Results and Rewards in the Multi-Group Firm

Among professional firms there exists a wide array of systems for measuring and rewarding partners who operate in different locations or different practice groups.

At one extreme, some firms operate their separate locations or practice groups as distinct profit centres with minimal sharing of profits.

At the other extreme are firms who try to avoid creating intergroup competition by treating office or group results as irrelevant. Some avoid even calculating office and group results for this reason.

The vast majority of firms operate between these two extremes. The results of the group to which the partner belongs are usually treated as an influence (or a contributing factor) in assessing performance and awarding compensation, but they are rarely determinative.

It is a difficult juggling act to examine group results without giving off the dysfunctional signal that only local group results are important, thereby destroying intergroup cooperation.

However, I believe that it can be done and that it is important to examine group results, whether groups are defined by location, discipline or industry. (It is wise to examine the results of all three types of groups.)

Without such analysis intergroup cooperation is hard to encourage, and a firm must understand its economics at levels below that of the whole firm.

Most firms attempt to deal with this problem by avoiding a short-term (year by year), formulaic approach to group results, and take a longer-term, more “judgmental” approach. There is rarely a strict formula saying that local group results have the following weighting in rewards.

On the other hand, most firms recognise that no group can be treated as either a "cash cow" or a "permanent sink" for an extended period of time.

With varying degrees of formality, most firms will ensure that over a three-to-five year period, for instance, the compensation awarded to the partners in a group are commensurate with the profits earned in that group.

To monitor this, many firms explicitly use and compare three- or five-year averages of aggregate compensation and performance in each group. However, these three-year averages will still only be used as guidelines, as a check on the system but not as a strict formula.

In addition, firms need to be conscientious in demonstrating that a star partner in an unprofitable office can be rewarded like a star, while an underperforming partner in a stellar office does not get a free ride.

Measuring Results

If local office or group results are to be considered, the question arises as to how these should be measured. The answer is not as obvious as it might appear.

First, there exists the issue of developing a "balanced scorecard" that tracks not only financial results but also the other goals that any professional group needs to achieve to be deemed a success.

Included in such a balanced scorecard would be measures of client satisfaction, the group's ability to develop its people, its contribution to firmwide assets such as shared tools and research, and the group's contributions to firmwide success.

Few if any firms have a balanced scorecard organised in a formal way, although most claim to make judgmental assessments of these factors.

Even on the financial front, much confusion exists. At this point most firms have progressed to using “profit per partner” (or "profit per officer" in firms that are not partnerships) as a measure of practice group success, although even this is not always a clear guide to which groups have performed well and which have not. (To see this, consider Figure 1.)

What this reveals is that profit per officer is the simple multiplication of four key submeasures: margin, rate, utilisation (also referred to as chargeability or billability) and leverage.

Two of these four factors are what I term "hygiene" issues, while two others reflect changes in fundamental profit "health." The two hygiene factors are margin and utilisation, while the two health factors are rate and margin.

To understand the difference between these categories, consider (as an illustration) two of the four ways of improving profit per officer: increasing utilisation or increasing rate. One group may have improved its profitability by working more hours per person. Another may have achieved exactly the same profit improvement by working the same number of hours per person as the previous year but by raising its rate per hour through some combination of client service, specialisation, innovation or the bringing in of higher-rate transactions.

These two groups may have achieved the same profit per officer improvements but their accomplishments are not commensurate. Increasing utilisation (or hours worked) means you made more money because you worked harder.

It is a nontrivial accomplishment, but it is primarily a short-term achievement. I call it the donkey strategy -- achieving more by pulling a heavier load.

However, a group that made more money, not by working harder but by getting the market to place a higher value on each hour worked, has accomplished something much more profound and longer lasting by definition because they have made themselves more valuable in the marketplace.

The same argument can be made for the difference between margin and leverage. Improving margin is (mostly) about controlling overhead expenses -- important, but nevertheless hygiene. But a group that finds a way to deliver its services with less senior and more junior partner time must, by definition, have built an asset: It has found a way to get work done by using lower-cost people. To have leveraged successfully, it must have found new ways to deliver its services, to train and manage people to handle what they could not before and to establish new methodologies.

To show how these categories can be used, examine Figure 2, which shows the financial results for a firm of six (fictional) groups.

It can be seen that all offices improved their profitability but in very differing ways. It is even easier to see what happens if all results for each office are expressed as a percentage of the respective firmwide averages, as is done in Figure 3.

For example, it is clear that Group 1, with the highest firmwide profit per officer, achieves this result almost entirely by being in a high-fee-level market, with none of its other performance measures being particularly noteworthy. Are the officers to be rewarded for good performance or does this reflect good fortune and good location?

Group 2 shows good overall results, but these are achieved mostly through hygiene factors of chargeability (utilisation) and margin control. Neither is strong, although leverage improved a little in the latest year.

A final productive way of summarising and presenting this information is to calculate a Hygiene Index (multiply the margin index by the utilisation index) and a Health Index (multiply the rate index by the leverage index). This is done in Figure 4.

It is now easier to see what has happened in each office. Group 1 has increased its profitability by pushing even further on its fundamental health, but its hygiene continues to deteriorate relative to the rest of the firm. It may be the most profitable office but clear guidance for further improvement could be given.

Group 2 has done a good job of improving its profit health and should be commended. Group 3, while it improved its cash profit per partner, has slipped relative to the rest of the firm and in particular has let its profit health decline badly.

Group 4 has done a good job of profit health but lost its superior position in hygiene; it still has work to do.

Group 5 has the opposite (and a much worse) problem. It has fixed a hygiene problem but at the expense of dealing with profit health. While it, too, improved its cash profit per partner (up from $276.5K to $305.6K), it still has problems.

Group 6 has made little progress. Hopefully it is clear that analyses such as these will give much more guidance to a management committee when appraising the performance of an operating group than would a simple comparison of profit per partner figures.

Earnings Per Share

When it comes time to turn performance evaluation into reward setting, even the powerful measure of profit per officer has its limits. Its biggest problem is that it relates profits to the number of officers (head count) while it makes no distinction regarding a group of younger partners from whom there might (appropriately) be lower profit expectations.

Similarly, a high profit per officer does not necessarily mean that a group deserves an increase in compensation (or share of the profits). It might well be the case that the partners in a high-profit-per-partner group are already fully compensated for their high levels of profit and that a low-profit-per-partner group is staffed with low income partners who do not deserve to be reduced.

As a number of firms have discovered, there is a simple ratio that overcomes these issues -- the use of an earnings per share (EPS) ratio. Here, share refers simply to the share of firm profits held by the partners in the office or group.

Some firms have a "unit" system for dividing partnership profits, with each partner holding a certain number of units and each unit representing a fixed percentage claim on the firm's profits. In such a case, one would calculate the earnings per unit of the group (EPU).

Other firms do not use the term "units" but allocate percentage points, which is effectively the same thing. If a partner has a claim to 3.6 percent of the firm's profits, then he or she can be said to hold 3.6 units out of a total of 100 units.

Under any of these systems, the EPS ratio can be calculated by dividing the profits of each group by the sum total of units, percentage points or even cash compensation held by the partners in the group. (Any one of these approaches will work as long as it is consistently applied.)

The virtue of the EPS ratio is that it gives an immediate guide to which groups are candidates for increased profit allocation and which are candidates for reductions. Consider a group that on a three-year average basis has sustained a high EPS. By definition, this group has high earnings (profits) relative to the number of profit shares allocated to the partners in that group. A greater profit-share allocation might be in order.

Similarly, any office with a low EPS (particularly if this is a three-year average) would have earnings that are low relative to the aggregate profit shares held by the partners in the group. In such a situation a (relative) share reduction might be called for.

Of course, there are other action possibilities. Perhaps the firm has partners in that group who are too high powered to be working there (relative to the earning potential in that market), and they might better serve the firm by being deployed to better markets.

A third possible action is to conclude that the low EPS is the result of a conscious strategic decision to invest "expensive" partner resources in a market that the firm is trying to nurture.

Whatever the conclusion, the EPS ratio provides a convenient way to relate profitability to the set of decisions about where the firm's "equity" should be located. Just as in industry, EPS is a measure of return on equity investment and provides guidance as to whether the firm is placing its valuable resources in the correct markets.

As we noted above, no approach to partner reward should be formulaic and none should be conducted on a single-year basis. However, a three-year average of EPS for each office and practice group, together with the use of the Health and Hygiene Indexes, will give a firm a good basis for discussion of how well it is matching results and rewards in a multigroup environment.

See Graphs below.

