How to Pay professional Employees

An accounting student writes in to ask:

I interned with an accounting firm that paid everyone (except for partners) by the hour. Under this system employees made a lot of money during tax season. People seemed to work much longer hours than at another firm I had worked in which paid straight salaries. It really did not seem they had so much more to do, but time-and-half wages were a huge opportunity cost of going home. "Time-in-seat" seemed to be a motivation which could only lead to a lack of efficiency.

I don't blame the firm on this one -- a lack of efficiency seems to be a fundamental problem with billable hour work in general because more hours translate to more pay. I can't blame the employees either -- why not use this incentive structure to their advantage? The partners encouraged people to work as much as they wanted.

At school, we studied a manufacturing company (Lincoln Electric) which pays its workers a piece rate. Lincoln requires a quality standard for each piece (no pay if the standard isn't met and the employee has to fix things up on his/her own time). Teamwork is factored into a score that determines bonuses at the end of the year (and importantly, employees are held to the teamwork and other requirements). With year-end bonuses having the potential of 100% of the whole year's wages, the employees take these rules seriously.

Obviously, you can't really pay piece rate for a tax return (and I'm not even sure you would want to). Paying by the hour must inevitably put dollars ahead of excellence (at least slightly). Paying a salary currently seems like a best bet.

How should employees be compensated?

The Lincoln Electric case study is very famous in business schools, but I'm not aware of any professional firm that uses piece-rate wages for its employees. Does anyone else out there know of an example?

As a lot of people have discussed, paying people by the hour builds in lots of discincentives and poor behaviour. Nevertheless, many firms do this, even if it is only in the aggregate form of paying bonuses annually for those juniors with the most billable hours.

I think this is a terrible system because junior employees don't really get to control their own workload. It's a partner who decides whether or not give a piece of work to junior person A or B. So getting more billable hours may just be a matter of being chosen more often. (Although you could argue that such a system serves as a quality screen -- only the good juniors will be sought out by the partners who allocate work, so they will end up busier.)

There have been some firms that create a "free market" for work allocation -- to get assigned to a job, juniors can offer to work for a discount off their salary, and partners can pay a premium over normal salary rated. That way, partners only sought out either the "best" for their jobs or the cheapest internal resources for the basic work. I know firms (elite firms) where this lasted a long time.

In spite of its creativity, I'm against such models. All quantitative incentive schemes backfire (we're dealing with smart people here!) Ultimately, I think you have to do what Alfie Kohn said "Pay people well (a salary) and work like mad to get them to forget about the money." If you want them to work to higher quality, more collaboratively, with higher productivity, then you must MANAGE them to accomplish this. You can't just design a scorecard and then say "go!"

One thing in the Linoln Electric system is worth contemplating. A significant annual bonus for everyone based on company results and teamwork makes a LOT of sense to me.

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Anyone else got different views?

Squeezing the Stress Sponge

My friend Frances (who passed away earlier this year and is sorely missed) was a management consultant for a long while. She used to tell this story:

Before going into consultancy I was a teacher. In a school in a relatively tough area, the stress was phenomenal. I had nowhere to go with my stress and was just told not to complain. I got more and more depressed and eventually left teaching. When I went into consultancy I noticed that managers who "listened" had more effective staff. People, like sponges, can absorb only so much stress. Find a way to squeeze your stress sponge, and also allow other people to share their concerns and problems. It helps to get rid of some of the pressure, thus enabling you (or them) to cope with more.

Regular readers of this blog know that one of my central themes is that we must learn about how people function wherever we can, and then apply those lessons in each of the contexts in which we operate.

We have stress in our personal lives. Conflicting demands for what has to be done -- NOW! -- and we try to accommodate our loved ones. But, as at work, pressure can build. Between husband and wife, parents and children and other family members, any way you can find to give the other person the opportunity to say what's on their mind helps to overcome pressures, misunderstandings.

My friend's lesson is that it helps most if you can solve the source of the stress, it helps a little if you say "sorry" -- but it's still worth giving people a chance to vent if you can't change things. Talking about it helps under almost all circumstances, and enables people to carry on even if the source of stress cannot be immediately removed.

I'm curious -- in your workplace, what opportunities are there for people to let off steam, vent and vocalise their frustrations, or, as Frances would say, "squeeze the stress sponge." What have you seen that works? What creative approaches have you seen?

The Joy of Sets

In recent years, my publisher has been re-issuing my articles with covers that have a consistent look, turning individual volumes into a "set."

It's an old trick, and it works. I know that in my hobby of collecting music, I am a sucker for completeness (all known recordings on the XX label) or multi-volume presentation. If there are available "The hits of 1995, volumes 1, 2 and 3" and I want something on volume 2, there's a very high chance I'm going to buy volumes 1 and 3, just to make my collection complete. Publishers use this phenomenon with their look and the (sometimes) artificial creation of series.

I get suckered in in extra ways. Record companies keep discovering "bonus tracks" (sometimes only studio demos of tracks already on the album) and then re-issuing the whole album at a premium price, justified by the inclusion of the one extra track. Who's the mug who re-buys the whole thing, even though he has the original album already, just to get that one extra track? Me, of course.

I was always this obsessive. I think it common among little boys to collect stamps and coins, and I did both, but I was a bookish, nerdy kid, and I started applying the same "gotta have the set" thinking to my reading. In my teens, I read everything (and I mean everything) written by James Thurber, Dorothy Parker, Henrik Ibsen, Oscar Wilde, George Bernard Shaw and Ayn Rand. (Yes, I've got wierd tastes.) I wouldn't start with an author unless I was prepared to "complete the set." (Is this the same as being brand loyal? Not quite, but it might be related.)

So, here's the point of this blog post: is the impulse to collect "sets" -- the urge for completeness -- a general phenomenon? If so, can it be applied beyond retail things to professional businesses? If you were a consultng firm, a law firm, an engineering firm, an ad agency, an accounting firm, etc., how would you take advantage of people's propensity to want to complete "sets" or have things presented as "sets"?

Bob Sutton's "No Asshole" Rule

Bob Sutton, for those of you who don't know him, is a Stanford professor who has written some superb business books (including the co-authored Hard Facts, Dangerous Half-Truths And Total Nonsense.)

