The Auditing Debate

Any way you look at it, the audit business cannot continue much longer as it is. If years of "clean" audits are no guarantee that billions of dollars of previously reported profits are, in fact, illusory, then what value does an audit actually provide? Parliament and the ASIC are vigorously investigating this, but there is a grave danger that they may be focusing on the wrong problem.

Auditing is a business full of paradoxes. The providers think they're providing one thing (carefully phrased as "an attestation that financial accounts based on information provided by management are in accordance with generally accepted accounting principles.")

The investing public, the users of the service, continue to believe (despite the profession's best efforts to tell them otherwise) that the service is something else: a protection against fraud, reliably affirming the financial health of the enterprise being audited.

Many people seem to think that auditing's problems are due to the conflicts created by audit firms also providing consulting services. Legislators and regulators are today holding emergency hearings about whether auditors should be able to provide these additional services, and (in anticipation of their rulings) four of the big five either have spun off their consulting divisions or have plans to do so. Amid all this activity, one point goes unrecognised: how irrelevant it all is!

The problem of auditor independence is not, ultimately, about the provision of consulting services. The conflict is built into the auditing system itself. Auditors are supposed to be independent of management, providing a neutral "attestation" that financial reports are a fair reflection of the business.

Yet who hires the auditors? Who pays them? Who retains them? Who can fire them? Answer: Only the company they are supposed to be auditing and no one else. Even if they never did a dime's worth of consulting, auditors would be conflicted.

The problem is made even worse by the way the output of an auditor's work is structured. They are permitted, in reporting to the public, only to issue a standardised letter with fixed language basically saying one of two things: either "We concur," or "We have reservations" (usually with no elaboration or explanation). Since the latter option is equivalent to dropping the guillotine, it's not used too often. There's not much else auditors are allowed to do.

Imagine that management is doing something questionable or on the edge. The auditor's choice is either to go along or to resign and cause a public scandal (and a loss of their own revenues). How much ability do you think they have to influence that management team? All they've got is a threat to resign (or, close to the same thing, to issue a qualified opinion) and management knows that if they do that they'll hurt their own business (lose substantial revenue).

What happens? Honourable, well-intentioned people try, with integrity, to get management to do the right thing, but unless they have incredible guts, they are forced to accept a lot of grey areas before they have to pull the trigger. If they are to do their job, auditors need more than these options for reporting their findings.

It is readily understandable that auditing firms have historically looked for additional services to provide. The auditing "product line" is an unattractive business. It's a low (or no) growth, declining-margin, highly exposed-to-litigation business.

Why would a firm that had other options want to nurture this product line? True, it does have the virtue of providing an annuity, a good, regular, dependable cash flow, year after year. And (here's the rub) firms view it as a base from which they can cross-sell their other services.

Notice that selling additional services includes not only consulting, which is getting all the attention, but a myriad of accounting services that will remain even if Parliament and the ASIC succeed in banning the provision of consulting services. The key distinction to be made is not between accounting and consulting, but between "attest" services (which include such things as certain tax services), where the firm serves the public by attesting to the accuracy of data, and "advisory" services, where the firm serves management.

Complete independence can only be achieved by complete separation of attest services from advisory services (an option that does not yet seem to be part of the public debate).

Even if not legislatively mandated, this separation could be a decent business choice. Most accounting firms, until recently, thought of themselves as audit firms who happen to provide a range of other services.

Now they have become professional service firms in which audit is just one of their products (and a diminishing, ever-less-attractive one at that). Maybe they should (on good business principles) drop their least attractive line of business and let someone else take it over.

The auditing function is needed, and someone has got to provide it. But to make it truly independent and free of any conflicts, we would need to find a way to construct firms that provide only attest services paid for not by those being audited but by someone else.

I haven't heard too many options for this being discussed, but one way could be for all publicly listed companies to pay a tax into a general fund (perhaps based on their revenues) administered by a government agency, which in turn would pay (private) attest firms to perform the audit.

Could a business that provides only "attest" or "audit" services survive to be an attractive business? There would be challenges. An audit is a product, not a career. Saying you are an auditor is like saying that you know how to make (or supervise the making of) one thing and one thing only -- an audit. You are effectively betting your career on a single product -- a risky move at best.

That wasn't a bad bet back in the good old days when demand for that one product was high, when the market placed a high price on it and when clients didn't shop for your product predominantly on price. Alas, all that has changed. Someone who is a pure auditor (rather than an accountant) will have a serious career problem.

Every year, all of the accounting firms (including our poor auditor's own firm) are furiously working hard to train vast numbers of younger people to know how to do what our auditor knows how to do -- supervise an audit. So, each year our poor auditor's existing knowledge and skill is becoming less scarce and less valuable. His (or her) asset is rapidly depreciating in value.

Of course, this sad situation is true of all professionals. They all must continue to build new skills to stay ahead of the pack. But how does our poor auditor, who wants to remain an auditor, do this? The great business virtue of auditing, that it is recurring work, year after year, is its greatest career trap for the auditor.

He or she is not going to learn new things rapidly by auditing the same companies year after year. Keeping up with the latest changes in accounting regulations helps but can hardly be called rapid skill building. The best and most obvious way to continue to build skills is to stop auditing the same clients and trade up to doing the audit of larger, more complex client organisations who have stretching, challenging audit issues.

Not a bad solution, but unfortunately one that is available only to a tiny percentage of those trying to earn a living as auditors. Not every partner can audit the Fortune 100. In fact, it's fairly safe to say that the vast majority of auditors, if they are to keep their skills and knowledge valuable, will have to start doing something besides auditing. They will either have to become accountants and (upon leaving the attest firm) provide accounting and finance-related services that clients view as worthy of high fees, or they will have to be creative and find other things in our society that need an attest service.

This actually may be the saviour of the attest business. Many financial, insurance and physical exchange transactions in our economy depend on the parties trusting each other that the underlying reality matches the terms in the contract (the goods are in the warehouse, we actually do have this many subscribers and so on). There could be incredible value and a great business for a company that (for once) could credibly provide truly independent, non-conflicted, third-party attest services. Whether or not this becomes a reality is up for debate, but one thing is clear. Contrary to the current Parliamentary and ASIC debate, the problem is not as simplistic as "auditing" versus "consulting."

Let's address the real problem!

The Psychology of Waiting Lines

Introduction

In one of a series of memorable advertisements for which it has become justly famous, Federal Express (the overnight package delivery service) noted that: "Waiting is frustrating, demoralising, agonising, aggravating, annoying, time consuming and incredibly expensive." ¹

The truth of this assertion cannot be denied: there can be few consumers of services in a modern society who have not felt, at one time or another, each of the emotions identified by Federal Express' copywriters. What is more, each of us who can recall such experiences can also attest to the fact that the waiting-line experience in a service facility significantly affects our overall perceptions of the quality of service provided.

Once we are being served, our transaction with the service organisation may be efficient, courteous and complete: but the bitter taste of how long it took to get attention pollutes the overall judgments that we make about the quality of service

The mathematical theory of waiting lines (or queues) has received a great deal of attention from academic researchers and their results and insights have been successfully applied in a variety of settings. ² However, most of this work is concerned with the objective reality of various "queue management" techniques: for example, what the effects are upon average waiting times of adding servers, altering "queue discipline" (the order in which customers are served), speeding up serving times, and so on. What has been relatively neglected, however, is much substantive discussion of the experience of waiting.

As Levitt reminds us, "Products are consumed, services are experienced." Accordingly, if managers are to concern themselves with how long their customers or clients wait in line for service (as, indeed, they should), then they must pay attention not only to the readily-measurable, objective, reality of waiting times, but also how those waits are experienced. It is a common experience that a two minute wait can feel like nothing at all, or can feel like "forever". We must learn to influence how the customer feels about a given length of waiting time.

In this paper, I shall discuss the psychology of waiting lines, examining how waits are experienced and shall attempt to offer specific managerial advice to service organisations about how to improve this aspect of their service encounters. down in separate components, so that practicing managers can begin to think about the available tools they can use to influence the customer's waiting experience.

I also hope to identify testable propositions offering the opportunity for future research. The First and Second Laws of Service. Before we discuss the laws of waiting, it is necessary to consider two general propositions about service encounters and how these are experienced.

The first of these is what I have come to call "The First Law of Service" is simple, but powerful, and can be stated as a straightforward formula:

S = P - E.

In this formulation, "S" stands for satisfaction, "P" for perception and "E" for expectation. If you expect a certain level of service, and perceive the service reviewed to be higher, you are a satisfied client. If you perceive the same level as before, but expected higher, you are disappointed and, consequently, a dissatisfied client.

The point, of course, is that both the perception and the expectation are psychological phenomena. They are not the reality. In a benevolent world, both the perception and the expectation will have some connection to reality, but they are not reality. Accordingly, all service managers must pay attention to three things: what was actually done to or for the client, what was perceived by the client, and what the client expected. Fortunately, all three can be managed.