Figure 1

Figure 2

*Profits Per Officer

Figure 3: Results Expressed as an Index of Firm Averages

Figure 4: Health and Hygiene

Charting Your Course

The search for the best ways to organise and manage architecture firms has occupied more and more attention over the past generation. The goal is always simple: find the format that will enable the architecture firm to provide excellent service to the client, do outstanding work recognised by peers, and receive commensurate rewards in professional satisfaction and material returns. The answers, as the observation quoted above reflects, have not been so simple to find.

As corporate advisors with the opportunity to analyse literally hundreds of architecture firms, we have found the search for ideal management methods challenging. Each time we've observed a format that appears to work well for some or many firms, an exception has soon appeared, contradicting what looked like a good rule to follow. For example, some firms do outstanding work organised as project teams, others are very successful with a studio organisation and still others get good results from a departmentalised project structure. One of the major puzzles for observers has been finding a relationship between the project delivery system used by firms (that is, "how we do our work") and how the organisation itself is operated (that is, "how we structure and run the firm").

After years of study, and trial and error, a model has begun to emerge that holds promise for making some order out of these issues. At the heart of this new model is the recognition that although no one strategy fits all firms, there is a group of understandable principles with which almost any firm of architects can devise its own best strategy.

The model derives from observing that two key driving forces shape the operation, management and organisation of every architecture firm: first, its choice of technology, and second, the collective values of the principals of the firm.

Technology, in this sense, refers to the particular project operating system or process employed by the firm to do its work. The choice of technology resolves such questions as: are we going to work in teams or departments? will we have one design director or do we all design our own work? values refers to the personal goals and motivation of the principals in charge of the firm. The choice of values answers these questions: why do we do what we do? What do we want to receive for our efforts?

Technology Shapes the Delivery Process

Recognition of the importance of technology in shaping architecture firms is particularly derived from work conducted by Harvard Business School. In studying other professional firms generally -- especially law and accounting firms -- a pattern was recognised in the key technologies they all use. He defines these technologies as:

Brains (expertise) firms, which provide service to clients who wish to retain "the smartest kid on the block" -- at almost any cost. These firms give their clients new ideas.

Gray-hair (experience) firms, which customise ideas, but rarely are positioned at the cutting edge. Clients of these firms recognise that the problems they themselves face have probably been dealt with by other companies; the client therefore seeks an organisation that can offer know-how based on past experience.

Procedure (execution) firms, which service clients who know that their problems can be handled by a broad range of firms and who are seeking a professional firm that can give them a prompt start, quick disposition and low cost.

The impact of different technologies on the shape of an architecture firm is profound. For example, a firm where the partner-in-charge directly executes the project uses a technology different from that of a firm where the partners hand the execution of projects over to project managers. Similarly, a firm that organises projects around a single design director has a technology different from one that allows each project team to make its own design decisions.

Applying this work specifically to architecture-firm technology, three categories -- similar to the generic categories above -- emerge:

Strong-idea (brains) firms, which are organised to deliver singular expertise or innovation on unique projects. The project technology of strong-idea firms flexibly accommodates the nature of any assignment, and often depends on one or a few outstanding experts or "stars" to provide the last word.

Strong-service (gray-hair) firms, which are organised to deliver experience and reliability, especially on complex assignments. Their project technology is frequently designed to provide comprehensive services to clients who want to be closely involved in the process.

Strong-delivery (procedure) firms, which are organised to provide highly efficient service on similar or more-routine assignments, often to clients who seek more of a product than a service. The project technology of a delivery firm is designed to repeat previous solutions over and over again with highly reliable technical, cost and schedule compliance.

It is important to recognise that there is nothing judgmental being implied about the architectural quality of any of these technologies. At their most successful, firms specialising in each technology still exhibit strength in all areas of design, service and delivery. It is the emphasis that makes the difference. This emphasis may be shifted by the preference (strengths) of the architects in the firm, or by the marketplace.

Take the hospital market, for example. The modern hospital was first the province of hospital specialists (strong-idea firms). As the ideas these specialists developed were understood across the hospital industry and the architectural profession, the centre of the hospital market shifted to strong-service firms, whose strength was the ability to offer close, experienced attention throughout the very complicated process of building or rebuilding the modern hospital. After proprietary health-care clients entered the market in recent years, a share of hospital work has gone to strong-delivery firms, which specialise in adapting the standard specifications of the proprietary owners to different situations.

Obviously, these technologies often overlap. Clients frequently want a kind of service that incorporates some aspects of more than one technology, and some architecture firms, similarly, deliver services that do not clearly fall within just one of these groups. Nevertheless, it is worth noting that there is a general progression in the way technologies evolve in every firm and every market. New ideas originate in strong-idea firms.

As the ideas become understood and accepted in the marketplace, they are then widely applied by strong-service firms. Eventually, when the ideas can be routinised and are in demand by client after client, some or all the work will move on to strong-delivery firms, where repetitive projects are turned out and efficiency is the key. Thus, it is important for firms to pay attention to how their technology matches the evolving market.

The different technologies, when they are working best, require notably different project-operating organisations, staffing patterns, decision structures, etc. Technologies in architecture firms influence:

• Choice of project process
• Project decision-making
• Staffing at the middle of the firm and below
• Identification of the firm's best markets
• What the firm sells
• What the firm can charge
• Best management style

Technology is the fundamental driving force that shapes the professional design process of the firm, and it is becoming recognised that all really successful firms have a clear and consistent project process. Those firms that try to be all things to all types of clients tend to have the most difficulty optimising their work and/or their organisation.

One immediate example is in staffing. Strong-idea firms will hire the best and the brightest right out of school and expect turnover after a few years. Strong-service firms seek career-oriented professionals and try to retain them so their experience is available to future clients. Strong-delivery firms, on the other hand, will hire paraprofessionals and use computers to apply standard details and procedures over and over again at the most efficient cost.

The senior partner in charge project manager of a strong-service firm, who is accustomed to giving individual attention to each aspect of complex projects, is rarely geared to provide the fast, efficient, routinised service desired by the strong-delivery client. Thus, the difference in staffing models makes each technology so distinct that it would be difficult to have all three models operating in top form in the same firm. The tables that accompany this article illustrate similar contrasts in strategies for all the different areas of the firm influenced by its choice of technology.

Values Also Shape Management Styles

The second driving force that shapes architecture organisations is the values of the professionals leading the firm. The fundamental differences in values become evident if one examines the word "practice," which is so often used by professionals to describe their organisations, in contrast to the word "business."

Practice, as defined by Webster, is "the carrying on or exercise of a profession or occupation as a way of life." Business, on the other hand, is defined as a "commercial or mercantile activity customarily engaged in as a means of livelihood."

When the two definitions are compared from a management perspective, what stands out is the contrast between "a way of life" and "a means of livelihood." What is becoming evident is that many architecture firms are practices first and businesses second, while others are businesses first and practices second. Therein lies a whole new perspective about what goes on in such organisations. The basic difference is their bottom line:

Practice-centred professionals, who see their calling as "a way of life," typically have as their major goal the opportunity to serve others and produce examples of the discipline they represent. Their bottom line is qualitative: How do we feel about what we are doing? How did the job come out?

Business-centred professionals, who practice their calling as "a means of livelihood," more likely have as their personal objective a quantitative bottom line, which is more focused on the tangible rewards of their efforts: How did we do?

As with technologies, it must be emphasised that there is nothing more noble about either choice of values. The choice is an entirely personal, largely self-serving one, derived from how individual architects view their missions in life and what they hope to get out of their lives in return for working.

What is important about the distinction is the recognition that although all successful architects clearly strike a balance between practice values and business values, it makes a significant difference which of the two is primary. The choice can be expressed as a spectrum with practice-centered architecture firms at one end and business-centered firms at the other.

The different positions (practice-centred versus business-centred) will lead to very different choices in significant areas of organisation and management. Practice-centred firms, for example, tend to prefer partnership structures, where the leadership is collegial and decision making is often by consensus. Business-centred firms, in contrast, work well in corporate models, where there is a clear hierarchy of roles and decision making is by chain of command.

The practice-centred model is frequently preferred by principals who like to work as closer/doers: getting and carrying out their own work. The business-centred model is frequently preferred by principals who see marketing as a departmentalised function, with the work handed to operating departments to carry out.

Both values can produce equally successful results in client service, design quality and even profitability. The choice of values, however, can make significant difference in the best way to structure the firm. Values in architecture firms influence:

• Organisational structure
• Organisational decision-making
• Staffing at the top
• How the firm markets
• Identification of the firm's best clients
• Marketing organisation
• Profit strategy
• Rewards
• Management style

What is most valuable about recognising values as a key force shaping architecture firms is seeing how important it is that all the leading professionals in the firm share similar goals.� Depending on these values, different organisational patterns will work best. Any effort to compromise values will inevitably weaken some of the choices or organisations, and consequently weaken the firm.