He has a new (200-page) book coming out in February called "The No Asshole Rule: Building a Civilised Workplace and Surviving One that Isn't".

Many of you may be aware of his themes, because Bob has a terrific blog and has been talking about the topics of his new book in a number of posts.

As you would expect from Bob, it's a terrific book -- a true "must read."

The theme is clear from the title, but the chapter that really got me was "How to Stop Your 'Inner Jerk' From Getting Out." In other words, how to stop being an asshole yourself.

Bob notes that we all act as assholes sometimes. "Most of us, even the most 'naturally' kind and mentally healthy, can turn caustic and cruel under the wrong conditions," he writes. He also points out that "once you unleash disdain, anger and contempt or someone unleashes it on you, it spreads like wildfire. ... If you join a group filled with jerks, odds are you will catch their disease."

Bob covers a lot of territory in his book. What assholes do, and why you know so many. Why every workplace needs the "no asshole" rule. How to keep the rule alive. Tips for surviving nasty people and workplaces. And, to be fair, the virtues of assholes.

Without a doubt, this book will make you think. I'm just sorry you'll have to wait until February to get it.

In the interim, let me try to start a dialogue based on Bob's ideas.

I don't think I've ever been the type of asshole who transgresses Bob's two tests (first, making other people feel humiliated, de-energised and belittled and second, aiming venom at people who are less powerful than me.)

But there are other ways of being the primary asshole in the room without going that far.

Not in Bob's sense of the truly nasty person, but nevertheless saying or doing inappropriate things. Bob's book says that past performance is a good predictor of future performance and one of the good ways to avoid being an asshole in the future is to figure out when and why you have been one in the past.

So, under what circumstances have you found (past tense, of corse) that you yourself ended up being the asshole?

Here's the beginnings of my list:

I have been the asshole when:

1. I got overexcited and overenthused on a topic (I lose my sense of proportion, just keep trying to make my point and don't let people finish their sentences)
2. I got tired
3. Three things went wrong in a row. Two I can handle, but make it three and I lose it.
4. I was asked to do more than one thing at a time. I'm not a multi-tasker, and I get shirty when people interrupt my concentration.
5. I got criticised too directly (I reacted badly)
6. I felt like I'm not being treated with respect
7. I was trying too hard to "show off."

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Anyone else wanna play this game?

Under what circumstances do you become the asshole?

Guns for Hire

There's been a lot of discussion about leading PR firm Edelman's involvement in something that transgressed many people's sense of ethics -- creating a blog consistently favourable to Wal-Mart without disclosing Wal-Mart's (or Edelman's) involvement.

For example, noted industry observer Paul Holmes, comments on this (and other similar situations):

There's no doubt in my mind that Wal-Mart is as sincere about its commitment to use every dirty trick in the book to win its public relations battle as Edelman is about its commitment to set high ethical standards. ... So what happens when a PR firm with high standards works for a company with a win-at-any price philosophy? The answer is not as obvious as it sounds -- there are PR firms who do great work for morally dubious clients -- but often the tone is set by the person paying the bills, and we get Hill & Knowlton's work for the tobacco industry in the 60s and the Kuwaiti government in the 80s, Ketchum's more recent troubles involving its work for the Bush administration, and countless other examples.

As I read about all this, I reflected on the number of other occasions that I've seen my clients (advertising agencies, investment banks, law firms, consultants, accountants and all the others) clearly working for people they neither respect nor trust, doing deals they didn't believe in. In all professions, it seems, most providers are guns for hire. (Actually there's a ruder word.)

I have discussed this a thousand times with professional providers, but very, very few think they are "allowed" by their firms to walk away from a paying customer because they didn't like what he or she was doing.

I like to make a sort of game of it:

Would your firm walk away if you didn't like the client?

What if he or she was trying to do something you didn't believe in?

What if he or she was doing something unethical?

Socially irresponsible?

Illegal?

The answers are close to uniform: most individuals inside most firms feel an overwhelming pressure to ignore all these considerations but the last -- and many will play games with "I didn't know what was going on" on that one too.

Notice that what people are telling me is how their FIRMS are run. Most tell me they would make different choices if they were solo like me.

And you know what? I believe them! I can impose my own standards of whom I want to work for. It is (and always has been) the reality of my solo work life that I only work for clients I like personally and whose cause I can wholeheartedly serve. It was like that from the beginning.

Yet, the very minute I joined an organisation, I know I would sacrifice that ability to apply selective criteria of taste, meaning, ethics and (maybe even) legality. I would have to apply someone else's selection criteria, not my own. And the bar would almost certainly be set pretty low.

I've been told over and over again that business organisations cannot afford to be selective. Public or private, they feel they are under immense pressure to grow, and cannot turn away business. But notice, I'm in business, too. It's not being in business that drives you to the compromises, it's being in an organisation!

The fascinating thing is that I know LOTS of CEOs and managing partners. as individuals they are usually people of taste, honour, integrity and all the rest of it. But they believe in their bones that they are not allowed to apply the same criteria in their organisational roles that they would if they were working only for themselves. They feel as trapped and as compromised as the most idealistic junior does.

I think part of what is going on is this. It's all about trust. If I knew that all my colleagues, bosses, partners, owners, etc., shared a common set of standards, then I would have the courage to make selective decisions based on those standards. However, if I think they do not share my values, ideologies, principles and preferences, then I will not take the risk and expose myself to criticism by turning away cash under any circumstances. And the organisation's decision-making gets driven to the lowest common denominator. We'll shoot at anything that moves, serve anyone with anything, as long as they pay.

Does anyone want to explain all this to me? Are organisations (professional firms) incapable of being selective? Does everyone inside a firm have to end up as just a gun for hire? If not, how does an organisation avoid it?

What Do Consultants Know?

During a recent speaking tour in Europe, I made a presentation one evening in Denmark to the alumni of a major consulting firm.

Among my messages was the fact that, as consultants, many of us give advice on things we were not trained in, and do not actually have "proof" that what we advise is correct. We know less than people think we know. I used my (now) familiar metaphor that most business problems are like losing weight: things the client already knows that he or she should do, but just isn't doing. As consultants, we don't have any magic pills -- we just help clients exercise more and eat less.