Sasser (et al) provide good examples of both managing the perception and the expectation of waiting times. For the former, they offer the example of 'the well-known hotel group that received complaints from guests about excessive waiting times for elevators. After an analysis of how elevator service might be improved, it was suggested that mirrors be installed near where guests waited for elevators. The natural tendency of people to check their personal appearance substantially reduced complaints, although the actual wait for the elevators was unchanged. ⁵

As an illustration of how expectations can be explicitly managed, they note that some restaurants follow the practice of promising guests a waiting time in excess of the "expected time". If people are willing to agree to wait this length of time, they are quite pleased to be seated earlier, thus starting the meal with a more positive feeling. ⁶

This last example deserves further exploration. When I have discussed this anecdote with a variety of serving personnel, they always reaffirm its wisdom. As one waiter pointed out to me: "If they sit down in a good mood, it's easy to keep them happy. If they sit down disgruntled, it's almost impossible to turn them around. They're looking to find fault, to criticise."

As a result of these conversations, I offer by "Second Law of Service":

It's hard to plan catch-up ball.

The corollary to this law is the proposition that there is a halo-effect created by the early stages of any service encounter, and that if money, time and attention is to be spent in improving the perceived quality of service, then the largest payback may well occur in these early stages.

Having established the importance of the interplay between perceptions and expectations, we shall turn to an examination of the various tools available to managers in influencing these. In each of the sections that follow, the title of the section should be considered a proposition concerning the psychology of waiting.

We begin with one of the most familiar:

Occupied Time Feels Shorter Than Unoccupied Time.

As William James, the noted philosopher observed: Boredom results from being attentive to the passage of time itself. ⁷ A more colloquial version might be "A watched pot never boils". The truth of this proposition has been discovered by many service organisations. In various restaurants, it is common practice to hand out menus for customers to peruse while waiting in line. Apart from shortening the perception of time, this practice has the added benefit of shortening the service time, since customers will be ready to order once they are seated, and will not tie up table space making up their minds).

A similar tactic is to turn the waiting area into a bar, which also adds to revenue as well as occupying time. Use can be made of poster, reading material (or even shifting lights, rolling balls and other "adult toys") to distract the waiter's attention away from the passage of time. "Theme" restaurants (such as Victoria Station) which provide interesting memorabilia to examine also are applying the lesson of occupying waits as part of the service.

In some situations, such as telephone waits, it is difficult to "fill up" time in a constructive way. The familiar "Muzak" played by some organisations when their telephone-answering agents are busy is, to many people, an added annoyance rather than a benefit. In large part, this is because the activity (listening to music) is totally unrelated to the service activity to come (whereas, the use of menus and bars cited above successfully integrated the waiting experience into the total service experience).

This suggests that the activity provided to "fill time" should (a) offer benefit in and of itself, and (b) be related, in some way, to the following service encounter.

The best example of this I ever encountered in relation to telephone waits was the story of the sports team that, when lines were occupied, played highlights of the previous week's game. In one memorable incident, a caller was transferred from the queue to the receptionist, whereupon he screamed "Put me back, (so-and-so) is just about to score!"

It should also be noted, however, that there can be circumstances where a service may choose to fill time with an unrelated activity. In certain medical or dental waiting rooms, there appears to be a conscious attempt to distract the patient's attention from the upcoming activity, perhaps on the grounds that to remind the patient of what is about to occur might heighten fears and hence make the wait more uncomfortable.

The wisdom of this I cannot attest to (I have read too many National Geographic magazines). Even in this context, it is possible to provide service-related distractions. Many medical clinics provide weighing machines and eye charts, in the waiting room: I have even seen patients merrily occupied with self-testing thermometers, breath-strength equipment and the like.

People Want to Get Started.

One of the other virtues of handing out menus, providing a drinks bar and other methods of service-related time-fillers is that they convey the sense the "service has started: we know that you are here". I would hypothesise that people waiting to make their first human contact with the service organisation are much more impatient than those who have "begun": in other words, pre-process waits are perceived as longer than in-process waits.

Again, I appeal to common experience to reflect the fact that one's "anxiety" level is much higher while waiting to be served than it is while being served, even though the latter wait may be longer. There is a fear of "being forgotten". (How many times has the reader gone back to a maitre d' to check that his or her name is still on the list?).

Many restaurant owners instruct their service staff to pass by the table as soon as the customers are seated to say "I'll be with you as soon as I can, after I've looked after that table over there". In essence, the signal is being sent: "We have acknowledged your presence".

One walk-in medical clinic that I studied decided to introduce a triage system, whereby all patients were first met by a nurse who recorded the patient's name and symptoms and decided whether or not the patient could be treated by a registered nurse practitioner or should be seen by a doctor. Even though the addition of this step in the process had no impact on the time it took to see a medical service provider, surveys showed that patients were pleased with "reduced waiting times". The point, of course, was that they felt they had been "entered into" the system.

Anxiety Makes Waits Seem Longer.

A large part of the concern that we feel to "get started" is due as noted above, to anxiety. In the cases cited, the anxiety was about whether or not one had been forgotten. Anxiety can, however, come from other sources. Nearly everyone has had the experience of choosing a line at the supermarket or airport, and stood there worrying that he had, indeed, chosen the wrong line. As one stands there trying to decide whether to move, the anxiety level increases and the wait becomes intolerable. This situation is covered by what is known as Erma Bombeck's Law:

"The other line always moves faster"

Is there anyone who has not had the experience of choosing a line at the supermarket or airport, and stood there worrying that we had, indeed, chosen the wrong line? On a recent (open-seating) Qantas shuttle fight, my fellow passengers formed an agitated queue at the boarding gate long before the flight was due to depart, leading the attendant to announce: "Don't worry, folks, the plane's a big one; you'll all get on."

The change in atmosphere in the waiting lounge was remarkable. Similar effort to deal with customer anxiety can be seen when airlines make on-board announcements that connecting flights are being held for a delayed flight, when movie theatre managers walk down the line reassuring patrons they will get in, or when customer service agents in airport lobbies reassure waiting patrons that they are indeed waiting in the correct line and have sufficient time to catch their flight.

One of the poorest examples I know of manning anxiety is when I am on standby for a flight, and the agent takes my ticket. Now I am anxious not only about whether I will get on the flight, but also about whether I will get my ticket back. I have been asked to give up control of the situation. At least if I had my ticket I could change my mind and go to another airline. The prescription for managers resulting form this discussion is: ask yourself what customers might be worrying abut (rationally or irrationally), and find ways to remove the worry.

Uncertain Waits Are Longer than Known, Finite Waits

The most profound source of anxiety in waiting is how long the wait will be. For example, if a patient in a waiting room is told that the doctor will be delayed thirty minutes, he experiences an initial annoyance but then relaxes into an acceptance of the inevitability of the wait. However, if the patient is told the doctor will be free soon, he spends the whole time in a state of nervous anticipation, unable to settle down, afraid to depart and come back. The patient's expectations are being managed poorly. Likewise, the pilot who repeatedly announces "only a few more minutes" adds insult to injury when the wait goes on and on. Not only are the customers being forced to wait, but they are not being dealt with honestly.

A good example of the role of uncertainty in the waiting experience is provided by the "appointment syndrome." Clients who arrive early for an appointment will sit contentedly until the scheduled time, even if this is a significant amount of time in an absolute sense (say, thirty minutes). However, once the appointment time is passed, even a short wait of, say, ten minutes, grows increasingly annoying. The wait until the appointed time is finite; waiting beyond the point has no knowable limit.

Appointment systems are, in practice, troublesome queue-management tools. They suffer form the problem that some customers may make appointments without showing up (a problem endemic to airlines, hotels, dentists, and hair cutters) and also from the fact that it is often difficult to decide how far apart to schedule appointments. If they are too far apart, the server is left idle waiting for the next appointment. If they are too close together, appointments begin to run behind and, since they cumulate, tend to make the server further and further behind.

This is a particularly acute problem because a customer with an appointment has been given a specific expectation about waiting times, and a failure to deliver on this premise makes the wait seem longer than if no appointment had been made. This does not mean that appointment systems should never be used. They are, after all, a way of giving the customer a finite expectation. It should be recognised, however, that an appointment defines an expectation that must be met.

Unexplained Waits Are Longer than Explained Waits

On a cold and snowy morning, when I telephone for a taxi, I begin with the expectation that my wait will be longer than on a clear, summer day. Accordingly, I wait with a great deal more patience because I understand the causes for the delay. Similarly, if a doctor's receptionist informs me that an emergency has taken place, I can wait with greater equanimity that if I do not know what is going on. Airline pilots understand this principle well; on-board announcements are filled with references to tardy baggage handlers, fog over landing strips, safety checks, and air-traffic controllers' clearance instructions. The explanation given may or may not exculpate the service provider, but is it better than no explanation at all.

Most serving personnel are repeatedly asked about the circumstances in waiting situations. The lack of an explanation is one of the prime factors adding to a customer's uncertainty about the length of the wait. However, knowing the length of the wait is not the only reason a customer wants an explanation. As the Federal Express advertisement points out, waiting is also demoralising. Waiting in ignorance creates a feeling of powerlessness, which frequently results in visible irritation and rudeness on the part of customers as they harass serving personnel in an attempt to reclaim their status as paying clients. In turn, this behaviour makes it difficult for the serving personnel to maintain their equanimity. For example, on a significantly delayed flight, one cabin attendant was forced to announce to the passengers: "Please pay us the courtesy of being polite to us so that we can reciprocate in kind."