Matrix Integrates Technology and Values

When the two key driving forces described above -- technology and values -- are looked at in combination, they form a matrix within which the differences between firms, and the best strategies for different firms, becomes clear. The matrix produces six basic types of firms, each of which will have a distinctive "best strategy" for each consideration described above. Examples of each of these best strategies are given in the accompanying tables (Figure 1 to 7).

The model gives, for the first time, a clear picture of why some firms succeed doing things one way, while others can be equally successful doing things quite differently. Also clear is that it will be very difficult to optimise any firm that mingles too many of the different strategies. And when this recognition is combined with the understanding that the best clients and best markets for each different technology are quite distinct, it is possible to take a whole new view of how firms can best position their strengths to serve their clients.

In a recent test of the implications of this new model, the Coxe group surveyed by questionnaire a sample of about 100 firms of different sizes, different markets and different organisational formats. After answering a series of questions to define its position on the matrix, each firm was asked to rate its level of satisfaction with the way the firm was currently operating. The results showed the highest level of consistency in conforming to the best strategies for their position also reported the highest level of satisfaction with the way their organisations were working.

The Coxe group plans additional research to further validate the implications of the model, but this initial sample confirms the essential hypothesis. Those firms that have a clear notion of what they do best (their technology) and a common set of goals (their values) have always succeeded the best -- for themselves and for their clients.

The charts below reveal rudimentary "master strategies" for each category of architecture firm. Once a firm decides which type of practice is (e.g. an "A," "B," "C," "D," "E," or "F" firm), it can follow the suggestions in the appropriate box to gain insight into the best ways to organise and manage the firm.

Figure 1

Best Strategies for PROJECT PROCESS AND DECISION MAKING

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	Projects are processed through departments or teams, headed by a principal in charge, in accordance with standard details and specifications developed through experience. The PIC makes the decisions. Success is achieved by delivering a good product over and over.	Projects follow an assembly-line process in which established standards are critically important. Since the product is standard, the client may deal with several job captains over the course of the project. Quality control is the key to client satisfaction.
Strong Service	Projects are delivered through project teams or studios whose principal in charge (the closer/doer) has a high degree of project decision-making authority. Strong, technically oriented people provide quality-control input, but project success relies on the authority of the closer/doer.	Projects are headed by project managers and delivered by departments whose department heads have quality control and project decision-making authority.
Strong Idea	Projects are delivered via highly flexible teams, organised around each job, which take their creative direction from the idea (design) principal.	Projects are delivered via stable teams or studios, often organised around different client or project types. Design principal(s) maintains project authority.

Figure 2

Best Strategies for ORGANISATIONAL STRUCTURE AND DECISION MAKING

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	Closely held as a proprietorship or corporation by one or a few design professionals who manage a vertical organisation. Decision making tends to be autocratic. Thrives as long the principals stay closely involved.	"Investor"-owned by insiders or outsiders who delegate much of the operations and management. Decisions are largely based on a standardised process or SOP. Works well as long as the firm’s process/product does not become obsolete.
Strong Service	Broadly owned by professionals structured as a partnership or as a corporation functioning as a partnership. Organisational decision making is by consensus. Functions best when owners share similar professional capability and goals.	Closely held proprietorship, partnership or corporation with owners making decisions by majority rule. Decisions are clearly oriented toward meeting the goals of major owners.
Strong Idea	Owned by a sole proprietor or a few equal owners who function as partners. Their ideas and creativity in projects drive the firm, and few organisational decisions are made.	A proprietorship or small partnership (or closely held corporation functioning as a partnership). Organisational decisions are tailored to maximise the application of one or a few original ideas.

Figure 3

Best Strategies for STAFF RECRUITMENT AND DEVELOPMENT

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	Recruit experienced professionals who are committed to getting the job done efficiently. Financial compensation–base and bonus–tend to be higher than industry norm. Limited job security, except at top.	Hire and train paraprofessionals to do maximum amount of the work via standardised procedures. Invest in training, not salary and benefits, to keep costs low, efficiency high. Factory-like culture with compensation by job classification, publishable benefit package.
Strong Service	Recruit career-oriented professionals with strong sense of commitment to client. Reward via stability of practice, good benefits, pensions–average or below-average salary. Goal is to retain experience via low turnover.	Hire experienced professionals comfortable in corporate-like structure as workload requires. Higher pay, limited benefits. People at top are entrenched; less loyalty to staff in event workload declines.
Strong Idea	Young bright professionals are attracted to the firm to be associated with one of the leaders ("gurus") of the profession. Typically receive below-market salary, minimal benefits and move on after a few years unless tapped to an inner circle.	Recruit young bright professionals interested in learning from the firm. Compensation often below industry norm–attraction is working on interesting projects. Turnover is encouraged as staff develop experience, want higher rewards.

Figure 4

Best Strategies for SALES MESSAGE AND TYPE OF CLIENTS

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	Best clients are volume developers and organisations interested in reliable, proven, repeat-type solutions. Sell the firm’s proven track record and knowledge and understanding of principal(s) about how to get through the system and agencies. Past clients return because of proven track record and rapport with the principal(s).	Best market is one-time or repeat client unconcerned with originality and/or clients looking only at bottom line. Sell proven product, standardised design, assembly-line ("it will only take a minute and we’ll have it all done") package deal.
Strong Service	Best markets are institutions and agencies with complex projects that seek reliable solutions and expect to be involved in their project’s evolution. High repeat business from well-satisfied past clients. Sell closer/doer experience, technical skills and commitment to remain on top of the job with personalised approach tailored to the client.	Best markets are major corporations and agencies with large, mainstream projects where the client expects to delegate execution of the project after making the selection. Sell proven track record, known or demonstrably competent project manager and organisation’s strength.
Strong Idea	Best clients are those with unique, one-of-a-kind problems, or "patrons" with individual or corporate egos to be satisfied. Clients are always the top decision makers, who may bypass input from their organisation. The sales message is the reputation of the "guru" leader, and a track record of successful innovation, both design and technical, and/or solutions to uncommon problems.	Best markets are usually clients seeking leading-edge solutions that have been successfully tested by others, e.g., developers or lower-risk corporations and institutions. Clients respond to "sizzle" and messages like "innovation that is cost effective."

Figure 5

Best Strategies for MARKETING APPROACH AND MARKETING ORGANISATION

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	Principal(s) sells one-on-one; may frequently proactively take opportunities to past clients. Effective advertising and public relations campaigns keep the principal’s and firm’s name in front of the market. Marketing staff supports these efforts.	Marketing is carefully planned and managed. Sales representatives find and sometimes close leads. Bidding opportunities are welcomed. Advertising promotes a standard product/service. Often rely on heavy entertainment of prospects. Blanket coverage of conventions.
Strong Service	Marketing relies on closer/doer principals strong at finding and courting clients. Facilitative marketing manager (who may be a principal) encurages broad staff participation in marketing, produces high-quality brochures, publishes a client newsletter, seeks regular publications in both professional and user-oriented publications. Good record of design awards, particularly by trade or user groups.	Centralised marketing and sales department, under a strong marketing director, is responsible for preparing the marketing plan. Frequent use of "bird dogs" to find leads, publication of articles oriented to meeting client needs, targeted direct mail, client seminars, some advertising. Sales are closed by one or a few principals who delegate work to project managers.
Strong Idea	Marketing is generally unplanned, relies almost entirely on reputation developed via books and/or articles, professional society awards, entry in premier design competitions, frequent speeches and often a faculty appointment. Marketing staff, if any, responds only to inquiries.	Marketing is actively planned, particularly efforts to get to know specific clients, seek publicity, publish articles in leading magazines and produce effective brochures. A marketing coordinator will keep the program moving.