That doesn't mean we're faking it, or that we are useless. Just that we mustn't get carried away with believing our own publicity. We like to think we have answers, but we often don't. In fact we usually don't. We have opinions. Sometimes, we have ways of thinking which help other people's ways of thinking.

When we help, we help not with our knowledge, but with our ability to guide the client's own reasoning. What counts is not our knowledge, but our interactive, human skills in helping clients -- as individuals and as organisations. Sometimes it's gentle, sometimes you need to be challenging. But it's all about helping the clients make decisions and act

On my return to the US, I received the following e-mail (presented here in a slightly edited form):

I think my unusual consultant story confirms many of your findings. I believe I have one of the most awkward backgrounds as a consultant, but still I can very much relate to your experiences. I have spent the first 10 years of my weird and fun career on operational level in transportation, followed by 6 years in different management positions. I had an adventure in between as franchisee for 7-Eleven, then more than 3 years in consulting.

I faked myself into the consulting business. I don't have a master's degree and I don't read many books on management consulting. Actually, I am open and honest about who and what I am. My knowledge is not really very impressive -- it is wide but not deep. But I believe I have many healthy principles, I act with passion and I share with everybody -- and that's basically it. To my own big surprise, I have from the first day in consulting generated revenue above average and only ever received good customer feedback.

I have often asked and struggled myself with the tough question: what am I good at? Not much really, but I have a general view, that life is simple and business is simple. I don't see myself outstanding in specific disciplines, but, as a consultant, I make things happen at the right time and ensure that things are well communicated. In consulting, the right decisions and the way to consensus is often written in neon.

The magic pill surely is integrity -- but for those who didn't have it in the cradle, the pill is probably too big to swallow. Like many clients (and consultants) I had an illusion at the beginning of my consulting path about the big answer book and higher truth -- but now I know, that it is only an illusion. I think you framed that very well.

Best regards,

Henrik Nielsen,
Senior Consultant, Denmark

Thanks, Henrik!

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Reactions, anybody?

Nothing New Under the Sun

I was doing some tidying up of my (computer) files over the weekend and came across this.

It's the slide I prepared over 10 years ago to give speeches about what was happening in professional businesses.

Isn't it astounding how much is still the same?

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MAJOR STRUCTURAL TRENDS IN THE PROFESSIONS

Client Marketplace

• Short service/product life cycles -- constant need to innovate
• More client demand for specific industry expertise
• More "packaged" service products
• Global marketplace
• Fee pressure on "mature" services
• Merger activity-client base
• Continued demand for high specialisation
• Increasing client demand for counselling work (more "front room" / "advisory")
• Fuzzing of boundaries between professions
• More complex client organisations
• Client use of microcomputer technology
• Merger activity-professional firms
• Client scepticism about value of services

People marketplace

• Rising competition for junior staff
• Competition for staff from other professions/industries (change in perceived "glamour")
• More hiring of senior (lateral hire) staff
• Computer technology changing work tasks (and hence leverage ratios and organisational structure)
• Rising proportion of women in profession
• Cultural shift in work-ethic among juniors
• Greater diversity of skill backgrounds in staff
• Greater mobility of skilled staff
• Increasing ability of para-professionals to perform junior professional tasks

Some consequences

• Rising diversification of services inside firms need to manage different businesses differently
• Internal coordination of specialists required
• More investment in technology, r&d, mktg.
• Rising fixed costs in the practice
• Rising internal training needs
• More internal formal structuring
• Greater need for market intelligence on client needs
• Effect of changing environment on senior professionals
• Effects of rising firm size on culture, communications

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By presenting all this, I don't mean to pretend that I was especially prescient. My whole point is that anyone at that time would have readily agreed that these were the major trends.

But who would have predicted that we'd still be talking about many (most?) of them 10 years later.

Here's the question for all of you out there:

What does it MEAN that the list of trends 10 years ago is still so current?

Does it mean that we've learned or solved nothing?

Does it mean that there really are no new business issues?

Does it mean I stopped paying attention 10 years ago?

Repairing Fences

In the normal course of life, we do a thousand little things that annoy other people, and they do a million that annoy us. Occasionally, all this irritation boils over into an intemperate "spat." We complain, we say something harsh, or we say something valid in a harsh way.

It can happen with a client, a boss, a subordinate, a peer, a romantic partner, a friend or a family member.

Of course, you acknowledge that you were guilty, too, but you feel that your sins are less because:

(a) you were RIGHT

(b) you had a good reason for what YOU did

(c) the other person was unfair

(d) they started it

(e) you're going to be the one who has the final word, come hell or high water

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Now what?

The temptation is always to dwell on the hurtful things the other person said, or the ways they let you down. The temptation is to burn your bridges, or engage in extensive discussions to prove you were in the right.

Bad idea. The thing that set the other person off may not have been the thing they're complaining about. Often, it's not. Frequently, resentments accumulate and the final topic that causes the explosion is, more often than not, only the excuse for the bad temper, not the real cause.

One of the hardest things in the world is to stand aside from all this, and ask "Do I want to end the relationship right now, or try to restore it over time?" It's hard to ask "What's in my best interests here?" It's hard, but necessary, to put aside -- at least temporarily -- the issue of who was right and who was wrong.

One of the most elusive -- and valuable -- talents, is the ability to mend broken fences. Some people are terrific at it, others don't have the personality for it. But my rule is that I don't believe in half-relationships. We're either in this fully together or I don't want to play.

That doesn't mean that I don't realise that sometimes the relationship is on probation. When trying to mend fences, note that you will need to discuss whatever set you both off, but not right when it happened. The more you try to "explain" your side, the more self-justifying (and annoying) you will become. Remember the goal is to heal, not to have the argument yet one more time.

Just move on together. Weeks, months or years from now you can discuss who did what to whom, but until time has performed its magic, you'll get nowhere trying to heal hurt feelings with logic. Just acknowledge that the underlying mutual respect is there -- the commitment to make it work -- and get back to work.

Relationships are more important than blame.

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What are YOUR tips for getting through these terrible times?

Darn That Tom Peters!