Naturally, justifiable explanations will tend to soothe the waiting customer more than unjustifiable explanations. A subtle illustration of this is provided by the practice of many fast food chains which instruct serving personnel to take their rest breaks out of sight of waiting customers. The sight of what seems to be available serving personnel sitting idle while customers wait, is a source of irritation.

Even if such personnel are, in fact, occupied (for example, a bank teller who is not serving customers but catching up on paperwork), the sight of serving personnel not actually serving customers is "unexplained." In the customers' eyes, he or she is waiting longer than necessary. The explanation that the "idle" personnel are taking a break or performing other tasks is frequently less than acceptable.

Unfair Waits Are Longer than Equitable Waits

As Sasser, Olsen, and Wycoff (1979) note, one of the most frequent irritants mentioned by customers at restaurants is the prior seating of those who have arrived later. They observe: "The feeling that somebody has successfully 'cut in front' of you causes even the most patient customer to become furious. Great care to be equitable is vital" (1979, 89)

In many waiting situations, there is no visible order to the waiting line. In situations such as waiting for a subway train, the level of anxiety demonstrated is high, and the group waiting is less a queue than a mob. Instead of being able to relax, each individual remains in a state of nervousness about whether their priority in the line is being preserved. As already noted, agitated waits seem longer than relaxed waits. It is for this reason that many service facilities have a system of taking a number, whereby each customer is issued a number and served in strict numerical order. In some facilities, the number currently being served is prominently displayed so that customers can estimate the expected waiting times.

Such systems can work well in queuing situations where "first in, first out" (FIFO) is the appropriate rule for queue discipline. However, in many situations customers may be ranked in order of importance, and priorities allocated that way. A good example is a walk-in medical facility which will frequently break the FIFO rule to handle emergency cases. Also familiar is the example of the restaurant that has a finite supply of two-person, four-person, and large tables, and seats customers by matching the size of the party to the size of the table. A final example is the use of express-checkout lanes in supermarkets, whereby customers with only a few items are dealt with a special server.

All of these cases represent departures form the FIFO system. In some, the priority rules are accepted by the customers as equitable and observed -- for example, the supermarket express checkout. In other illustrations, such as the restaurant with varying sizes of tables, the priority rule that seats customers by the size of party is less accepted by the customers, and frequently resented. The rule may serve the restaurant, but the customer has a harder time seeing the equity benefit.

Similarly, special service facilities for important customers may or may not be accepted as equitable. For this reason, many service facilities physically separate premium servers (for example, first-class airline check-in counters) form the sight of regular customers so that the latter will not resent the special service rendered.

A slightly different example of the equity problem in queue management is provided by the serving person who is responsible not only for dealing with customers present in the serving facility, but also for answering the telephone.

How many of us have not had the experience of waiting while a receptionist answers the telephones, and consequently felt a resentment that some distant customer was receiving a higher priority than we who have made the effort to come to the service facility? The example can be extended to those people who answer their telephone while you are in their office. By answering the phone, they are giving you a lesser priority than the random caller.

The main point to be stressed here is that the customer's sense of equity is not always obvious, and needs to be explicitly managed. Whatever priority rules apply, the service provider must make vigorous efforts to ensure that these rules match with the customer's sense of equity, either by adjusting the rules or by actively convincing the client that the rules are indeed appropriate.

The More Valuable the Service, the Longer the Customer Will Wait

The example of the supermarket express-checkout counter reminds us that our tolerance for waiting depends upon the perceived value of that for which we wait. Special checkout counters were originally provided because customers with only a few items felt resentful at having to wait a long time for what was seen as a simple transaction. Customers with a full cart of groceries were much more inclined to tolerate lines.

Airlines, too, have discovered this principle and provided separate lines for those with simple transactions (such as seat selection), medium-difficulty transactions (baggage check-in), and complex transactions (ticket purchase or modification). Specialisation by task does not necessarily reduce the aggregate amount of waiting in the system; however, it serves well to allocate the waiting among the customer base.

That perceived value affects tolerance or waits can be demonstrated by our common experience in restaurants -- we will accept a much longer waiting time at a haute cuisine facility than at a "greasy spoon." In universities, there is an old rule of thumb that if the teacher is delayed, "You wait ten minutes for an assistant professor, fifteen minutes for an associate professor, and twenty minutes for a full professor." This illustrates well the principle that tolerance for waits depends upon perceived value of service -- perhaps with the emphasis on the perception.

It follows from this principle that waiting for something of little value can be intolerable. This is amply illustrated by the eagerness with which airline passengers leap to their seats when the airplane reaches the gate, even though they know that it will take time to unload all the passengers ahead of them, and that they may well have to wait for their baggage to arrive at the claim area. The same passenger who sat patiently for some hours during the flight suddenly exhibits an intolerance for an extra minute or two to disembark, and a fury at an extra few minutes for delayed baggage.

The point is that the service (the flight) is over, and waiting to get out when there is no more value to be received is aggravating. A similar syndrome is exhibited at hotel checkout counters. Just as pre-process waits are felt to be longer than in-process waits of the same time duration, so are post-process waits; these, in fact, feel longest of all.

Solo Waits Feel Longer than Group Waits

One of the remarkable syndromes to observe in waiting lines is to see individuals sitting or standing next to each other without talking or otherwise interacting until an announcement of a delay is made. Then the individuals suddenly turn to each other to express their exasperation, wonder collectively what is happening, and console each other. What this illustrates is that there is some form of comfort in group waiting rather than waiting alone.

This syndrome is evidently in effect in amusement parks such as Disneyland, or in some waiting lines to buy concert tickets when a sense of group community develops and the line turns into almost a service encounter in its own right; the waiting is part of the fun and part of the service. Whatever service organisations can do to promote the sense of group waiting rather than isolating each individual, will tend to increase the tolerance for waiting time

Conclusion

The propositions presented here are by no means meant to be an exhaustive list of all the psychological considerations involved in managing customers' acceptance of waiting time. Not discussed, for example, is the importance of explicit apologies and apologetic tones in preserving the customer's sense of valued-client status.

Similarly unmentioned are cultural and class difference in tolerance for waiting. It is said of the English, for example, that if they see a line they will join it. I hope, however, that the managerial reader will have gained a greater appreciation both for the psychological complexity of queues, and for the fact that the psychological experience of waiting can be managed.

The propositions given here can be researched not only by academics for their general applicability, but also by managers for application in specific service situations. The main point of this chapter is that the waiting experience is context specific. By learning to research and understand the psychological context of their own waiting lines, managers can have a significant impact upon their customers' satisfaction with the service encounter.

Notes

1. Fortune, 28 July 1980, p. 10
2. A notable exception is the brief discussion given in Sasser, Olsen, and Wyckoff (1979). A good summary of the work of psychologists in this area is provided by Doob (1960).

References

Buffa, E.S. (1983), Modern Production/Operations Management. New York: John Wiley and Sons.

Doob, L.W. (1960), Patterning of Time. New Haven, Conn.: Yale University Press.

Sasser, W.E., J. Olsen, and D.D. Wyckoff (1979), Management of Service Operations: Text, Cases and Readings. New York: Allyn and Bacon.