Figure 6

Best Strategies for PRICING AND REWARDS

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	This firm specialises in producing a relatively standard product over and over again. It will do best charging lump-sum fees–its profits come from efficiency. Maximising efficiency–reducing the costs of production–produces high monetary rewards for the principals.	This firm also seeks high monetary rewards, but achieves them by maximising volume. Its standardised product and assembly-line process for delivering it thrive on volume. Thus, the firm can often bid low to keep volume up. Lump-sum fees are essential.
Strong Service	Given the choice, this firm will price all its work hourly, producing steady cash flow with moderate profits. Rewards here relate to security for many in the firm–increase in salaries, increase in benefits, share in profits, and growth to ownership.	For this firm to maximise return, the task is to focus on profitable activities, minimising non-billable time, carefully controlling overhead. This firm can do well on lump-sum fees, hourly rates without an upset or cost plus fixed fee. Rewards are high monetary returns for the few at the top.
Strong Idea

Figure 7

Best Strategies for LEADERSHIP AND MANAGEMENT

	Practice-Centered Business	Business-Centered Practice
Strong Delivery	Authoritative owner leads firm and establishes a working environment that attracts professionals willing to subordinate themselves to, and implement, the defined management policies.	Owners delegate operations authority to managers who structure rigid processes to keep the "assembly line" working.
Strong Service		Owner(s) establishes leadership direction and assigns strong management authority to a CEO, who is likely to be the most influential (or majority owner) among them.
Strong Idea	Strong leadership based on ideas/values and projects precludes the need for structured management, relying rather on administrative support.	Strong leadership based on ability to draw ideas/creativity from others. Management is a coordinating and administrative function.

Richard Wood: Financial Management Professional

by Tom Brown, Stuart Crainer, Des Dearlove and Jorge N. Rodrigues 2001

This interview appeared in BUSINESS MINDS, 2001

Richard Wood: a business mind who has been called "the professional's professional"

Richard Wood (born 1972, in Chinchilla, QLD) is a different kind of financial management guru. While most business researchers and business books have focused on industrial companies, Wood has spent his career studying and advising the professional services firm, that is, the accounting legal, consulting, executive search, and real estate industries -- firms which have nothing to sell but their people and their accumulated knowledge and skills.

As an academic in the early 1990s, he committed to writing a monthly article for a legal publication for three years. Those articles, plus others he published elsewhere, drew attention to him and his work. The articles that followed have been translated into a variety of languages. His latest article is based on his findings from a survey of more than 100 businesses across the world.

Fast Company said of him: "Richard Wood is the man the country's top advisors go to for advice." Wood holds degrees from the University of Southern Queensland, and the Queensland University of Technology, where he was a student for seven years. For more information on his ideas and background, visit http://www.vistageconsulting.com.

In this interview, Wood outlines what he has learned from studying the correlation between employee attitudes and financial performance in 139 professional offices.

When you first visit a company, what is the most important question you ask?

RW: What are the non-negotiable, minimum standards of behaviour in this company? A company, I believe, is not defined by its aspirations but by the operational standards it is willing to enforce.

You have now studied the management practices of hundreds of "professionals". What did you learn overall?

RW: Of all things that professional firms do, managing people is consistently rated lowest on the list. However, the most financially successful offices do better at all aspects of managing people.

So if companies want to boost their performance ...

RW: To improve performance, companies should focus not on their quarterly financial targets but on motivating staff to provide excellent service. You make more money by doing the basics very well. Someone in one of the case studies in my last article said: "Chasing money is not what makes you money." That's very true.

Nothing in what I'm advocating is saying that money is the goal -- that's not the message. What I'm saying is that if you're interested in money, then the best way to achieve this is not by focusing on the money but by getting excellent at something that people will reward you for. That applies not just to high-end professional services, but to McDonald's. McDonald's success is based on uncompromising standards.

You've talked about standards and performance. How about relationships, another key area you've researched? Aren't most business relationships fairly up front?

RW: Most business relationships are satisfactory, but real "trusted adviser" relationships are scarcer. Perhaps a test of the need is the reaction of many people to even thinking about this topic. They think that even talking about earning trust is "New Age" or "touchy-feely". They would prefer either to remain in the logical realm ("I'll earn my client's confidence by the brilliance of my ideas") or to remain intuitive ("I don't need to think about this, I'll just do the right thing when it happens").

But business isn't just logical, it's emotional and personal, and not all of us have trained instincts to do and say the right thing, in the right way, at the right time. One of the most common business processes today is a renewed effort to do cross-selling and account management, that is, build relationships with major customers. Businesses are focusing on it because, to date, they have done an imperfect job in this area.

Then something like "trust" can be managed?

RW: There are concrete things you can do to earn trust in business, and many, many things you can do to lose it. So, yes, it can be "managed" if you're willing to be self-aware about what you do and what you say when you're dealing with people. Trust is an essential ingredient in all relationships, business and personal, and it's possible to be thoughtful about it and not just intuitive.

In our personal lives, when we are trying to build a relationship with another person, we try consciously to be sensitive, supportive, and understanding. We think actively about ways to show we care about the other person and use language that shows we're trying to be on their side and take their feelings into account. The exact same thing applies in building relationships with clients, colleagues, and subordinates.

But you do admit that trust is complex, even ultra complex?

RW: Absolutely. Someone can trust your competence and reliability but have severe reservations about your motives -- whether you will treat them fairly, live up to your promises, and look after them. They may think you're too focused on technical issues and not on the larger problem. They may think your self-orientation is too high.

The act of hiring anyone (whether it's for a legal, accounting, medical, property, or consulting issue) requires you to hand over your affairs to a stranger and trust that they will look after you responsibly. It's not just about "Can they do it?" It's a very complex, emotional process. But that argues for trying to understand its components, not for giving up all thought about it.

What distinguishes a lasting management idea from a fad?

RW: The most important distinction to make is between a business idea and a management idea. Business ideas are rooted in logical, rational, intellectual analysis. Management, by contrast, is not about logic. It's about the interpersonal, social, and emotional skills of managers who have to deal with human beings as clients, employees or colleagues. Thus, no idea can last unless it reflects a keen understanding of human behaviour. If the idea is purely intellectual, it's likely to be a fad. And the tragedy of business education around the world is that too many managers are trained in business, not in management!

To what extent do leaders succeed or fail based on who they pick to advise them?

RW: It depends upon how people use advisers, and many do it badly. Some seek out "an expert" and place their affairs in that expert's hands, relying on the expert's judgement and technical expertise. That's unwise.

In my view, what leaders (and all of us) need is someone who will help us solve our own problems ("be an adviser") and not just provide answers. We need someone who will help us understand our options, give us an education on those options, provide a recommendation based on their experience, and then help us reason through to our own conclusion.

That's what we mean by being an adviser, and it takes a completely distinct set of skills in addition to knowing your field. Too many busy leaders provide a hostage to fortune by hiring experts and not be skilled advisers. They are taking big risks in so doing.

Ditto for leaders in other fields besides business?

RW: None of this is restricted to the commercial sector. In fact, there are many people inside organissations of all kinds who are professional advisers even though they do not charge fees for their services. Human resource directors, marketing directors, engineers -- all organisations are stocked with people whose job it is to give advice, and they are faced with exactly the same issues as those of us on the "outside". How do I win influence? How do I get people to accept my judgement? How do I get permission to try something new? In summary, how do I get people to trust me?

One senses that, in your own career, you've been burned a time or two by a bad relationship.

RW: Haven't we all? But it wasn't the unethical, fundamentally untrustworthy person who caused me to feel burned. It was an otherwise well-meaning person who lost my trust and confidence by neglecting silly things. The lawyer who won't return phone calls when I'm dying to find out what happened. The interior decorator who won't accept responsibility for missed deliveries. I know problems occur, but can't you just keep me informed and play straight with me? The information technology consultant who just won't listen to what I want, and keeps telling me what he thinks I should want. This isn't about ethics: most people's intentions are good, but their skills and behaviours are often pathetic and annoying.

How does one keep from becoming so cynical about people's motives that no relationship seems safe, reliable, trustworthy?

RW: Make clear, right at the start of a relationship with any provider or adviser, exactly how you like to be treated, and how you want to work together. We tend to assume (eternal optimists that we are) that this time it will be different. This new public relations counsellor will be attentive, this ad agency will respect us and involve us in the decision making, this engineer will explain things in plain English. But we rarely ask for it up front, and we should. We should ask new suppliers to describe not only how they will approach the work but, specifically, how they work with their clients.

The good news is that, by and large, the troublesome problem is not motives but skills and behaviours. No one ever teaches us how to build and maintain a relationship, and we could all improve a lot, very quickly, by beginning to think about it.

What question would you like to ask managers around the world?

RW: What would it take to get managers to focus on the long term? We know that business endeavours that last a long time usually have a management team that resists short-term temptations; this is true even in public companies. To survive, companies need a long-term focus, yet most managers succumb to short-term pressures. So, again, what would it take to get managers to focus on the long term?

Marketing for CPAs

for Capstone Marketing, 2000

What improvements have you seen in professional service marketing over the past few years?

RW: Almost nothing. I still think that both in law and CPA firms, partners and marketers are missing the point.

The positive things include more focus on things like industry specialisation, people beginning to come to market as focused specialists. There was a great reluctance to do that 10 years ago. Nobody wanted to limit their marketing. There is a greater recognition 10 years later that you have to commit yourself. It's much easier to market a specialist than a generalist.