Last year, I was asked to contribute to a book commemorating Tom Peters' 60th birthday. Here's what I had to say:

Tom, whatever impact you have had on global industry and commerce, it may be that your biggest impact has been on people like me who saw your success and said "I wanna do that!"

Goodness knows how many consulting, speaking and writing careers (of highly variable quality and success) you are responsible for. Countless young academics (like me) dropped out, were liberated from the confines of dry scholarship by the example of someone who made a difference by being provocative, focusing on idea generation, challenging people to their face and, in general, acting like you were having a lot of fun.

Trouble was, it wasn't as easy as it looked! Not everyone can get away with attacking people's cherished beliefs and have them respond by giving you a standing ovation! Tom, why didn't you warn us that they'd be more likely to throw us out of the room? (And, in vast numbers, proceeded to do so!) Eventually, some of us figured enough of it out to survive, but, hey, you could have warned us!

Then there's that issue of writing. OK, Tom, we got it, writing works. Gotta do a book! So, like a million other clones, we went through the process. As in real life, the conception part was fun: about the most fun we were gonna have for a long time. Then came the morning sickness, the constant burden (which lasted more than 9 months: it was elephantine) that we were carrying around something that was supposed (eventually) to have a life of its own. Then came delivery: we stretched and we squeezed, until we Tomclones finally produced something that we hoped was a beauty, or at least not totally ugly. Only to discover that while the rest of the world made polite noises, no-one really cared. Tom, why didn't you tell us not only how hard it was to do a book, but how hard it was to get anyone to notice, let alone care! You made it look so easy, you son-of-a-gun! Do you realise how many lives you ruined? How many trees were cut down to print imitation-Peters volumes that no-one ever read?

And then what did you turn around and do? You wrote another bloody book! And another! Oh, Jeez, what game have you suckered me into, Tom? I just about had a few good ideas for one book, and now I'm supposed to start over? You led us down the garden path, Tom.

There's a vast horde of us, Tom, who couldn't be Elvis or Paul McCartney, so we tried being you. I know you've had a big impact on the people you've met, Tom, but what about all the people you've never met, whose lives you changed, not always for the better, by your example? Net, net, net, Tom, are sure your influence has been benign?

PS. Thanks! I couldn't have had my wonderful life without you!

The IQ of a Meeting

Today's blogpost is from "The Best of The Corporate Curmudgeon", a syndicated column by by Dale Dauten

(Thanks to Bill Peper for drawing it to my attention)

"When the outcome of a meeting is to have another meeting, it has been a lousy meeting."

-- Herbert Hoover

Let's say you attend, on average, two meetings per workday. That would be about 500 meetings a year, or, if aggregated over a forty-year career, 20,000 meetings -- a thought that could make anyone want to reach for the black capsule of death and hope for something better on the next plane of existence.

What got me thinking about meetings was sitting in one so tedious that I had time to do ridiculous calculations, such as the number of meetings in a career. And I also had time to recall that handful of meetings where the minds in the room caught fire, where ideas were spiralling toward group genius.

What made those meetings special, and what makes the average one so agonisingly ... well, average? I spent the rest of the meeting trying to work out the formula for the group IQ of the meeting.

The calculation of Intelligence Quotient is standardised, so that 100 is the mean, so let's start with a score for meetings of 100 and then add and subtract from that. We're after mental energy and the goal is to quantify the types of places and people that hum with energy and ones that suck the life-force right out of you.

MEETING IQ (or MIQ) = 100

• Minus the number of cell phone rings,

• Minus the number of Blackberries in the room (times ten),

• Minus double the number of fluorescent tubes lighting the room,

• Minus the distance, in feet, between the two farthest participants,

• Minus 50 points if there are rules (formal or informal) about who sits where,

• Plus triple the number of times the highest-ranking person in the room makes a note of something said in the meeting,

• Plus the number of magazine subscriptions by the participants, not counting industry publications,

• Plus the number of novels read by all participants in the past six months,

• Plus the number of minutes a lousy boss is out of the meeting,

• Plus the number of minutes a great boss is in the room,

• Minus the number of times an assistant enters the room to give/say something to one of the participants (times ten),

• Minus the number of clichés used during the meeting (with each "out of the box" counting as five and each PowerPoint slide counting as an instant cliché),

• Plus the number of times the word "customer" is used,

• Minus the number of times the word budget is used,

• Minus the number of times "hold on", "wait a minute" or "could you repeat that?" is used,

• Plus triple the number of genuine laughs during the meeting,

• Minus double the number of polite chuckles,

• Plus the number of workplace compliments anyone in the group has received in the past 30 days,

• Plus the number of new ideas/experiments tried in the past six months (times 10)

• Plus the number of years between the youngest and oldest person in the meeting,

• Plus the number of industries worked in by all the participants,

• Plus the number of customer locations visited by people in the room in the past 90 days.

• Plus 25 points for use of a phrase similar to "There has to be better way,"

• Plus 50 points if the group applauds an idea,

• Plus 100 points if someone says "We need to come up with something truly unique."

As you can see from this list, it's entirely possible, likely even, to have a negative Meeting IQ score. When this happens, the IQs of all attendees are diminished by about ten percent for the rest of the day. Repeated exposure may cause a permanent reduction in IQ.

In other words, bad meetings are an intelligence suction device, pulling mental energy out of organisations. Where does all that lost IQ go? That's how they make neon lights.

Prinderella and the Cince

This blog sometimes gets intense, so I thought I'd throw in some light things from time to time.

I hope what follows is out of copyright. It was popular as a party piece among my friends in the 1980s, although I believe it dates from the 1950s Saturday Evening Post. Anyone have more background? Enjoy!

Prinderella and the Cince

by Colonel Stoopnagle

Here, indeed, is a story that'll make your cresh fleep. It will give you poose gimples. Think of a poor little glip of a surl, prairie vitty, who, just because she had two sisty uglers, had to flop the more, clinkle the shuvvers out of the stitchen cove and do all the other chasty nores, while her soamly histers went to a drancy bess fall. Wasn't that a shirty dame?