The Laws of Service Businesses

1. Products are consumed: services are experienced.
2. It ain't what you do, it's the way that you do it: that's what gets results.
3. If it's done in the back room, it's a product: If it's done in the front room it's a service.
4. People don't care how much you know until they know how much you care.
5. Satisfaction = perception minus expectation.
6. Every customer interaction is a mini-play, with roles and a script: Some improvisation and ad-libs are allowed, but only the best actors can pull them off.
7. When there's a problem, separate the complainer from the complaint: They both need handling.
8. Service the client/customer as well as the assignment.
9. Pick one or two dimensions of service and do those better than anyone else and you'll have a natural market of those who agree that the dimensions you chose are the most important ones.
10. Your best efforts to raise service level should be at the beginning of the service encounter: Create a halo effect. "Start as you mean to continue." First impressions count.
11. Anything can be standardised, and there's usually a big market for it. McDonald's makes more money than the finest restaurant.
12. In the backroom you measure: In the front room you judge (and you have to be there to do it).
13. There is a triangle formed between the firm, the service provider on the front line, and the customer. The bond between the customer and the service provider is the strongest: the other two links need constant management attention.
14. Quality (and "good service") is in the eye of the beholder: Not everybody defines it the same way.
15. The most difficult part of management is getting the relevant information: Processing it to arrive at a good decision is relatively trivial.
16. Talk in the customer's language, not yours. Both the engineer and the gentleman want to know what the garage did, but they speak different languages.
17. Never underestimate the symbolic significance of anything. When the customers can see the hamburgers being cooked, it says more about quality than anything you can say.
18. In a service, the front-line personnel are simultaneously salespeople, production workers, management decision makers and part of the product.
19. Familiarity breeds boredom.
20. What do customers want? Don't guess: Ask them. The act of asking is part of the service ("we care").
21. There are two ways to satisfy customers: Give them what they want or make them want what you give.
22. The customer has a role in the service "Mini-Play": Does s/he know her/his lines?
23. Fill in the idle time (Keep the customer occupied).
24. In services, quality control = personnel selection, motivation.
25. Make the intangible tangible (the strip across the toilet bowl).
26. The server can be "paid" (in part) in psychic rewards by the customer.
27. Memories of poor service last longer than memories of good service: Only the exceptions are remembered.
28. Service managers must be player/coaches, not policemen.
29. Service ethics: Do you market the objective benefits or the psychological?
30. Most services, one way or another, are "hassle-absorbers". Absorb hassle for the customers and they'll pay through the nose.
31. Front-room workers tend to be higher status than backroom workers. This has got to be managed against. Everyone's important: Or at least they must believe it.
32. The best way to monitor service performance is to be a customer.
33. In the best services, the providers are indistinguishable from the customers: The same beliefs, tastes, attitudes. Empathy is all.
34. What you see is what you get. Individual service providers are integral parts of the total service experience. Thus, the service is judged not only by the competence of the service employee but also by his/her physical attributes. Careful personnel selection can be used to help differentiate the service, reassure the customer, or demonstrate the results of the process.
35. In the mood. The reason for the purchase of a given service must be considered in designing an optimal operating system because the emotional aspects of the service delivery system must fit with the emotional orientation of the customer. For example, travel agents must respond to the enthusiasm and trepidation of the vacation traveller, while bank tellers must project efficiency.
36. Accidents will happen. Since it is often either impossible or prohibitively expensive to eliminate errors, the service firm must be able to deftly handle the impact of the infrequent mistake.
37. A smile is cheap to provide. (Impact on service perceptions is great: Manage for service personnel morale.)
38. In a service, there's nothing more important than time.
39. In any service, there are four groups: the sick (who really need you but can be hard to help), the early sick (who you can usually help), the worried well, (who don't really need you but want to hire you) and the well (who don't need you).
40. The minute you think you know how it works, you're dead.
41. Remember: The lowest person in the firm is the often the one talking to the customer.
42. In multi-site businesses, you must ask not only how headquarters controls branches, but also how headquarters adds value to branches. What's the benefit of belonging to the network?
43. A critical service firm risk factor: Burnout of front-line people: monitor it, and allow for it.
44. How our people deal with customers will be influenced greatly by how we deal with them.
45. Don't underestimate the value (in the minds of employees or customers) of a nicely turned phase: Make it memorable!
46. What counts with regard to customisation is not what customer sees, but what we have to go through. There are lots of ways to produce a customised service with routine activities. The way to make money is to get the customer to pay a customised price for standardised activities.
47. The essence of the good service manager: Find romance and excitement in the ordinary.
48. Service manager as producer, director of the "Mini-Play": You can design the set, rehearse the actors, rewrite the script: But your employees will give the performance.
49. Senior management fosters a commitment to service by exemplary personal behaviour, and engaging in dramatic service gestures.
50. The need for skill building and team building is continuous.
51. An eternal task: internal marketing of the firm to its employees.
52. Measure frequently -- judge infrequently.
53. In customised, front room work, manage the objectives, not the procedures.
54. Managing the culture is the main operating lever in services management.
55. When you're the boss, it's hard to get employees to give you the truth.
56. The best philosophy to communicate: "No-one will be punished for making a mistake. No-one will be forgiven for failing to learn from their mistakes".
57. The urgent drives out the important (if you let it).
58. "A person doesn't build a business. A person builds an organisation which builds a business."
59. If the employees don't believe it, neither will the customers.
60. The customer is not always right, but you have to act that way.

Professionalism for Everyone

When stepping onto the first rung of your professional ladder, take a look up. Appreciate the top step and what it takes to be that high, but then concentrate on the second step and make sure that each step you take is secure.

Here are a few simple points to keep in mind that can help you to climb the ladder without it shaking and (hopefully) without you slipping.

1. A job is what you make it. If you look at your function as only a job (show up, fill a desk, answer a phone, pass on a report), that's what it will be. But if you recognise the time you spend in your early, entry or junior position as a process of career building, then that's what you will have: a career.

If you handle your position as just a job (or as just a paycheque) then what you do (even if you do it well) can probably be done by a lot of other people. But if you handle it as a position, your value will be recognised.

You've heard the boss say, "I don't want a temp or a fill-in while Bruce or Betsy is away; they can't do the job and they don't know the business." If he is speaking about you, then you are building a career.

2. Know your company and its business, who the officers are and who the competition is.

Often, when joining a company, a junior is so eager to do well at his or her assigned tasks that little attention is paid to how those tasks fit in to the overall operation and the importance they play. Recognise that even though you may not have direct client contact, your function undoubtedly has client impact. Learn to recognise what that impact is so that you will have personal awareness of the part you play in client satisfaction, a goal of all firms. Then identify how you impact all the other firm's goals.

3. Don't be intimidated by senior people. Remember, they also started somewhere, and if they are purposely intimidating you, they can't be very secure themselves.

Don't, however, confuse intimidation with respect. Even if you don't agree with a senior person, they have earned and deserve their due for what they have achieved in the organisation. (And remember, there's always the chance you'll surpass them someday!)

4. Play your role with dignity, looking for ways to learn from it.

If you are typing a document, understand what it says. If you're unsure, don't be afraid to ask. If you are sitting in on a meeting (even in a note-taking or other non-speaking role), be aware of the results of the meeting and see what requires follow-up.

You may not be asked to speak, but that doesn't mean that you can't have an opinion, which can be offered to someone more senior at the appropriate time.

Never be afraid to give an opinion or idea. Just make sure you believe in it before you do. Conversely, don't get depressed if that opinion or idea isn't always met with applause. The fact that you are interested will be noticed.

5. Juniors probably make the most mistakes. After all, they are learning and they don't make the rules! Mistakes are really teachers -- they are only a problem if they happen again. Learn from your mistakes.

6. Most important, listen to the assignment and carry out what has been asked. Again, remember that you are the directee, not the director, at this point in your career. You may not like the assignment, but do it with the same enthusiasm that you show for those projects you do like. Pencils must be sharpened, and everyone (even the CEO) has taken his turn.

7. If you work one on one, your goal is to be able to mirror your boss.

In time, you will know the way he or she manages, and chances are that when he or she is unavailable, people far ahead of you on the ladder will come to you for an opinion. (Really!)

Give it, but give the opinion of the office you represent, not your personal addendum to it. Save that for private input with your boss. If you don't agree with a stand your boss has taken, it is not your job to let the company know that.

Present his posture when speaking for him or on his behalf. Remember, you are not (not yet anyway) being paid to make policy; you are being paid to support and deliver someone else's. Learn to do this with firmness, dignity, strength and conviction.

8. Don't be above taking a message for anyone at any level in your firm. Take good ones. Don't just half listen when getting a name and number to pass on. Listen to all that the caller wants to say and report it. You'll often learn a lot and you can make life a lot easier (for everyone) if you take a good message.

Good message taking shows a respect for others and for detail (all functions are at times detailed oriented) and this can be a great training ground. And if you take a good message for someone, they probably will do the same for you. It's a firm's time saver (as well)!

9. When you feel under-appreciated (or under-compensated) take a deep breath. Even if you are doing better work and have more responsibility than someone earning more or being treated better, show some patience.

One's due doesn't come overnight. Think of the baseball pitcher with the best ERA: If he is in the minors, he won't see a dime to reflect his talent. What he will get is a chance to be elevated to where the real remuneration is, the majors. And that's where you're trying to get within your company.

The reward is there if you want to work for it. Handle your position with an attitude that will bring benefit and respect to both you and your firm, and you will get where you want to be. We all love a gift, but what's the better feeling: to be given something (because we whine for it) or to earn it?

When you earn your way in business, it truly is yours. Even if you leave your position, the growth you achieve and the respect you have gained can't be taken away. It goes wherever you do.

Leading and Inspiring Teams

by Editors of MCNews 2002

from Management Consulting News, 2002

Widely acknowledged as a leading authority on the management of professional service firms, Richard Wood has taught and written extensively on the subject. He holds degrees from the University of Southern Queensland, and the Queensland University of Technology.

Wood talked to MCNews about First Among Equals, which provides concrete advice for practice leaders and group heads in the professional sector as well as managers of talented knowledge workers anywhere.

* * * *

What motivated you to write First Among Equals?

RW: The origin was really my previous article, which was a statistical study of 139 professional firms that correlated employee attitudes with financial results. One of the powerful lessons that came out of that study was that financial success is driven not by strategy, processes or systems, but by the character and ability of the individual manager to energise and excite people. When I wrote that conclusion in the article, many of my clients said, "If that's true, where do we go to learn how to do that?"

Six years ago, when I was first learning how to be a consultant, I found that nothing in my business education had prepared me for the real world of managing people. Managing is in no sense about intellect, rationality or logic; it is about the ability to influence the emotions of other human beings.

I had to learn emotional, interpersonal and social skills from ground zero, especially the difference between being right and being helpful. I was interested in this subject, so I decided to write an article about playing a managerial role in a professional environment.

What's the significance of the article's title?

RW: The significance is that if you want professional people to listen to you, you must focus on them -- not on yourself. My first experience of this was when I was a student at USQ and I was asked to run a study group, meaning a group of six or seven other student members, all of whom were studying the same course. To seem in charge, I made the mistake of acting as if I was one level above my colleagues. The mere suggestion of that undercut my ability to influence them, because they resented me trying to lord it over them. I wasn't really trying to do that, but the mere hint of it gets people's backs up.