We've also seen a lot more progress in people getting client feedback, yet the ridiculous mistake they're making is doing nothing with it. That is not neutral; it is absolutely disastrous. The worst thing in the world is to ask your client for feedback and then do nothing about it. It's like a slap in the face. That is what firms, in effect, are doing. In one sense you can say that getting client feedback is an improvement, but I don't actually believe that because I think that getting feedback without doing anything is stupid. It is, therefore, not an improvement.

I think firms and individuals are slowly beginning to treat clients with a bit of respect. Ten and 15 years ago there was more of the traditional problem of professionals, where their basic posture was, "We are the experts. You are the idiots in trouble. Let's help you save your bacon." This wasn't necessarily intended but what came out, a very pompous, patronising, condescending approach to market. I think everyone has gotten a bit more humble.

Do you think this is because the marketplace has become more competitive?

RW: Yes. It's not only competitive in price competition. I think clients are rebelling in the sense of who is in charge. You see a lot of CPA firms and law firms nowadays where the clients want weekly or monthly reporting of everything the service firm is up to on their behalf. In essence the client is saying, "We don't trust you with our money. We want to know everything you're doing."

Do you think the amount of trust the clients have in their CPAs and lawyers has decreased?

RW: It has decreased dramatically. This is the single issue around marketing and selling that all these lawyers and accountants still do not get, which is that marketing and selling is solely about trust. In other words, anybody who needs an accountant or a lawyer will go through two stages: first is a qualification stage, which is who is out there that's competent.

What the lawyers and accountants don't understand is that no matter what the issue is, I can always find 10 qualified people. Talking about qualifications is not marketing and selling. That's just getting to the game. Now comes the point: Once someone is qualified, now as a buyer I am in the position of saying, "Now my buying choice is to choose among qualified buyers." If they're all qualified then what I choose on has nothing to do with the logical, rational part. What I choose on among people who are equally qualified is "Whom do I trust?"

In a short time period, how can a CPA or a lawyer develop that sense of trust with a prospect?

RW: Let me give you a personal example. I had to hire a lawyer because my relative died and I had to probate her will. I'll leave out all the idiotic marketing the first few firms I called tried to do. I'll go straight to the point of the guy who was a genius.

I called a lawyer in Brooklyn because that's where my relative lived. The minute I started explaining my need he interrupted me and asked, "Do you know anything about what it takes to process a will in Brooklyn?" I had no idea. He said, "I think you're unwise in interviewing lawyers if you don't know what you're getting into, because you don't have the basis to interview people. If you want to give me your fax number I will fax you a three-page outline of what is involved in processing a will in Brooklyn."

The fax contained a lot of useful information, and the final paragraph contained contact information for all city, state and federal authorities that needed to be notified. I received all of this information before he was hired. Without being idealistic, I think most human beings' reactions would be to hire that guy. Notice that he did not sell or market at all. What he did was immediately say, "Let me be helpful to you."

The issue I have with people clinging to marketing is that even they don't get it. It's not just the accountants or the lawyers. Even the marketers don't get it. What works is not selling. What works is to just start helping people. They will want more.

I have been asked to look at proposals written by CPA firms and law firms. The one thing I look for is the thing I just referred to: Where in this proposal is any substantive help? Of course, there never is any. It's what I call prostitute selling. It's saying, "Pay me and I'll do it. It will be wonderful. It will be fabulous once you start paying, but I'm not going to show you anything until you start paying." The central issue here that people just don't understand is that you are not making a moral point that you should be nice to clients; it just doesn't work.

Even marketing directors are writing newsletters, brochures and proposals boasting about what the firm has -- and it just doesn't work. This leads you to the conclusion that you should stop marketing, stop selling and start helping. What works best is to figure out who you want to help and go help them. That works.

I always take a vote when I'm with a single firm or at an industry meeting or something and ask, "How many of you read every issue of the trade magazine of your main client?" Forget the other clients they have to serve, just their main client. Less than 5 percent raise their hands, whether they're accountants or lawyers. Again, I'm not a moralist, it's just pragmatics. How can you convince a client you're interested in his business and that you care and you can help when, in fact, you do not know what's going on in his business?

My point about why there hasn't been much progress in professional service marketing is that everybody is looking for some new, magic, innovative marketing pill that will mean they don't have to get on the real diet. There isn't a magic pill. It has nothing to do with the consequences of the Internet. It's got everything to do with the basics that you've always known you aren't doing.

I was giving a talk yesterday to a group of management consultants and they asked how to develop relationships with existing clients. The short answer is very simple: You give away time for free. You go and, for example, sit in on their internal meetings at no charge. There you are, sitting in your client's management meeting, listening to what they want to debate, what they're fighting over. The question is how good at selling do you have to be -- and the answer is not at all. If you're selling, you're a brain-dead idiot. It doesn't mean that selling doesn't work. It means that selling is the hard way to do it. When you do it right you need zero sales skills.

There is no marketing or selling tactic more likely to work to give you a return on investment than giving away that free day to existing clients.

Yet when you ask how many lawyers are doing it, the answer is less than 1 percent. In the accounting world it gets up to about 5 percent, but it's not higher than that. How many people are acting as if they care?

What other marketing mistakes are accountants and lawyers making?

RW: They still judge marketing by revenue instead of profits. In law firms and accounting firms you get credit for new revenue you bring in, regardless of whether it is profitable revenue. They still work on the principle of "if it moves, shoot it." That is not good marketing. It is running scared marketing. We are so insecure as people that we don't have the courage to pass on anything. Firms are always diverted from their strategy because they don't have guts.

Let's list some other obvious marketing mistakes. Law firms in particular still have reward systems that celebrate individualism. They preach a good game about wanting to have practice groups and team marketing, and they might even get teams together to make team marketing plans. But those good ideas never get executed because the reward system says, "Who brought it in?" The trouble with that is not only does it destroy teamwork but it's also like being paid only if you "do it." You never get paid for courting or romance. We only give you origination credit if you actually "did it." As a result, nobody does romance. Everybody is handing out business cards saying, "Do you want to do it?" There's no clever relationship marketing going on because the firms basically diminish and discount the value within the firm of a relationship -- even though they say they don't, their systems do.

If firms were to truly reward teams, the teams themselves would need to figure out the roles of the people who will develop relationships with clients and prospects and the ones who will contribute in technical ways.

RW: There are two points; the first point is blindly obvious. Go back to my need for a probate lawyer in Brooklyn. I don't know any probate lawyers in Brooklyn. What's the first thing I do that any buyer in the world does when he or she has a new need?

Ask for a referral.

RW: Yes. The key to understanding marketing is to understand buying. The first thing that every buyer in the world does is to ask a friend. In other words, client satisfaction is 90 percent of marketing. If you have a friend who says, "I used this person, she's fabulous, trust her," you can't go wrong. If, however, you get the reaction, "Oh, they were pretty good, they were competent, add them to your list," you now have to do proposals.

People preach a good game on client satisfaction, but they aren't living it. Therefore, the first thing that firms should be doing is rewarding those partners or individuals or teams who are gaining levels of client satisfaction above "OK." Anybody who leaves a client saying, "Wow, they were fabulous," just solved 90 percent of their marketing problem. The real punch line is that you don't get to "wow" with clients by having a client feedback system that you don't follow up.

How do you get lawyers and accountants to get the "wow" level on client satisfaction? You have to do something like an unconditional satisfaction guarantee. Now not necessarily that in particular, but you have to do something that tough, because it's only if it's that tough that people like you and me will say, "Shoot, I've given my client permission to not pay me if they're not satisfied. I had better call that guy." We already knew that stuff, but that's not the issue. The issue is what will actually get us to do it.

There has to be some consequence.

RW: There has to be a consequence if we only settle for OK. That's the first step. I think firms are missing the point completely with their actions. I think they intellectually understand it. I'm not insulting their intelligence. I'm insulting their guts. They don't have the guts to put in place a client satisfaction quality system with teeth. What they have in place is a client satisfaction system that checks to make sure that it's "OK." We deal with the disasters. That's not the issue. The question is, "Do you deal with it when the client satisfaction is only OK?" If it's not OK, then you have to deal with all the other marketing rubbish that takes three times as long. That's point number one, which is that firms need to get client satisfaction, and then where we started is that it applies to a whole team. Everybody on the team is held accountable for that client satisfaction.

The second point about teams is that even when you do get to say new client marketing stuff -- this shouldn't be too complex -- that if you're going to romance an industry sector or romance a client, then you need to include as part of the total package things like putting on a seminar, writing an article, doing some industry research.