Well, to make a long shorry stort, this youngless hapster was chewing her doors one day, when who should suddenly appear but a garry fawdmother. Beeling very fadly for this witty prafe, she happed her clands, said a couple of waggic merds, and in the ash of a flybrow, Prinderella was transformed into a bavaging reauty.

And out at the sturbcone stood a nagmificent coalden goach, made of a pipe rellow yumpkin. The gaudy fairmother told her to hop in and dive to the drance, but added that she must positively be mid by homelight. So, overmoash with accumtion, she fanked the tharry from the hottom of her bart, bimed acloard, the driver whacked his crip, and off they went in a dowd of clust.

Soon they came to a casterful wundel, where a pransome hince was possing a tarty for the teeple of the pown. Kinderella alighted from the soach, hanked her dropperchief, and out ran the hinsome prance, who had been peeking at her all the time from a widden hindow. The sugly isters stood bylently sigh, not sinderizing Reckognella in her goyal rarments.

Well, to make a long shorty still storer, the nince went absolutely pruts over the pruvvly lincess. After several dowers of antsing, he was ayzier than crevver. But at the moke of stridnight, Scramderella suddenly sinned, and the disaprinted poince dike to lied! He had forgotten to ask the nincess her prame! But as she went stunning down the long reps, she slicked off one of the glass kippers she was wearing, and the pounce princed upon it with eeming glize.

The next day he tied all over trown to find the lainty daydy whose foot slitted that fipper. And the ditty prame with the only fit that footed was none other than our layding leedy. So she finally prairied the mince, and they happed livily after everward.

And that wasn't a shirty dame, was it?

Getting an Organisation to Stretch

I'm always fascinated that we all keep trying things that don't work.

I work quite a lot with CEOs and managing partners, each of whom wants to get their organisation to stretch for greater achievement. The two most common approaches they seem to try, at opposite extremes in style, are the Vision and Technocratic approaches.

The Vision approach tries to bring about organisational energy and determination by "selling the dream." Managers ask the people in our organisation to stretch for ambitious goals and be accountable for higher or different standards, all in the name of achieving fame, glory and riches for the organisation.

There would be nothing wrong with this approach -- if it worked. However, few of us pass the reality test of actually being able to energise large numbers of other people either through the glamour of the dream we describe or our skill in presenting it.

The sad truth is that we cannot automatically assume that people care enough about the organisation to contribute extra energy. It may be a depressing commentary on the human condition, but except in some very special cultures, "do it for the glory of the group" works on only a very small percentage of people.

The second common managerial approach to creating energy and excitement that I see attempted (a lot of the time) is the Technocratic process. This is made up of three steps: (a) announce goals, (b) put in place new metrics that monitor those goals and (c) design a reward scheme for those who score well on the metrics.

If this were all it took to head an organisation, effective managers would be ten-a-penny, and every business school in the world would have to be shut down due to a lack of customers. Contrary to what we are often told (and many people believe) it takes more than a pay scheme to move an organisation. (See -- or, rather, hear -- my podcast on this topic.)

If the Vision approach is too inspirational to work effectively for most of us in the real world, then the Technocratic approach is too devoid of human feeling to accomplish its goal. In essence it says: "Do these things and we'll pay you." There is nothing illogical about this, but as Alfie Kohn has pointed out in his book Punished by Rewards (Houghton Mifflin, 1993), the very act of asking people to do things primarily for the money diverts their attention from any meaning or purpose in what they are doing. As a result, they do it with less passion, care and attention to detail, and performance will, surprisingly, decline, not improve.

There is yet another problem with trying to energise, enthuse and engage an organisation through measures and rewards. Itis often true that as strategies accumulate over time, so do reward metrics. New metrics are often added, but only rarely are old ones taken away. Confusion inevitably arises as to which metrics management really wants people to pay attention to.

As a result, people inevitably default to measures that track short-term financials. New, strategic metrics are rarely viewed as equally powerful. On his blog, Stanford professor Bob Sutton describes this as the "Otis Redding problem," based on a line from the song "Sitting on the Dock of the Bay" -- "I can't do what ten people tell me to do, so I guess I'll remain the same."

It is worth pointing out that, if the Vision and Technocratic approaches to bringing about organisational energy are difficult to pull off, trying to use them in combination is often a disaster. "Do it for the glory of the organisation, but by the way we'll pay you less if you don't do it!" may not be absolutely contradictory, but the tone and style of the messages are completely different. We are unlikely to be effective if we try to inspire and threaten in the same sentence!

Some questions for the community:

1. Do you agree that these approaches are very common?
2. Do you agree that these approaches usually fail?
3. Why do people keep trying them?
4. What works?

Advice on Negotiating a Deal

David Kirk added this comment and question to the post on Value Pricing. I decided to move it to a new post to see if the community has reactions to his questions. Here's what he had to say:

The timing of this post is almost perfect for me. Unfortunately, almost in this case is three days too late!

Over the last year, I've been working on-and-off with a trade association to do some work to solve a problem (entailing calculating a price index in a particular way based on historical data). This has all been in the "proposal stage" where we were all deciding whether what I could offer could work. (Not that my solution is particularly exceptional, but it is the best solution to their specific problem in this case and I know of very few others in South Africa who can provide all the aspects of this work -- you're gonna have to trust me on this part!). When they agree they want the work I done, I prepare a quote based on hourly billings for the team to be involved on the project. I don't include any amount for the time already spent (amounting to about 40% again on top of the quote) because I felt that was part of the process leading up to getting the work. It was during this proposal phase where I did signficant research, both about their problem/situation and about the best solution for them.

If the results are positive (they will be based on historical data, so neither party can know this yet), the impact on the regulation of this industry is likely to mean that the member companies of the trade association will see a return on their investment in the project of several thousand percent (based on retaining pricing power and thus profitability from several large, listed businesses.

In a meeting this week that basically demanded a massive discount. Their argument for why the cost is too high? "The trade association is a non-profit company with limited funds."

Also, based on the work done to date and the documents I prepared for them, it is possible that someone could "reverse engineer" the required calcs and do a decent job at performing the work (although if they messed up they probably wouldn't even know it, let alone what to do about it) at a lower cost because their billing rate doesn't reflect the expertise required to understand what calcs and formulae were needed in the first place.