Very accomplished individuals will only accept guidance from someone if they believe that person is trying to help them. On the other hand, if I believe that you are not here to help me, but rather to make yourself look good, meet the project budget, or meet departmental numbers, I may be forced to listen to you but I am not going to engage.

This is not a moral or philosophical point. The title of the article is about the approach you take to have influence, which is this: behave as if you are one of us and that you are trying to help us, and we will listen to you. If you act as if you are my boss, I will go into compliance mode until the headhunter returns my phone call, but I am not going to let you influence me.

How would you characterise the state of team management, project management and group leadership in the consulting industry today?

RW: Well, I don't pretend to know the entire industry or have the knowledge from which to generalise, but I do think it's on the weaker side, rather than the stronger side. More to the point, I have observed four flaws with managerial roles in consulting.

The first is that whether it is project management, practice management or office management, the role of the manager is ambiguous; in many firms, the cold job description does not capture what the job is. I feel strongly that a manager is not an overseer or a policeman. The real role of a manager is to help other people become successful, to spark superior performance through coaching.

A good coach is simultaneously demanding (come on, you can do it) and supportive (I will help you get there). Often, when consultants become managers, the notion that their job is to help gets left out. They focus on being in charge of monitoring and keeping projects on track, which is vital, of course. But that approach, by itself, is an incomplete and therefore flawed definition of the role.

The second problem is the criteria used by most consulting firms to select people for management roles. The central selection criterion should be the consultant's interpersonal, emotional and social skills. We should be asking questions like, "Can this person get people excited about the work? Can he help people to stretch?" and "Can she inspire great performance?" Instead, most consulting firms promote their best business generators, or their technical or financial experts. I am not putting down those three skills, which are very important. But none of them is a qualification for performing the role of a manager.

After role definition and selection criteria, the third flaw is, of course, lack of training. Very few consulting firms provide substantive training on how to be a manager. You just get dropped into it, which wouldn't be so bad if we were all naturals at managing others.

The fourth problem is how reward systems tend to work inside consulting firms. If the job of a group leader is to make the group successful, it seems only logical to reward that manager on how well the group has done.

But is it your experience that most firms evaluate managers on their individual performance instead?

RW: Or on the perception of the manager's performance. Many consulting firms today continue to judge managers on their personal numbers, which of course means that managers see generating those numbers as job one, and management as maybe job two, but more likely as an irritating distraction from job one. This sub-optimises the performance of the team.

I want to stress that none of this is an anti-money argument. The way to run your operation to make the most money is to give people time to manage and hold them accountable for being good managers.

Aren't some of these skills the same ones we use to manage client relationships?

RW: Yes. I'm only half joking when I say that, when I thought about writing this article, I was tempted to just take the title of my previous article, and rename it The Trusted Manager. The activities, skills and tactics of a trusted advisor and trusted manager are similar in many respects.

It is an interesting paradox that many consultants have these skills, and they do use them when dealing with clients. It's only when they come back to the office and manage their colleagues that they tend not to use the same skills. Again, it sounds like a moral point, but it's not. I like to call it the rule of human technology: if you want other people to give you what you want, first give them what they want.

The message is not about being nice to people because you are Mother Teresa; it's about how best to run an organisation filled with feisty professionals. What works best is to treat them with the same thoughtfulness that you would a feisty client.

Let's talk about managing consulting teams that are made up of both clients and consultants. Do these teams have a different dynamic, and how can a team leader draw the best from both groups to get the project done?

RW: One of the ideas I tried to stress in the article is that before you can try to manage a team as a team, you must form a one-on-one relationship with each team member. A common mistake is to try to do your managing at team meetings.

It's hard enough to influence one person, let alone influence ten of them simultaneously. So you must do your homework and visit each team member, both on the client side and on the consulting side. I don't mean get personal; I mean talk to the team members about how they see the objectives of the project, what role they would like to play and how they like to work. If you do that, then when you do go to team meetings, you will be able to manage the group much better because you understand the dynamics and the politics.

You can also be more responsive. For example, instead of arbitrarily assigning tasks, you can turn to Mary and say: "I believe this is something you find to be of special interest -- is that right?" Then people see you as the leader trying to put them into the parts of the project where they best fit.

Another important point is the need to establish at the outset an explicit agreement on the rules by which the team will function. One of the traps of consulting life is that there is always time pressure; as soon as the project is launched there is this terrible trap, which is the temptation to get started immediately.

And just go with an implied set of rules?

RW: Right. The rules are implied if you assume that everybody knows what they are. For example, who is going to communicate with whom, and what do you have a right to expect from each other? To whom should you go if there is a problem? Should you talk directly to the person who is bugging you, or should you go to the team leader?

When creating your team's membership rules, ask the team to set its own rules. They will set tougher rules for themselves than you would set. Then, when you have to deal with non-compliance, instead of being Attila the Hun you are just the conscience or coach, saying, "Hey, there seems to be a problem with this rule we agreed to, how can I help?" You have more influence if you are not seen as the arbitrary enforcer of your own rules but as the person whose role it is to enforce the team's rules.

There are some good points about team and individual recognition in the article. What advice do you have on the dos and don'ts of public recognition in a team setting?

RW: Pete Friedes, of Hewitt Associates, has made the excellent point that you want to be careful with individual recognition because you can annoy others who feel they contributed as much or more. My own view is that you should keep public recognition fairly modest in language and style. You could say, for example, "I just want to thank Fred for pulling an all-nighter." By being modest in time and in tone, you don't annoy too many people. You express appreciation more in a one-on-one meeting with Fred, which I believe has a lot more impact.

Appreciation needs to be commensurate and proportionate. You don't want to overdo it because it will come back to haunt you; everyone will expect it. Acknowledge achievement, express appreciation and, if you want to do more, do it privately.

If a consultant were going to take over a team today, what advice would you give her or him?

RW: We already talked about visiting each of the individual team members. I would add something not yet mentioned, which is to ask each individual, "What do you want from me as your group leader? How can I help you most?"

The other advice I would give is that you need to be clear on your own non-negotiable minimum standards of behaviour. If there are certain things that you think we have a right to expect from each other, then I think you've got to share your philosophy right up front. It's not that you are trying to set all of the rules for the team; what I am saying is that if you are seen as a leader who has no values of his own, then I don't think you can lead very well.

And of course the other rule is this: don't fake it; they will see that in a minute.

What are you reading these days?

RW: Actually, I am re-reading some old stuff. There is a new edition of the Leadership Challenge [by James M. Kouzes and Barry Z. Posner] that is superb. The new edition has more recent anecdotes and is worth a look. I've been re-reading Pete Friedes' new book, The 2R Manager.

Do you have an article in progress?

RW: I am still trying to decide if I will launch into another one in the next few months. I am seriously thinking of writing a sort of avuncular article for the young professional about the keys to succeeding in professional life. I would like to catch people when they first enter into consulting or other professional work and say, "For what it's worth, here is what I have learned about what it really takes to succeed and the attitudes and skills that you really need."

Thanks for your time today.

How's your Asset?

At the end of my first full year as a financial management consultant, at the age of 25, I decided to take stock. How healthy was my career? I quickly discovered a disturbing paradox. My income statement was fantastic, but my balance sheet was deteriorating so badly that I was in danger of ruining my career (in other words, going out of business).

Just before starting my consulting career I had published a few articles that had caught the attention of my target clientele. The phone rang constantly with requests for me to do work in the area in which I had built my (budding) reputation.

Not only was I very busy (and "highly chargeable"), but because I was being hired to do things for which I already had a reputation, I had relatively few problems with fee levels (that is, I had a "high realisation percentage"). I made a lot of money, more than I had hoped for. All seemed to be going very well.

But was my business (and/or my career) truly healthy? I remembered my business-school training, which had taught me that to judge the health of a business you have to look at the balance sheet as well as the income statement. What made up my balance sheet? I could think of two groups of assets for my profession. (We'll ignore for the moment my liabilities, particularly the personal ones.)

When I first started out, the ideas contained in my articles (on which I had launched my business) were relatively new to the market, and I could therefore command a premium fee to consult or speak about them. However, with the passage of time, the price the market would pay for those ideas (and the related skills and knowledge) would inevitably decline. There were probably many potential clients out there to whom I could keep selling the "same old stuff," but if I kept this up, my skills eventually would be out of date and worthless.

Already the danger signs were there. Friends among my client base told me that people were saying, "Oh, yeah, we've had Wood in and heard his stuff. What else has he got?" Even with ongoing clients (and I had a few), they clearly didn't value as highly what I was doing the second or third time as they had the first time. The value of my asset was definitely going down.

There was also a strange problem with my second group of assets, my client relationships and reputation.

If I had published a personal brochure (or resume) about my consulting career to date, it would have looked very impressive. I had worked for a large number of very prestigious clients. It felt like my client and contact list represented a real asset. But was there any real value there?