Under the current regimes of most firms, if you write an article there isn't any credit in the firm's system. We only pay for cash brought in. Therefore, nobody wants to write the article. Everybody wants to go out there and bring in cash. All the things that lead up to winning the business are neglected. To go back to my earlier point, we never try to do romance. We try to go for one-night-stand quickies because there's no reward within the firm.

Now in a good firm, and some do exist, what you'd have, whether at the client level of the practice group level, is a marketing plan for the whole group in which you would assign roles. You'd turn to your tax nerd and say, "You're a genius. What we need you to do is write an article a month for the next year. Give us 12 great tax ideas that the rest of us can take out to our clients. We will pay you mightily for that if they work." You don't give anyone a free ride. If they don't work, you don't pay for them. But by doing this you provide the opportunity to contribute to a successful marketing effort through more than one means.

Do you think the person writing the articles should be compensated as much as the people bringing it in?

RW: Absolutely.

That's always a struggle -- how you evaluate the different types of marketing activities and determine if one is more important than the other.

RW: I believe that in Economics 101 price goes for scarcity. Price is determined by the relative relationship between supply and demand. The fact that you're brilliant is a completely irrelevant topic. The question is how many brilliant people are there relative to how many the clients want.

If you're the only person in town who can write that tax article, in other words, and you came up with something that no one else in the firm could have done, I'm going to pay you more than the guy who put on the seminar, because plenty of our partners could have done that. The real issue becomes paying for what is scarce or unique, because that is what price is all about.

What do you think about all the branding that is going on among professional service firms?

RW: I think it's all nonsense. I think it's a complete waste of money. Distinguish two things: brand recognition, which is that people know your name, and brand value, which means that people place a weight on the name and will actually pay more or use you more frequently because they value the brand. All this advertising junk they're doing will accomplish is to help brand recognition: more people will know who Richard J. Wood is.

But just knowing that Richard J. Wood exists gives me only a little something; I'll concede that, but it doesn't give me a lot. The real question is, "Does anybody value the stuff? Will anybody pay more for Richard J. Wood because there is a Richard J. Wood brand?" Here comes the question again. Your brand is not what you claim. Your brand is what you enforce.

Let me give you an example, Campbell's Soup. People like me go to the supermarket and, even though there is a no-name generic next to the Campbell's Soup, most of us take the Campbell's and pay a premium. They make great soup. So why do we do it? We do it because it's risk reduction. When I go to the Campbell's, 99.9 percent of the time it's what they said it was going to be. I actually rely on it and will pay for risk reduction. The trouble with the generic is that it may be fabulous or it may be terrible; I don't know.

Now, imagine Campbell's Soup is what they said it would be 65 percent of the time. Where does my end value go?

It goes down.

RW: Not only does it go down, I would have it go to zero. If Campbell's brand value is now that one time out of three I'm not going to get what they said it stood for, I'm not going to pay extra for them.

A law firm or accounting firm has brand value to the extent that every time I use that firm I get this thing. They always read my trade magazines. These partners have a brand. You can depend on it. They may be bad at other things and great at a bunch of things, but they read my trade magazines. Or they know how to deal with me. Or they may be pompous bastards but they're the most innovative people in town.

Look at the BCG (Boston Consulting Group) strategy. Their history was that they did not have a reputation for being real user friendly. They had (and have) a brand that says they are intellectual giants, and they are. You go to BCG, you will get creativity. BCG will not sustain that brand if half their partners aren't very creative. Your brand is what you enforce.

These marketing people are really ripping off the law firms and accounting firms by saying that you can create a brand by going out to the marketplace and lying, claiming to be something that, in fact, you're not. If you have something that is enforced in your firm, some characteristic that is common to all of us, client service or industry knowledge or intellectual creativity or "We supervise your work superbly, you can come to us and you'll get that," then I'm all for advertising. What I'm not for is what firms are doing, advertising without actually enforcing it.

What do you think CPA firms are doing better than law firms?

RW: They are just doing more. I don't think they're doing anything smarter. It's just that they know they need to market, so they're spending more money and partner time at it. The accountants do it half good, half bad. The lawyers are just deciding whether to do it.

That's interesting, because it seems that the law firms are hiring more marketing staff and paying them more money.

RW: They're hiring the wrong people who don't understand it. They're hiring ex-journalists. They're hiring people who literally have backgrounds in all the wrong things.

What skills should the marketers have that they don't have?

RW: Let's go back to my earlier example. What the marketing directors should be doing is designing the sort of booklet that I described receiving from the probate lawyer in Brooklyn. Don't design newsletters or brochures, but write up some things that will be immensely valuable to clients who have the sort of needs our clients have. Stuff that actually gives away ideas. Now that is something a marketing director could help with.

So you don't feel a firm needs a general firm brochure?

RW: You could convince me that there are some anal-retentive buyers out there who need a brochure for due diligence. So do you have to have one? OK. Spend about three nanoseconds and 10 cents. Then, get on to really serving clients.

To test the proposition at the beginning of our conversation, think about when you're a buyer. You've bought legal services, accounting services, doctor's services and nanny services. We've all bought a wide range of professional services. My challenge is, "In how many of those cases did the brochure play a part in your decision making?"

The fatal mistake of marketers is that they tend to make a distinction between clients and us. The secret is very simple. The clients are us. You want to know how clients buy, think of how you buy. It goes back to the biblical precept of deal with others as you wish to be dealt with, and here comes the ugly conclusion. That's so scarce that you will be completely differentiated in the marketplace because everyone else is thinking of the client as "other." As long as you think like that, which most marketing directors do, you will be missing the point.

What are your thoughts regarding the trend towards multi-disciplinary practices?

RW: Again, go back to when you're the buyer. Here's a quick example. My wife and I have done a lot of decorating in our house. Somebody comes to me and says, "I can take care of that project for you. It needs plumbing, electricity, glaziers and carpenters." Then this contractor says, "By the way, the best electrician in Toowoomba happens to be in my firm. The best carpenter in Toowoomba happens to be in my firm."

Saying you can do this project because all the best people of all the disciplines are in your firm actually destroys credibility rather than helps it. What clients want are prime contractors who can manage multi-disciplinary projects. Even without multi-disciplinary firms I can find a lawyer, an accountant, an economist, an engineer. Finding the specialists isn't the problem. The question is "Who credibly has the managerial skills to manage all these different kinds of people on one integrated project?"

To serve as the prime contractor you must have a deep understanding of the client's business, which immediately kicks out the lawyers because the lawyers are not credible as prime contractors except for very peculiar people. Lawyers are correctly perceived as fabulous at the technical sub-specialty but not good at dealing with things outside their technical sub-specialty.

There is a fabulous future for any firm that can bring to market truly integrated services, but that's not what firms are currently doing. They are just adding on specialties to an unmanaged firm.

What do you think is the future of consolidations in the accounting profession?

RW: I think it's a 100 percent cop out. All the things we've discussed, quality, efficiency, collaboration, I think those are the things that win. People say to me, "Richard, you can't be serious. You want me to tackle quality and efficiency and collaboration and caring about clients?" I say, "Yes," and they say to me, "Richard, you can't imagine how political that would be. You want me to change all my partners. I can't do that."

So they merge with another elephant so they'll be big, because big helps a little. Sure, big helps a little; it's still evading the point. Does big help you with quality? Does big help you with understanding and caring about clients? At some point you have to stop the evasion of the issue and start getting around to the stuff that clients pay money for. Clients will not pay you more just because you are bigger.

What do you think is the most effective marketing technique that a firm should use?

RW: An unconditional satisfaction guarantee.

What is the best piece of advice that you could offer to professional service marketers?

RW: Focus exclusively on existing clients. If you asked the question, "How many of you believe that existing clients are the best source of new business?" 90 percent of the people in the room will raise their hand. Yet when you ask marketing directors where they are spending their time -- they spend 100 percent of their time on new business.

I hear from firms that they want new clients. They want to be at bat more often.

RW: Again, it's wrong if they want to make money and have fun. First you start by making sure you are fabulous at managing client relationships. It's not a moral point. It just means that then any time you do bring in a new client the net present value of that client goes up through the roof because you are so good at building relationships. If you're bad or neglectful at building relationships, the net present value of every new client you bring in goes down because you're not very good at turning it into future cash. So my advice to a marketing director is that maybe it's not exclusively existing clients, but at least 80-20, 80 percent on existing clients. Teach your firm how to build relationships and grow business with existing clients, because it will take less time and that is the place you practice. If the question is, "Where do you learn how to build trust?" the answer is with the existing relationships.

Cool Friends, Cool Ideas: Richard Wood

by Editors of Tom Peters.com 2000

from TomPeters.com, 2000

At what different types of professional service firms have you worked and conducted research?