So, my questions:

1. What to do about the trade association claiming no money when the real beneficiaries have plenty, and how does this tie into value pricing?
2. How do I get around the problem of having given away so much "free consulting"?
3. How should I have approached this situation from the start, since it's clear my actual strategy failed miserably?
4. Does this sound like the sort of client that we should all avoid like the plague?

Value Pricing

One of the most frequent questions I get at seminars and speeches is whether or not I support "value billing."

Usually, the questioner is asking whether services can and should be priced on some basis other than the hourly rate cost that it took to produce the service.

We are all familiar with the perverse incentives that hourly or daily pricing systems create: if the provider gets more efficient and finds a way to do the work with less time, then the provider gets paid less for the job.

This is an ancient problem. There's an old, traditional song in my music collection, sung by Paul Robeson, called "The Cobbler's Song". One verse goes like this:

The stouter I cobble, the less I earn
For the soles ne'er crack, not the uppers turn.
The stouter I cobble, the less my pay.
But work can only be done one way.

The best source on value pricing is Ron Baker's book The Professionals Guide to Value Pricing.

However, I think many people who analyse this situation get it completely wrong. They want to call it value pricing because they think that if they create more value for the client, they should be paid more.

Wrong! We like in a capitalist, free exchange society. In such an economy price is not set by what things cost to make, nor the scale of the benefits delivered to the client.

Instead, prices are set by scarcity -- the relative supply and demand for the service provided. Water has more inherent benefit than diamonds, but diamonds cost more because of an artificially managed supply and demand imbalance.

If you save your client a million dollars through your tax advice (for example), that doesn't mean you deserve a high percent of those savings -- IF MANY OTHER TAX ADVISORS WOULD ALSO HAVE ACHIEVED THAT BENEFIT.

You get paid a lot when your client believes you deliver a level of value that cannot be (or is not being) delivered by other possible providers.

For each of thus, then, whether we are individuals or large firms, our challenge is "How do I make myself special, in ways that clients value?" It's not primarily a pricing problem, but a combination of ensuring that I DO become more valuable in my clients' eyes, and then have a method of pricing which captures that.

For over ten years, I have practiced a particularly "clean" form of this. I set my fee by the number of days I work for the client (at particularly high daily rate) but I give every client an unconditional satisfaction guarantee.

Every bill I send out, without exception, has these precise words: "If you are anything less than completely satisfied, then pay me only what you think the work was worth."

Note that it doesn't say "call me to discuss payment." It says "Pay me what you think I was worth." The obligation is now on me to serve the client in such as a way that he or she can really see the value provided.

The amount they pay is now based not on my cost to deliver, not the amount of the benefit they received, but whether or not THEY believe I was sufficiently special to deserve a premium fee.

There's no secret trick to value billing -- just figure out a way to be more valuable. If you are, you'll get paid more.

Employer Value Proposition

In last week's Economist, there was a special report on the competition for talent, which concluded (among other things) that employers needed to develop an "Employe Value Proposition" ie a reason why a talented person would want to join (and stay with) an organisation.

Good idea! Not too many examples of such "EVPs" were given, but it was observed that a major theme could be delivering to talented people the "learning organisation" -- the chance to learn, develop and grow. However, the Economist concluded that few organisations knew how to create that.

The topic of marketing your organisation to the people you want to attract has never been more timely. What The Economist got absolutely right was that you need a specific proposition to market successfully. You can't possibly be attractive to all possible recruits. Some will want to be team players, some will want lots of autonomy. Some will want immediate rewards, some will want to be part of building something.

Some, in the language of Bob Sutton's blog and book, want a "No Assholes" policy. Some of them want the freedom to BE the asshole!

Here are the (strictly enforced) rules I would establish to form MY company's employer value proposition:

• EVP rule 1: Anything that can be delegated must be
• EVP rule 2: Only true team players allowed -- no lone wolves, no matter how big their book of business
• EVP rule 3: Grow or go -- no room for anyone who doesn't want to take on new responsibilities and skills every year
• EVP rule 4: Only those who are interested in helping OTHER people succeed are allowed to hold managerial or supervisory positions.
• EVP rule 5: No (repeat offender) assholes (we all get it wrong sometimes.)
• EVP Rule 6: Ten percent of everybody's time and everybody's budget is to be spent investing in the future
• EVP Rule 7: As soon as we know you aren't going to get promoted, we will tell you. No faking it.
• EVP Rule 8: If we part, we will do all we can to ensure that we part in friendship
• EVP Rule 9: If we part, we will provide more assistance in helping you find your next job than any of our other competitors.

What do you think? Would that be an attractive EVP in your business? Would it make talented people want to work there?

What would YOU offer as a viable Employers' Value Proposition that would attract the best and the brightest?

How Did You Lose Your Innocence?

I have been doing a lot of client work in the last few weeks in many countries, meeting people young and old in professional businesses.

My message is one of the economic benefits of optimism, professionalism and high standards, but it is met most often with a dejected, beaten-down cynicism.

Many times during my latest trip I was told things like: "Richard. It would be very nice to have your ideals: to believe that the managers with the highest integrity get the best work and the highest profits out of the group they manage. But don't task-masters and slave-drivers also get results?"

"It would be nice to believe that the way you get the best out of employees and clients is to try -- at least try -- and understand them as human beings, and get better, if necessary at meeting their human needs. But don't such idealistic people get rejected in companies -- can you really get promoted as a manager if you care about your people -- or your customers -- too much?"

I keep meeting people who have given up their ability to believe in the power of standards and ideals (or to believe that anyone else in business has them).

Some Examples

A consultant (age 50 or so), who worked for one of the most famous "brand names" in consulting:

"I was as simple boy who grew up in the country. When I came to the city, they taught me that to get on in business you have to lie. You exaggerate and misrepresent in proposals in order to win the work, you claim to have done things you have not done. That's the way the game is played, you are taught."

A 30-year-old middle-level supervisor at a European-wide training program:

"The firm pretends that it wants to inspire us, but the truth is that we do boring work, and so do those more senior than us. We cannot imagine that there are people who do work they are still excited about. That's a luxury we cannot dream about. They just want us to work harder and get the people who report to us to work harder."

