was happening in the war.”
In the world of professional services, while not literally a life-and-death situation like war, we can count the hours on timesheets, but that doesn’t describe what’s actually happening inside our firms. As writer W. Bruce Cameron famously remarked,
“Not everything that counts can be counted, and not everything that can be counted counts.”
More important metrics than “busyness”
Timesheets, even if accurate (they’re not), provide only one uni-dimensional piece of information: who’s “busy.” Time tracking doesn’t reveal anything about what really matters in a professional firm, such as client satisfaction, work quality, or professional effectiveness.
Worse, the practice of time tracking incentives all sorts of bad internal behaviors, from stretching the truth to discouraging innovation and collaboration.
Given the pervasiveness of time tracking in professional services, it’s understandable that even those managers who have become convinced that recording time is an ineffective way of measuring success feel at a loss when looking for a metric to replace it. Let me recommend 22 of them:
Profit generation and profitable growth
1. Profit per employee
2. Percent of profit growth over prior year
3. Number of 20%+ profit clients over prior year
4. Average turnaround time
5. Velocity of teams
6. Revenue per employee
7. Revenue divided by workload
8. Percent of clients/assignments judged to be a good fit with the firm's strategic focus
9. Average turnaround time for each major project type
10. Number of projects completed on deadline
11. Performance ratings
12. Client compliments and complaints
13. Length of client relationships
14. Number of client recommendations and referrals
13. Percent of assignments with clearly defined scope of value, not just scope of work
14. Percent of clients for whom firm identifies and tracks metrics of success
15. Degree to which major clients and engagement achieved intended KPIs
16. Percent of client agreements with a clear, detailed definition of scope
17. Percent of work that was repriced due to scope creep
18. Income derived from changes in scope
19. Percent of total revenues derived from sale or licensing of IP developed by the firm
20. Number of new compensation agreements representing new approaches to pricing
21. Diversity of risk in compensation agreements; balance of high, medium and low risk/reward
22. Number of new products, services, or methodologies developed by firm
Burying the billable hour is only one aspect of transforming your firm’s success orientation. The goal is to completely reengineer the firm around value. In place of timesheets, value reports. In place of invoices detailing time spent, a written summary of value created. In place of Scope of Work, Scope of Value.
There is an opportunity to reimagine virtually every aspect of your firm in context of value creation, including:
Services and structure. Presenting what you do as solutions, not services. Organizing teams around client problems, not agency disciplines.
Staff management and talent development. Training executives to focus on creating client value, not filling client orders. Rewarding effectiveness, not busyness. Creating a culture of accountability, not utilization.
Self-promotion and business development. Selecting clients based on strategic fit, not just budget size. Emphasizing your break from time tracking as a competitive advantage that works in the client’s best interest.
Systems and processes. Defining scope as work delivered, not hours spent. Managing scope creep and capturing additional revenue from changes in scope.
Firms that make this metamorphosis experience not only greatly enhanced margins, but a step change in internal motivation and job satisfaction. As my attorney friend Christopher Marston notes, you give your people “the economic power to care.”