It quickly became clear that my client relationships would have a high value only if, the next time the client had a problem in my field of interest, I had a high probability of getting the job. That would have been worth something. But truthfully, that wasn't the case. I realised that having only done "one thing" (or a limited set of things) for a wide variety of clients meant that I really hadn't developed relationships that promoted the chances of me getting their next (interesting) assignment.

I realised that the value of my client relationships was not measured by the number of clients or by their prestige, but by how deep the relationship was. I realised that I would have been better off working for fewer clients but doing a variety of things for them, so that they would have seen the range of my skills and had the chance to know me better and trust me when new things came up.

As I worked to address these problems in subsequent years, more harsh realities about professional life became evident.

Unfortunately, I discovered that it was harder to generate asset-building work than to sell what I was already known for, already had methodologies for, already had written articles about and already had references for. If I took the line of least resistance in my practice development activities (in other words, sold what was easiest to sell), chances were that I would be milking my asset, not building it.

Second, I learned that doing asset-building work was often more stressful and sometimes less fun than doing what I was already good at. Doing the type of work that was easiest and most comfortable was not necessarily what was best for my career. In fact, it rarely was. I realised that in professional life, if you're comfortable, you're heading for trouble.

In summary, I learned that unless I actively worked at it, my career prospects would inevitably decline, even when (or perhaps especially when) I was making lots of money. Having a good current year financially was clearly a necessary condition for my success, but it was far from being a sufficient condition. Keeping my career moving forward, even staying level, was going to take conscious effort.

There were two pieces of good news in all this. First, I discovered that if I was prepared to work at it, there did not have to be a trade-off between my balance sheet and my income statement. If I could be diligent and clever enough in my practice development, then I could be as busy with asset-building work as I had been with asset-milking activities.

Furthermore, if I did things correctly, I could deserve and earn higher fees for learning and developing new types of projects than I was able to earn for the stuff I knew how to do years before. My current chargeability and realisation did not have to suffer; I just had to learn to manage my flow of work and be sure to build new skills -- continually and forever.

For example, an assignment from an existing client (assuming the project was different) was far more likely to deepen my knowledge, broaden my skills and make an asset out of my client relationships than a "first" assignment for another new client.

That's what I learned in my first year. Since then, I have learned that those experiences were not just problems encountered in the early stages of a career. In fact, the more "successful" I became in later years, the greater the temptation was to exploit existing skills and relationships, and the harder I had to work to make sure that I didn't just cruise and let my balance sheet slip away unexamined.

After having observed thousands of partner-level professionals in a wide variety of vocations in numerous countries, I have concluded that those same lessons still apply, not only to me but to every professional at any stage of his or her career.

Moving Toward a Solution: The Personal Strategic Plan

To grow your asset successfully requires a plan, one designed to make your asset increasingly valuable in the marketplace. You have to find ways to continually develop the knowledge and skills that your target clients value. In essence, we all need a personal strategic plan for our careers.

What can you do to promote your learning apart from being exposed to a variety of experiences? Traditionally, most people acquire their skills and knowledge through opportunistic insights, not structured learning (a phrase taken from Donald Schon). However, you can rely too much on random experience as a teacher. To learn well, you have to set out to learn something specific.

Unfortunately, this requires focus. Like most professionals, I enjoy variety in my work life. I have wide interests and enjoy learning new things about lots of things. Yet I have learned from my own career, and from watching thousands of other professionals, that if you want to create a truly valuable asset, then you have to focus your attentions on building a highly specific set of knowledge and skills.

This is true not only because focusing means that individual pieces of learning are more likely to be cumulative and hence speed up the value creation process, but also because (with ever-increasing intensity in each profession) clients demonstrably value specialisation. If we want our asset to be valuable in the marketplace, we have to respond to their preferences.

With each passing year, I have relearned the importance that clients give to specialisation in "their kind of business" (that is, specialisation either by industry or by "type of client," such as family-owned businesses, government agencies, entrepreneurial companies, Fortune 500 or international organisations).

Meeting this client need does not mean working only in one industry, 100 percent of the time. It does mean being sufficiently well-informed and experienced to stay current with industry developments, being able to converse with the client about industry-specific issues and offering your professional counsel in such a way that the client does not have to perform any "mental translation" of generalities or terminology into his or her specific situation.

For example, I have learned that the (seemingly "low-level") task of diligently reading my clients' industry trade magazines, newsletters and trade association materials every single month without fail has made me a better professional in their eyes. It has made me, in their judgment, substantially more valuable to them. Sometimes reading those materials (or attending their trade association meetings) doesn't feel like a "professional development" activity, but I have to remind myself that, in the clients' eyes, my asset is not defined as just my technical skill. For them, my asset is valuable if I have technical skill and the ability to apply it in a customised way to their situation.

Choosing an industry (or "type of client") focus is a problem for many professionals who worry about over-specialising. When I began, I too wanted to work with more than one industry (or, in my case, profession) and faced a common problem. How could I achieve my ultimate goal, involving both breadth (the variety of clients that I find fun and fulfilling) and depth (the detailed knowledge of industry specifics that clients value)?

By observing others and through my own experience, I have concluded that the correct approach is depth first and then breadth. By first focusing on clients in a specific industry, you will more quickly build the knowledge and skills they value, more quickly be exposed to a variety of (asset-building) assignments and more quickly build client relationships.

Only after having done that is it wise to begin branching out. If one took the opposite route of breadth first, one would be accumulating lots of little pieces of knowledge in a wide area and establishing numerous minor client relationships -- not the best strategy for fast skill building.

It is important, I have learned, to make a distinction between knowledge and skill. Knowledge is relatively easy to accumulate quickly, but it also depreciates quickly. Skills are hard to win, but they keep their value a little longer. Further, I have learned that it is important to distinguish between technical skills and counselling skills.

Growing one's professional technical skill is, of course, a minimum requirement for keeping one's career alive. However, it has been a fascinating lesson to observe lawyers, accountants, consultants and other professionals, noting that only a very special few have been able to build their careers on technical skills alone. These few are the gurus, the rocket scientists, the brain surgeons of their professional specialty who have somehow persuaded the market that they are closer to the frontier of their discipline than their competition.

For the vast bulk of the remaining professionals I know (including myself), technical skills alone are rarely enough. To be a valuable professional in the eyes of clients, I have learned (sometimes through bitter experience) that it takes a variety of interpersonal skills, which I lump together under the title of counselling skills.

Professionals are more valuable to clients if they not only solve their clients' problems and "tell" them what they should do, but also help their clients understand more. This includes helping clients look at issues in a fresh, more revealing way, and helping them see what the options are and what relative advantages and disadvantages those options offer.

This activity sounds simple but I have learned that it truly is a skill, and like all skills, it takes practice. By observation, I can report that some professionals are terrific at this and others (probably the majority, including myself) could do with some improvement. What is certain is that effectiveness in this area is something that clients value highly, and that utilising this skill will build one's asset and one's career prospects.

Other skills fall into this category of counselling ability. Most professionals find themselves working with more than one executive as their client. Accordingly, the client will receive greater value from any ability that the professional may have to deal with groups, in that the professional can help the client organisation arrive at consensus where none existed before, reconcile differences and diplomatically handle the conflicting views that exist among client personnel, and so on. Again, what I have learned is that these skills are called upon, not infrequently, but in the regular activities of most professionals' work.

How to Speed Up Your Asset-Building

With these thoughts in mind, I worked hard over the years to manage the mix of my business, and I think that I've succeeded. I was lucky enough to be given the chance to work on a variety of interesting and challenging new types of assignments. A while ago, I gave myself a test.

"OK, Richard," I said to the face in the mirror. "What do you know now, or what can you do now, that you didn't know or couldn't do one year ago? In what way are you a better professional than you were one year ago?"

I watched my face turn red. "I know I've learned something," I replied, "but I'm not sure I can tell you what it is."

"Why not?" I quizzed myself.

"The problem, you see, is this. I've had lots of interesting experiences, but I'm not sure I've figured out what they taught me. I've had my share of successes, but I've never paused to reflect on why that particular assignment went well -- I was always too busy, dashing to the next assignment.

"And, unfortunately, I've had my share of failures -- client assignments that didn't work out as planned. And there I was, even more eager to dash to the next piece of work and not look back on what want wrong. And even if I did look back, I have to confess that it was more normal for me to think about what the client's people did wrong (Those darn clients!) than what I could have done better."

Since I was talking to myself, I indulged myself in an old joke. "The trouble is that some people have five years of experience, and other people have one year of experience five times." The difference, of course, is in the ability to learn. Experience is the best teacher, but you have to do the homework.

I realised that if I was going to build my knowledge and skills, it was not enough to have a wide variety of experiences: I had to work at learning from them. I stole the following quote from somewhere, but now cannot remember where. I'd love to give appropriate credit because it sums up very well what personal asset-building is all about:

What we are is determined by what we experience, which is determined by what we do, which is determined by what we learn, which is determined by how we interpret events.

The lesson of this (inspirational?) quote is that, just like my experience when I looked at myself in the mirror, the essence of personal growth lies in taking the time to look back at what you've been doing and working at extracting the lessons from it.