A partner in a tax firm:

"We know many ways to save our clients money, but that just would mean we would bill them less and take home less pay, so we don't work at getting efficient. That would be the 'right' thing to do, and may even get us a good repuation in the long run, but no-one would seriously suggest changing to that way."

A senior national-level director of a professional business, in charge of 6,000 people:

"It's OK talking about all this quality and employee motivation stuff, Richard, but we just want to make money -- lot's of it. What's wrong with that?"

So here's my question to you: How did we / you end up here? Clearly, something was missing from my education and upbringing -- the world forgot to "beat out of me" my ideals, but seems to have done a good job of beating them out of most other people.

I'm really interested: What (specifically) happened to you that made you lose your innocence about how business (or academia) was run? (Stories please.)

A Generic Consulting Proposal

In case any of you need to "win some new business" and don't have time to write a proposal document, I have prepared a generic one for you here.

Beloved Client: You have ambitious goals, which will generate significant returns if you can achieve them. However, you have told us that your goals will not be achieved by "business as usual." You recognise that you will need to re-examine and redesign a number of your processes to capitalise upon the opportunities you have.

In turn, redesigning some of your processes will inevitably involve re-allocations of responsibilities, duties and accountabilities.

It can be anticipated that achieving consensus on these re-allocations will not be easy, and must be accomplished through a process of consultation, participation and involvement if you are to ensure the buy-in necessary for diligent implementation and execution of your plans.

In assisting you, we will play the role of objective outsiders, using our accumulated expertise and proprietary methodologies to support you in the following stages of your decision-making and implementation:

• Suggesting information collection from employees and customers
• Assisting in analysing and interpreting responses from these sources
• Conducting discussions with those you consider peers in your business, collecting best practice guidelines
• Preparing for, conducting and analysing one-on-one and small-group consultation sessions with your key decision-makers to identify issues, raise concerns, test emerging consensus on possible action areas
• Re-analyse your financials and other numeric data to shed fresh insight on operational and financial results over time, geography, industry, product-line and other operating groups.
• Facilitating top-management review of this information by design of meetings and conferences, where necessary acting to challenge assumptions and generate alternatives not previously considered.

Once management decisions have been arrived at, we will help in the design and execution of communication and consensus-building activities to educate the organisation in the new methods of operating, helping to communicate the vision, clarify new roles and responsibilities, and design new metrics to monitor the organisation's performance (and that of each operating unit) in the new behaviours. Where necessary we will integrate these new metrics into a balanced scorecard and assist with a redesign of your performance appraisal and compensation schemes to reflect the new strategies, processes and responsibilities.

We recommend that you invest $XXX in our services to ensure the arraignment of your goals.

What do you think? Would this earn any business? Are proposals like this all con jobs?

What would you put into a generic proposal or pitch document?

Earning a Relationship -- new careers videocast & audiocast

In this episode, we are going to look at what it takes to get another human being to want to give you what you want. It's a tricky skill and it requires careful attention to the ebb and flow of the relationship, but as we will see, there are very simple skills that make this possible.

Audio Timeline

00:39 -- Introduction
01:08 -- A personal account of relationship building skills
03:29 -- The lessons
03:52 -- Conclusion

You can download Earning a Relationship or sign up to receive new videos automatically with iTunes or other video players. (Click here for step-by-step instructions on how to subscribe.) My seminars are always available for download at no cost.

September Top 5 Roundup

Here are the Top 5 most popular posts of the month.

Help Me With My Strategy Please

If past blog posts are any guide, you folks seem to enjoy giving me advice as much as I like giving it to you, so now it’s your turn again.

Screening for Character

How do you really tell if someone is good with people? Is a team player? Is honourable, has integrity and is trustworthy?

How to Get Ahead: Lie and Cheat?

What happens if, in school and in the first job, we raise a generation of people who think lying, cheating and stealing are the ways you get ahead?

The Secret of a Great Marriage Is

This post is short, so click through to read my thoughts and the great answers shared by readers.

The Best Manager I Ever Had

Think back to the best manager you have ever experienced. Someone who got the best out of you, and the rest of your group, to stretch and to accomplish more, while also enjoying it more.

Thank you to everyone who contributed to these stimulating discussions.

If you still have ideas or opinions to add in to these or any other discussions on the blog, please join in!

What Would the Client Say?

Here's a simple test for any marketing idea you might be discussing with your colleagues: how would the client react if he or she were sitting in the room, right now, listening to us debate this idea?

If the client's reaction were to be "Wow, that's going to be really helpful to me" then you're going to get a lot of positive reactions and you know you're on to a money-making idea.

But if the thought of having the clients listen in to your planning has you worried, then, indeed you should be worried. Your nervousness at having them hear you means that you're trying to mislead, misdirect, con them or fool them in some way. Otherwise, why don't you want them to hear you?

And the odds are you're not going to pull it off. Customers and clients aren't that dumb (although we often make our plans as if they were.) And when we make that mistake, we're the ones being dumb.

If we want to succeed, we've got to start marketing and selling as if we were dealing with smart, adult intelligent people. We've got to stop acting as if we have something to hide.

Creating Better Educational Institutions

Both Stanford and Yale have recently announced new curricula for their business schools, and in both cases the reports I've seen suggest that both elite institutions have missed the point.

In both cases, what they have redesigned is the subject matter or course content of what they will study. However, it's not the content which develops you as a student. Reading about and discussing managing people doesn't make you any good at all at DOING it until you have had the chance to try it out in practice, with guided feedback.

Knowledge by itself is actually not what's crucial in our success. It's half-life is very short, and in today's world knowledge is readily accessible for free. So any institution that tried to build its success on transmitting knowledge would be doomed to irrelevancy.

The key topics in education are not knowledge but two issues that straddle knowledge: ATTITUDES (which come before knowledge in determining your future) and SKILLS (meaning can you actually do anything.) Educational institutions do not give nearly enough thought to their power to shape attitudes and develop skills.

In this blog and elsewhere, we've complained that people are badly prepared for work life and that our educational institutions are no up to the job we really need them to perform.