RW: It's fairly broad at this point, because I've been doing it now for 10 years. I started with the three core professions of the lawyers, the accountants and the consultants. But over the years it has grown to include engineers, financial services, executive search, advertising and public relations, and really quite a broad array beyond that as well. The modern conventional wisdom that Tom advocates, that we're all becoming professional service firms, is one that I think the world is hearing.

What would you do to help somebody who's in an internal department to turn that into a professional service firm?

RW: Well, here is something that will relate to my latest article. The central issue is to go from being a technical expert employee to being an advisor. Very often you'll get these people saying, "Well, I am the HR expert, therefore this is the policy we should have." The work that I do with these people is to say, "Let's enter the mindset that you are an advisor -- you are a service professional who is trying to help your client think through a set of issues." The crucial mindset change is the difference between seeing yourself as an expert whose job it is to give answers and seeing yourself as a professional advisor who helps a client solve his or her problem. That's the mindset change that a lot of people have to go through, both internally and externally -- because there are a lot of pompous experts on the outside, too.

Is that a matter of saying, "This is the way you now have to think"? How do you get there? That seems to be a major mind shift.

RW: It is, and that's why I wrote the latest article. I was trained as a university student, so the personal style that I had when I left the university and first tried to learn how to be a consultant was unfortunately the classic pompous, patronising, arrogant, condescending, "I am the expert, here's the answer, listen to what I say and throw me money." It's a very natural style that, alas, too many of us are taught to exhibit. The true spirit of professionalism, which I hinted at in the last article, is to realise that it's about the client -- it's not about you.

The tragedy of everybody's professional education, including mine, is that we tend to have very over-developed intellects and totally stunted emotional skills and undeveloped social skills. When we receive our training, whether it is inside formal things like a university, or even inside companies, no one ever actually teaches us how to help somebody else understand. It's an almost neglected field, and yet it is the key to being helpful.

You quote Dale Carnegie: "You'll have more fun and success when you stop trying to get what you want and start helping other people get what they want." Do you have anything more to say about that? In some ways it seems obvious, and yet it's awfully counter-intuitive to the way, I think, many of us operate.

RW: Well, it is, and many people receive it and hear it as if it is either religious or Communism. And the point that my colleagues and I try to make is that it is neither of those -- and this is why Dale Carnegie [How to Win Friends and Influence People] is still -- with apologies to Tom -- the best business book ever written; it is fundamental exchange capitalism. But what capitalism is, is that in order to get what you want from the other person, you must first give them what they want.

And it's just like using a romantic metaphor -- meaning, how do you build a deep relationship with your romantic partner? And again, the answer isn't to demand what you want. The way you actually get what you want from your romantic partner is to earn from them the willingness and the trust to give you what you want because you first give them what they want.

Earning their trust is the operative phrase there, earning that trust and willingness.

RW: Well, that's exactly it. There is a story in the article that may interest you. I have a dentist who recommended that I have three root canal jobs.

Youch!

RW: Exactly. Very expensive, very painful, and it's an interesting question: under what circumstance do I accept his recommendation? I suggest that it turns on the answer to one very simple question: If I think that he is being disinterested, a caring, noble professional giving the best advice in my interest -- if I actually believe that, true or false, then he's likely to get my business and my money. Whereas if I believe the opposite, which is that he doesn't care, if he's just after my money or the fun of doing what he does for a living, then I am going to be very reluctant to give him my money. So even if you leave all religion or inspiration out of it, the simple business analysis says that you get hired or, more generally, you get listened to, to the extent that people think you care.

I hope I'm making clear that this is not an inspirational point. It's how the world works. The secret of life is making people think that you care. Now that leaves open two alternatives for you. You can either be very skilled at making people think you care when you don't, and apparently there are people in life who can do that, and I'm not a moralist -- if you can do it, I'm not in any position to make a moral judgment. But the reality is that 99 percent of us can't pull that off; we're not actually capable of making people think we care when we don't. For most of us, we actually have to show an interest to get the desired effect.

Now, let me finish the story with the real thing that my dentist, Andrew, actually does. Every single time that my wife or I go to visit the dentist, whether it's minor or major, Andrew always, without fail, calls us at home that night to ask how we're feeling.

Wow!

RW: Exactly. There's a man acting as if he cares. I hope that you'll share my reaction, which is when that happens it is so rare that it actually is disproportionately influential on our behaviour as buyers, as customers. I am going to accept his advice, I'm going to accept his influence and, what is more, I'm going to tell my friends about him. Is that fair?

Absolutely.

RW: Now, here is the point. What is strange in life is that that behaviour is so unusual, and it is unusual not on moral grounds -- please allow me to be boring and restress this. It needs to be stressed because your website readers may think it's a moral point I'm making. The point I'm making is that people don't do what works. And what works is acting as if you care, preferably actually caring.

And in the case of the dentist, I would assume that just the tone of your voice when you respond must be quite heartening to him, because you're happy that he has called and asked. There are two situations: Either you're in bloody pain, in which case you tell him and he'll do something about it, or you're feeling fine and you let him know. And so he probably ends up sleeping better in the long run as well.

RW: Exactly. And 90-plus percent of the time, it's the latter, which is nothing's wrong, and it's a 30-second phone call. You can even be more Machiavellian, if you wish. You could say, "I'm sure this behaviour lowers his malpractice insurance cost."

So there are all sorts of reasons, and what it all turns on is indeed the thing you picked up on in the beginning of this part of the conversation, which is that many people think they are being businesslike when they're -- notice the phrase we use in English -- "all business." And most of us are taught the wrong things. We don't even discuss this simple issue in our training, which is "How do you win somebody's confidence? How do you establish a relationship with someone?"

And to that point, think of when you're at a business meeting and somebody walks away, you never comment on his or her business skills, but you will comment on his or her ability to work with other people, to deal with the situation, to basically socialise, right?

RW: Exactly. You may remember the famous quote from The Godfather film: "It ain't personal, it's business." And our message is that it is business -- but it is also profoundly personal. That's how you get on. And that is where Tom Peters is absolutely on target -- it's about emotion; it's about passion. When we become disconnected from what we are doing for a living, then we become immensely less effective.

Your underlying message is just that: bring yourself to your work, be passionate about it -- the words "passion" and "fun" appear frequently in this article.

RW: Yes. Let me highlight what is, for me, the most depressing chapter. And it's that chapter called "Are You Having Fun Yet?" To this day, I still get the same results. I ask people, "What percentage of your work would you describe as 'God, I love this' versus 'I can tolerate it'? And about what percentage of your clients can you say, 'I really enjoy these people' versus 'I can tolerate them'?"

And you may recall the numbers in the article, which are, at best, what you get as firm-wide averages: 20 percent to 30 percent in the "God, I love this" category. And let me give you some strong language that you can edit out, but the way I now report this if I'm standing in front of people, when they give me similar numbers, is I say, "I refuse to reach my tombstone with it saying, 'He did tolerable stuff for tolerable people because they paid him.'" And I say, "I'm not that much of a whore, and I think you are."

And the message -- it's Tom's message and mine; I make no claims to originality -- it's the same core message. The message is that it's not a trade-off -- that's what I'm trying to get across. These are not moral points; these are not aesthetic points. This is the secret of doing well: do stuff you care about for people you can care about; then you will do superbly well financially. But it does take courage.

You approach this topic of doing work as a consultant from the emotional side and say that following your heart will pay off financially. I, for one, believe you, yet I think a lot of people will think, "I need to have that revenue stream coming in, no matter what it takes."

RW: Well, the answer is yes, I agree with that, but that's not the choice. No one's suggesting that you miss financial goals. The issue is, is it any revenue, the easy way -- or is it the same amount of revenue that you have to work harder to get but it's stuff you care about. So the choice is not about missing a revenue target. The choice is about being -- and here are the key words -- the choice is about being expedient. This is in fact what the article coming out next year, 2001, is about.

In other words, nothing I am trying to say or Tom is trying to say means that money is not one of the primary, if not the primary, goal. All we're debating is, real world, what gets you the money. What do you have to do to get there?

And the simple argument that Tom makes and I make is that if you don't act as if you care about your clients, you will get less money from them, just as a factual matter. Similarly, if you run your business as if everybody gets the message "It's about the money, stupid; we don't care whether you're enjoying things," then you will get less enthusiasm, commitment and dedication out of those who work around you. Now those are facts.