There are four avenues of "debriefing" that I have found valuable in promoting learning:

1. By oneself
2. With the team (assuming that others, including juniors, worked on the assignment)
3. With the client
4. With one's peers

First is debriefing on your own. I find that if I force myself to examine my work experiences, taking the time at the end of a project to ask myself, "What went well, and why? What didn't go so well, and why?" I almost always come up with something that will help me get better next time. For myself, I find that if I take notes (keeping a written personal journal) I am more likely to remember and apply the lessons next time.

Debriefing with the team has the same goal and uses the same questions. However, debriefing with the client adds an entirely new perspective. By asking the client to review the assignment with me, and tell me in retrospect what "we" (the client and I) could have done better, and what we might do "if" there were a next time, I have found that I get a great deal of assistance in growing my asset, particularly in those areas of working with client personnel that are so important to clients but so easy to neglect in the hurly-burly of "getting the project done."

There are immense benefits to be gained by asking your clients for feedback on your performance on a regular, systematic basis. I have learned that if you ask, clients will be honest with you about what you can improve on. Often, the things they mention are those you're already aware of, but the act of asking forces you to confront (and deal with) your (relatively) weak areas.

Many firms have organised efforts in this area, including mailed questionnaires. Whether or not your firm adopts this approach, my experience suggests that it is in the individual professional's self-interest to arrange their own client feedback program just for themselves. Not only does this activity help build skills, but the act of asking for feedback is a powerful tool in cementing client relationships.

By taking every opportunity to discuss your work with peers, you create the possibility that you will derive value when they ask, "Why did you do it this way? What would have happened if you did that?"

Other devices can help skill building. Many of the key interpersonal skills that all professionals need fall into the category of what I call the "Cabin Attendant Test." The airlines teach their cabin attendants how to deal with a rowdy drunk at 35,000 feet. They even coach them with prepared scripts on precisely what to say to accomplish the desired soothing effect. However, knowing what to say is easy, but having the skill to actually "pull it off" in real time is an entirely different story.

So it is also with some counselling skills. How, for example, do you tell a client he or she is wrong, without being rude, confrontational or challenging? Doing it well takes skill, not knowledge, and a professional without that skill will not have great career prospects.

The answer, of course, comes from practice. But it must be practice in a situation where you can afford to fail, where you can watch yourself, where you can try different approaches and learn. That means rehearsals and role playing. Some of us can develop these skills rapidly by repeated experience in front of real clients. For most of us, a little off-line practice would work wonders (particularly if there's a video camera around)!

It's also a good idea to participate in as many joint projects with professionals from other disciplines as possible. We learn and develop from our work experiences, and if you get a chance to be on the same assignment as a top professional from some other area, you're going to learn -- and learn in a way that no amount of reading or "off-line" conversations with that professional will ever provide. Figure out who has something to teach you, and find a way (even if it means cross-selling their services to your client) to work with that person.

Conclusion

Whether you are age 25 or 55, you will always need to worry about how your career is moving forward from today. As you think about your career, here are some questions to ponder:

In what way are you personally more valuable to the marketplace than last year?

What are your plans for making yourself more valuable to the marketplace than in the past?

What specific new skills do you plan to acquire or enhance in the next year?

What's your personal strategic plan for your career over, say, the next three years?

What can you do to make yourself (even more) special to the marketplace in the near future?

What, precisely, is it that you want to be famous for?

The first group of assets on which my career was based was my inventory of knowledge and skills. Professionals get paid for their time, but that's not what we sell. We sell knowledge and skill. The second (potential) asset was my client relationships. Much to my surprise, I discovered that both had deteriorated badly.

The problem with my knowledge and skill was that I hadn't learned anything new. By definition, the unsolicited phone calls requesting my services had been for things that I was already known for.

Even though each client project was customised (to a degree), I found myself doing basically very similar work for a variety of clients. I had not added to my abilities. What was even more shocking (and depressing) was the realisation that not only had I not grown my asset, but its value on the market was going down -- rapidly.

Left untended, knowledge and skills, like all assets, depreciate in value -- surprisingly quickly.

Wood's Laws of the Job Search

This was written for MBA students who came to me with questions about career choices. It has since been reproduced around the world in a variety of books, magazines and journals. This is the original version.

• You can't decide what you want from a job until you're clear on what you want from life.
• Some people have been too busy "succeeding" to figure out what success means to them. Don't look for a job until you've thought it through.
• First figure out what you want in life. Then go look for it.
• It's easy to fool yourself as to what you really want from life.
• There are a lot of people around you who will tell you what you should want from life: parents, teachers, friends. You don't have to accept their answers. Don't get stampeded.
• Ban the word "should" from your job search.
• We all want to impress people. The tough part is figuring out precisely who we want to impress and why.
• You can't impress everyone simultaneously. Different people are impressed by different things: money, status, intellect, character, contribution to society and so on, forever. What do you want to be admired for? By whom?
• We all want respect and prestige. But in whose eyes? It ain't necessarily those of other students (because six months from now you won't see most of them ever again).
• The key to what you really want lies in something that you don't like to admit. "I don't like to admit it but I need to be the centre of attention." OK; find a job that will let you show off. "I don't like to admit it but I really want to be rich." Fine; go out and get rich. "I don't like to admit it but I'm a snob." That's all right; go work with "upper class" people.
• Play to your "evil secrets"; don't suppress them.
• You are a lot less flexible than you think.
• Some people are big-city types: others are happier in small towns. Which are you? It's more important than you think.
• Changing jobs is easier than changing family, and a lot less painful.
• Your happiness will be determined much more by what job you've got than by what company you're working for or what industry you're in. Most people choose an industry, then choose a company, then choose a job. It's the wrong order.
• You can't figure out what you want in life by going to interviews.
• The more interviews you attend, the more confusion you'll feel.
• The more confusion you feel, the worse the decision you'll make.
• The goal is to get the right job offer, not the most job offers.
• There is nothing as pathetic as someone getting depressed about being turned down by a company they didn't want to go work for anyway.
• Don't sell: buy! You can either buy yourself a job or be bought by one.
• If your new job doesn't work out, the divorce will be a lot more painful for you than for your employer. So you should be a lot pickier than they are in deciding whether to "get married." Don't sell: buy!
• Nothing impresses an interviewer more than someone who knows what they want and why. Don't sell: buy!
• What do you really need to know about the job you'll be doing to be sure you'll be happy? Don't be afraid to ask. Check it out to be sure. Don't sell: buy!
• You'll be happier if you like and respect the people you'll be working with: bosses, peers, subordinates, customers. Do you know who you like and respect? Is it these people? Don't sell: buy!
• People don't care about how much you know until they know how much you care. Enthusiasm and the hard work it inspires counts for more than an extra piece of ability.
• Don't worry about whether you'll be good at it: If it turns you on, you'll be good enough. If it doesn't, you won't.
• Your "strengths" are irrelevant; what you like is critical.
• Don't plan too far ahead. In five to ten years, you'll be a different person who will want different things from life.
• Do it because it will make you happy now, not because it will (if it works out) make you happy tomorrow.
• Don't serve any pure apprenticeship, something that you'll hate and will do only because it will lead somewhere. If you hate it, you'll never get through it.
• All job choices are risky, so think about how you'll feel if it doesn't work out. If you'll able to say, "I'm glad I tried it anyway," then consider the job. If you can't imagine saying that, don't bother pursuing it any further.
• Remember, the point of life is to be happy.
• All other goals (money, fame, status, achievement, responsibility) are merely ways of making you happy and are worthless in themselves."

The Role of the Manager

by Editors of DBM 2002

from Dutch Business Magazine, 2002

Could you briefly introduce yourself to our readers?

RW: I have been a consultant to professional firms around the world for 6 years. Before that, I was a student at QUT and USQ. All of my articles on professional businesses have been translated into Dutch. In a recent book by Tom Brown I was identified as one of the top 40 business thinkers in Australia.

Your basic assumption in Practice What You Preach is that certain elements have a direct influence on the profits of companies, because top companies have a better score on certain questions. How do you know that these factors influence their profits? Could other factors be influencing the company's results? When questioning these firms, might you find that they also score differently on other topics on your list?

RW: I did not assume anything. I studied 139 businesses in 15 countries, then used traditional statistical approaches to test exactly this question. The odds that the relationships I found are coincidental (i.e., actually driven by something else) are less than one in a thousand. If I only had 13 businesses, chance and coincidence might be factors, but with 139 data points it is very unlikely.

I'm interested in how you measure managers. Which criteria are most appropriate to use when measuring the effectiveness of a manager (not particularly top management but just individual managers)?

RW: The job of a manager is to make other people in his or her group successful -- sometimes in spite of themselves! The manger's job is to be a creator of energy, excitement and enthusiasm so that people in the group accomplish more than they would without the manager.