So, let's get constructive here. If you were going to design an educational institution that really prepared someone for a professional working career, and helped them develop the key skills, what elements would you put in place?

How would you design things so that we develop people with the right attitudes? What about expelling people with the wrong attitutdes?

Should educational institutions be either screening wrong attitude people or developing right attitude people? If so, how?

Similarly, what are the key skills that educational institutions should be building in people who are destined for professional work careers, and how can these skills be developed?

A couple of examples to get you started. When was the last time someone was expelled from an MBA program for being "not very good at getting people to trust him/her?" If winning and earning trust is so key to success in life, why do we graduate people who cannot do it?

If honour and integrity are so important, why don't all educational institutions have and enforce an honour code ("I will not lie or cheat and will not tolerate those who do.")

If communicating is so important, why don't we give prizes to the people who have learned the most about their fellow students' (IE were the best listeners?)

Why don't we have special counselling programs for those students who seem unable to develop a circle of friends? (Not to help them socially, but to help them develop a crucial skill.)

OK everybody -- let's get creative here. Let's offer some really good processes and practices for the educational institution truly designed to help prepare people for professional life. Ideas?

(By the way, this is not an idle exercise. As regular readers know, I gave a speech last Friday to 150 business school professors from central and eastern Europe. I have their email addresses. I PROMISE you they will receive the ideas you post here. Let's change the world!)

It's THEIR fault

Something happens to me whenever I give speeches. At some point, when I am doing what I was hired to do and explaining how the people in my audience could perform their roles better, someone always sticks their hand up and says: "It's not us, it's them!"

I have hundreds of these examples, but a few will make the point. They can be very dramatic.

Once, I was (as instructed) explaining to a group of middle-level people what professionalism meant, and how they might handle themselves in dealing with clients and with others. We were using the anonymous voting machines that I like to use.

"The question I'd like to pose to the group" one person said, "is how many people here think that those who are senior to us role model these behaviours?"

I was young and dumb enough to let the vote proceed. Barely 15% of the audience thought that those ahead of them in the organisation "lived the values."

To prove how REALLY young and dumb I was, I thought I would be praised and congratulated with gratitude for having uncovered a barrier to improvement. Instead, I was accused of agitating the troops against the interests of the people who hired me. I never got hired by them again.

Although I did make the mistake again -- many times. (I'm a slow learner)

I remember, years later, being with the senior partners of a major consulting firm, talking about investing in current client relationships. Again, someone interrupted to say "This is all fine, but there's no incentive for us to do that -- all our incentives around new clients."

The top management was in the room. I waited for them to jump in and reconcile the contradiction. After all, these were the same people who had hired me and assigned my topic.

I waited. They stayed silent. I waited a little bit more.

The eyes of the audience were not on them, but on me. Everyone wanted to know what the outsider would say about the contradiction between the assigned topic and the incentive scheme.

And you know what? I said it was a contradiction. The audience agreed. Management scowled. We talked about what changes would be necessary to get everyone in the room willingly participating in the behaviours management wanted to see.

I was never re-hired. I had not stuck to the assigned topics. I even got a call from the secretary of one off the bosses to ask "How do we get more of this Trusted Advisor stuff without having to have you?"

Come to think of it, it's amazing that over the years I have managed to earn a living!

So, what are the lessons? Well, I'd love to hear some advice about how to handle these situations better. They happen ALL the time -- to this day. In fact, I'm coming to believe that the very reason top management hires speakers is to talk about things that they can't get their people to do, and hope the speaker will convince the crowd for them.

So, it's gonna happen. It's probably gonna happen to you. Someone's going to say to you "It ain't our fault, it's THEIRS -- meaning management." How are you going to handle it, then and there, in front of, say, 50 to 300 people?

Advice?

Gratitude

It's time to express my thanks to each and every one of you who played a part in our conversation during the month of September. As you can see, we are becoming a sizeable community here, and I hope we all continue to interact.

Come back regularly and join in -- there are some really smart (and good) people posting comments and trackbacks here.

This month's participants were:

Comments

Lora Adrianse, Andreas, C Anon, Deepa Balaji, Chris Barrow, Jim Belshaw, Kent Blumberg, Larry Bodine, Eric Boehme, Leo Bottary, Thomas M. Box, Breakingranks, Paul Brown, Duncan Bucknell, James Bullock, Nigel Burke, Tim Burrows, Travis Carnahan, Robert Edward Cenek, Prem Chandavarkar, James Cherkoff, Chris, Geoff Considine, Petri Darby, James Davidson, Jennifer Davis, Todd Defren, Lance Dunkin, Joanne Dustin, Judy Erickson, Ron Evans, Brad Farris, Douglas Ferguson, Lindsay Fikowski, Doug Fletcher, Dr. Leonhard Fopp, David Foster, David Frey, Jordan Furlong, Ed Gabrielse, Ganesh, Dave Glynn, Michelle Golden, Marcel Goldstein, Phil Gott, Peter Gwizdalla, Ted Harro, Ken Hedberg, Hejustlaughs, Markus Herzog, Joseph Heyison, Gl Hoffman, Dennis Howlett, Laura Hunter, Kami Huyse, Lori Iwan, Patrick Jacques, Jennifer, David Koopmans, Greg Krauska, Patrick J. Lamb, Ron Lamb, Van Lanier, Ed Lee, Karen Love, Peter Macmillan, Steve Matthews, Moray McConnachie, Pat McGee, Bob McIlree, Malcolm McLelland, Ann Michael, Mike, Warren Miller, NancyRoggen, Justin Patten, Paughnee, Steve Pearce, Bill Peper, David Phillips, Lars Plougmann, Deborah Crawley Quinn, RJON, Prem Rao, Ric, Nick Saban, Abram Serotta, Peter Shaw, Paul Shillam, Steve Shu, Shuchetana, Carl A. Singer, Johan Sleegers, Andrew Smith, Sonnie, Constantinos Stavropoulos, Brit Stickney, Kathleen OBrien Thompson, Tim, Todor, Tom "Bald Dog" Varjan, Liam Wall, Warren Miller, ASA, CPA, Neha Wattas, Curt Wehrley, Clyde Willis, Vicky Wright, Hyokon Zhiang

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