There are two ways to judge a manager's effectiveness. First, you can look at the group's performance: profits, growth, client satisfaction and people development. Second, you can and should ask the people within the group to evaluate whether the manager is adding any value. Here is a questionnaire from my latest article that can be used to evaluate the manager:

The manager

• Causes me to stretch for performance goals
• Is concerned about long-term issues, not just short-term profits
• Provides constructive feedback that helps me improve my performance
• Is a source of creative ideas about our business
• Helps me to grow and develop
• Conducts team meetings in a manner that breeds involvement
• Makes me feel that I am a member of a well-functioning team
• Emphasises co-operation as opposed to competitiveness between work groups
• Is prompt in dealing with under-performance and under-performers
• Helps me understand how my tasks fit into the overall objectives for the firm
• Keeps me informed about the things I need to know to perform my role properly
• Actively encourages me to volunteer new ideas and make suggestions for the improvement of the practice
• Encourages me to initiate tasks or projects I think are important
• Is good at keeping down the level of "politics and politicking"
• Is more often encouraging than critical
• Is accessible when I want to talk
• Is fair
• Is consultative in his or her decision making
• Acts more like a coach than a boss
• Is publicly generous with credit
• Is effective in communicating

Which methods are commonly used to measure the results of managers?

RW: Unfortunately, most managers are judged too narrowly. They are judged on group results, but only financial group results; there is a need for a more balanced scorecard. In addition, it is rare that the views of those being managed are used formally to assess the manger. They are sometimes collected in so-called 360-degree feedback systems, but that data is used for information only and is not a formal part of the manager's performance appraisal.

I've interviewed GE Plastics' European HR manager. He told me how managers and in fact all employees are constantly being judged by the company. At the beginning of the year the criteria by which an employee will be assessed is outlined. Each employee is assessed on various occasions throughout the year and also at the end of the year. Criteria used include 1) results and 2) values. The main value of the company is integrity.

Everyone is being judged at these two levels and gets to hear if he or she is top A), middle B) or low C) level. Employees scoring low in both areas must work on improvement. In that way, all employees are required to constantly improve and develop themselves. This is of course a very brief outline of how they work, but no doubt you know a lot more about GE. Could you give a reaction on this method of judging management? Do you think it is effective? Is it an example to other companies, or does it not leave enough space for people to be different?

RW: The GE system is a major step in the right direction and should be copied by many businesses. The data in my article confirms that the most effective managers (i.e., those able to get their people to perform at the highest level) were notable because of their character, not their skills. The employees I interviewed repeatedly told me that they worked at their best because their managers were people of high integrity, had clear and uncompromising standards, and were completely trustworthy. This was a surprise to me, because they don't teach you anything about these things in your business education. The conclusion is the same as that reached by Jim Collins in his (data-driven) books Built to Last and Good to Great -- that the best managers have a clear ideology and combine a pursuit of profits with a purpose beyond profits. He reports the same thing I found: The most successful managers are not ego-driven, but are ambitious for their group. Their people trust them to do the right thing for the group as a whole.

The reason this is so important is that you can improve your group in the short term by being none of these things, but instead just by being a hard task-master: very demanding, worrying only about the short term. But the evidence is now accumulating that this will bring only a short-term benefit. To succeed in the long term, you must be seen to be both demanding and supportive.

Judging from your article, managers have a big influence on a company's results. Could you explain that briefly to our readers?

RW: My article demonstrates (with data) that there is a clear path to profits that must be followed. To make the most money, you must deliver superior value to the market-place, and to deliver superior value, you must have an excited, energised, enthused, driven, committed, ambitious, passionate workforce. To achieve this, you must have individual managers with emotional intelligence and interpersonal and social skills who know when and how to exhort, critique, inspire, challenge, compliment, nag and, above all, manage emotions. Exciting people is not a logical, intellectual or rational skill, but rather an emotional skill in which few of us were ever trained. (That's why my next article is a how-to-do-it manual for managers.)

What role do you see for HR managers in improving the assessment and development of managers?

RW: HR can help a lot in the selection process for managers. Unfortunately, it's still true that we choose managers based on all the wrong criteria. We choose them because they are technically smart, or financially astute, or can sell, or any of a number of irrelevant things. The only REAL question is whether people respond to you by raising their performance. Are you a net creator of excitement or a net destroyer of it? Do people trust you (and hence accept your guidance)? Do people believe you are a man or woman of principle or a "do anything to make a euro" type?

At the moment we have poor promotion screening systems to choose good managers. HR could help develop them.

HR could also help develop some training for managers, who are mostly untrained. We train people in business, but that's not the same as training them in how to manage. We need better programs in the basic skills of winning influence and dealing with human beings.

Responding to Fee Pressure

Many professional firms are living in a world of ever-increasing fee pressure from clients. What is the appropriate response to deal with this?

Among the many things that can be done, big and small, the first and most obvious is to achieve a reputation for being worth more than your competition.

This is done through the excellence of your work (and service) for current clients. It's worthless for you to try and claim that you are worth more, but if you can get some existing clients to say it publicly, then prospective new clients can be influenced. Hence, you should strive to get strong endorsements as part of your marketing effort.

Second, you can improve the quality of your attempts to get hired. Most fee resistance is based on scepticism about the value that will be received, but there are many opportunities to be persuasive on value if you can find ways to demonstrate, not just assert, your capabilities.

For example, if during the courting process you look for ways to be substantively useful to the person you are trying to attract (sharing ideas; performing some free initial analysis; or providing education, insights, and facts into what your prospect's competitors are doing), then you will be more convincing on value. The challenge is to find ways to prove, before the project even starts, that you are worth what you charge.

Third, be sure you understand what your client is trying to buy. A great deal of fee resistance comes from the fact that the consulting firm is trying to sell, for example, the "thorough" or "permanent fix" version of the project, while the client is trying to buy the "quick impact" or "lowest up-front cost" version.

In the selling process, you should strip your "core work plan" down to its bare bones, and then present the client with options for "add-ons" that are available -- with a clear cost expounded for each. The client can then pick and choose. If the client wants extra analysis, he or she is the one to add to the budget. If the client wants more frequent communication and consultation, it's their decision.

Going through this process with the client (long before the final presentation) ensures that the client understands how the total fee was arrived at and that you are not including work activities that the client does not value.

Fourth, you can use your budgeting and reporting procedures to overcome fee resistance. The person inside the corporation who hires you will be responsible for the budget, and if you can give that person solid proof that they will retain control over your activities, they will be less nervous about the total cost. Showing the client your methods of "phase-by-phase" budgeting, cost tracking and reporting will move the client's attention away from the aggregate number and give them the comfort of knowing that there will be no waste in the project.

An even better idea is to guarantee that no activity will be performed by you without prior discussion with and approval by the client, thereby giving the client the needed control.

A related topic is to examine your productivity. Clients I have interviewed (around the world) tell me that one of the major reasons they are exerting fee pressure is that they are not convinced that the firms they hire are very efficient, and that they see little or no evidence that the firm is concerned about saving the client money. And they are right.

Professional firms traditionally do not spend much time and effort looking for ways to improve the productivity of their own efforts. As I have long argued, most firms have many senior professionals who are spending time doing things that could be done via less costly resources, through some training, organisation and (perhaps) technology. When there was little fee pressure, this relative inefficiency did not matter very much.

In a world of increasing fee pressure, any consulting firm that can out-perform its competitors in reducing the cost of doing a project will have a clear competitive advantage, whether or not it passes all the savings onto the client. Accordingly, a top priority is to study carefully how you do your projects and look for ways (including staffing, training, methodologies, tools, etc.) to lower your project costs.

Because of concerns over productivity (and the need for budgetary control) many clients are interested in "fixed-fee" pricing. I expect that more and more work will be done on a fixed-fee basis. However, it is clear that in a fixed-fee world the firm must be vigorous in ensuring that the terms and conditions of the contract state very precisely what is and what is not included in the job.

Another response that is gaining popularity in this fee-sensitive world is performance-based pricing. This comes in two forms: either the professional's fee is tied to the accomplishment of a specific result (how much cost is saved for the client, how much revenues will increase, etc.) or the fee is tied to the client's satisfaction.

In the latter case, the deal looks like this: The firm bills during the project at, say, 75 percent of its normal billing rate. At the end of the project the client determines its satisfaction with what was accomplished, and the client decides what "balloon payment" to make. If the client is disappointed, the end payment is zero; if the client is delighted, the end payment brings the consultant up to 100 percent of its normal fees (or possibly more). Note that it is the sole discretion of the client to determine the performance and the "bonus."

This form of pricing is less radical than it looks. In effect, it is nothing more than saying, "If you're not satisfied, don't pay," which is good business practice in any case for a professional firm.

When there is a traditional fee impasse, either the consulting firm must cut the fee to get the job or the client must accept the consultant's desired fee based on an act of faith that the firm is worth it. Performance-based pricing allows the firm to say, "We'll bet on ourselves that we can deliver what we promise. We don't ask you to believe this uncritically up front, but can we agree that if we do deliver value, you'll reward us?" Increasingly, clients are accepting such deals.

Finally, are there circumstances when you should cut your fees? Yes, but it's the opposite of when most firms do.

Most of the fee pressure occurs on low-end, familiar, "asset-milking" work, and this is where most consulting firms are "caving in" and giving discounts. This is strange.

If this is asset-milking work (not building-your-balance-sheet work) why would you want to exacerbate the problem by also hurting your income statement through lower fees?

You should be willing to cut your fees (that is, make an investment) if this particular piece of business will move you forward strategically (for example, if the work is at the frontier and you'll learn new things that you can sell to other clients later on, or if the work will help you to break into a new industry that you have been targeting).

In other words, you should be most willing to trim fees (if necessary) for high-end, asset-building work. Anything else, in my view, is foolish.