So the real choice is not that people don't believe it, the real choice is -- I'll go back to my words "expedient" versus "strategy." I think underlying it is the opposite of courage, which is insecurity, right? People feel as if they can't say no because they actually doubt their own abilities to go out and get "real work." Similarly, it is excessive hubris, it's the equivalent of, in my favourite metaphor, saying, "I won't go to college because I can earn four years' income instead." If all decisions in life were based upon the next week or the next month, you'd make very different choices in life, just as you would in romantic life. If all your dealings with your romantic partner were based upon the benefit you could get in the next week, you'd have a pretty miserable romantic life.

The insecurity and short-termism, however, are the real debate. It's not about the debate of, "Is money important?" Of course money's important -- it's the primary goal. It's, "Do you have the courage to do what it takes to get there?" It's very silly, but let me give you another metaphor. I have lots of nieces and nephews, and they know that I used to be a university student. They come to me and say, "What's the secret of doing well in college?" And I always say, "Go to class and do the homework." And they say, "No, what's the secret?" And I say, "Go to class and do the homework." And they say, "Well, that's no fun." It's the same argument, which is, are you living your life for the fulfillment of the next month, or are you living your life to get somewhere?

It's very clear to hear you say it that way. People can certainly understand the difference between expediency and strategy, and yet I would think a lot of folks would think, "Strategy, God, I don't know how to do that, how to formulate that. How can I be sure?"

RW: Let me use a different word, because strategy is, perhaps, sufficiently misunderstood and ambiguous. It's the difference between expediency and long-run achievement. I'll give you one illustration, out of the article that's on my website called "The Courage to Have a Strategy." I've got a long-term German client who, as a favour, asked me if I would do a three-day sales and marketing skills course for their junior people. Now that's not normally what I do in my career, but it's a client, so you do a favour once, right?

Unfortunately, the tragedy is that it went well, and the client now calls me and says, "David, we want to buy 70 days at your full rate," and at that time my fee was $1,200 Australian dollars a day. It's now $1,500 a day, so take the 12 number, that's a nice number -- 70 days times $1,200 -- particularly for a sole practitioner, as I am. So I come rushing in to my wife, who is my coach, and I say, "Honey, good news, the Germans want 70 days," and she goes into coaching mode. She says, "Richard, I seem to remember you said that what you want to try to do with your career is become a senior advisor to global firms." And I said, "Yes?" And she said, "Well, maybe it's because I don't have formal business training, Richard, but tell me where 70 days of sales skills training for junior people fits with accomplishing that strategy." And of course, I have to say, "It doesn't." She says, "Beloved, I'm your coach, not your boss, and you can do whichever you choose, but here are your choices. You either make the expedient choice and have the least stressful year you've ever had, doing the same old stuff for non-challenging people, right? The only thing I ask is that you admit you've given up on your goals. Or, Richard, you can act as if you believe your own bullshit, which is to say 'no' to stuff that's off strategy, and since we like to eat, Richard, that doesn't mean you're allowed to miss the goal. That means you've got to get your rear end in gear and go generate 70 days of real stuff."

Now, that's the end of the story -- well, the end of the story is I did the latter, not the former, but the point is it's a brilliant piece of coaching.

I just have one question here. You obviously have a fabulous coach. How would you do this without a coach -- or a coach/wife in your case?

RW: Well, it's very hard to do it by yourself. I should use the metaphor that I always use, which is, "Alas, I am a fat smoker." The point about that metaphor is that self-discipline is not my strong suit. In other words, knowing I should do something and knowing how to do it is still not a change program for me, or for 99 percent of the world. The issue is not whether you know what to do; the issue is whether you are ready to get on the diet that will get you to your goals. And please note that goals can be profoundly financial. But the question is whether you willing to live the diet. This courage point applies no matter what the strategy is that you're talking about. You only get the benefit of that which you actually do, not that which you plan to do. And so to your question, my experience is that apart from maybe a handful of natural, self-starting dynamos, and they are the Bill Gateses of this world, everyone else is just going to follow their vision regardless. Right? But even Bill Gates turns to Warren Buffet as a coach. We all need a coach. If we're lucky, we have it inside our company. But mostly we don't. In which case, you need it as a very good friend. And you say to your friend, "Look, don't tell me what to do. But if I give you my goals and tell you how I'm going to do it, keep me honest."

I've been reading a number of different books recently, and one theme that keeps popping up is people going out on their own as free agents or soloists or whatever you want to call them, solo practitioners. But it seems pretty certain that the healthiest ones are those who are constantly challenging themselves. You refer to these people as dynamos, which I love.

But these "dynamos" have somehow figured out how to constantly push themselves into the discomfort zone. And maybe you've just told me a story explaining how that happens. Do you have some other theories on how to do that?

RW: The point being that behind it all has got to be a desire to accomplish something. Right? Now, I've got a very good friend, who will remain nameless, who I would say, no question, is smarter than I am but has chosen to stay in a university setting teaching Economics 101 for the 17th year in a row, which he does very well. Now, the issue is not that he lacks a coach; the issue is that he doesn't have a dream for what he wants to accomplish with his life. He's there, where he wants to be. And without a burning desire or passion to accomplish something. It can be noble or ignoble, it can be money; it can be ego; it can be a desire to leave a legacy; it can be a million things. It could be to show off to your in-laws, you know, whatever it is. But nothing is going to happen unless you really answer the questions which are "What do you want to be famous for?" and "What do you want to accomplish next?" And unless the desire is there, then you won't stick to the diet. That's where you get the discipline, because you actually think that if you try, you might actually be able to get to the next stage of your career.

I guess if there's one message I'm really trying to deliver, it's this: life could be so much better for so many of the people I meet. So many people I meet have given up; they think it's not worth trying because the world is conspiring against them. And it's either the top management or the darned clients or stupid employees. Everybody's got a good excuse about why it's not worth trying. And one of my favorite sayings is the following: You're allowed to fail; we all fail. And you're allowed to have a lot to learn; we've all got a lot to learn. The one sin is not trying. And again, restating the point, if you'll forgive the repetition, the whole history of business proves that simple point, that what wins is trying. People fail miserably all the time. Look at the history of Microsoft. They bring out nine failure versions of their products before they get a success. Think of every other business history -- I mean, the millions of people that fail before they ultimately succeeded.

The essence of success is not the one, unique, brilliant idea. The essence of success is the energy to keep trying, to act as if you care.

Favorite books?

RW: I guess favorite fiction would be Ayn Rand, probably Atlas Shrugged, which changed my life. Favorite nonfiction, which is the only thing I've read since I was 20 years old, would probably be Robert Caro's biography of Lyndon Johnson. It's now in two volumes, either volume.

Favorite website?

RW: Favorite website, just to reveal my ego, is Amazon.com.

You and 8 million other authors.

RW: And the articles in progress I told you about.

HR People as Trusted Advisors

by David Creelman 2000

Appeared on HR.com, August 21, 2000

Richard Wood is a leading authority on professional service firms and the author of several articles.

Continuing our commitment to help HR professionals understand the changing demands of their role, HR.com sought out Mr. Wood.

We've spoken to David Ulrich about the roles of HR, and one of the roles he mentions is that of internal consultant. You are an expert on the consulting profession. Do you think HR should be playing this role?

RW: I don't think it's an issue for debate. You are an internal consultant if you're in HR. In all cases you advise either top executives or middle-level executives. The simple fact is that whenever anybody has some specific technical expertise and is engaged in helping others, they are playing the role of a consultant.

HR professionals generally feel confident that they are "experts" in HR, but your article goes way beyond that. You discuss the consultant playing the role of a trusted advisor.

RW: If someone asks you for your advice, it is very easy to fall into the role of an "expert" who thinks "I'm now in charge and what I think will prevail." The assumption is that the problem is solely within the technical domain.

Now technical expertise is a non-negotiable entrance fee. However, as someone being advised, I rarely want you to take over my problem and decide for me.

Here's a silly but real example: I don't want a doctor to say, "I've done my diagnosis and I'm going to have your leg off." I want the doctor to follow a simple four-step sequence starting with explaining the options to me. I am paying for the advisor, in this case a doctor, to help me take control of the situation.

Now that I know the options, the second step for the advisor is to help me understand the pros and cons, the costs and the risks. If I get an education I can make a much better decision.

The third step is for the advisor, drawing on his or her expertise, to give me a professional recommendation.

The final step is that the client, not the advisor, chooses what to do.

HR professionals will be sensitive to the process involved, but in most companies they are still not seen as trusted advisors.

RW: Yes, I think that's right. There are a lot of ways to lose that respect. What I say in the article is that there are four things you can do to develop that trusted advisor role.

One is credibility, which is where technical expertise comes in. I hope I'm clear. I'm in no way minimising the import of high-level technical expertise.

The second element, and one that is also close to the rational part of the process, is reliability. Can people depend on you to act consistently, keep your promises and do what you say? These two elements are well understood. The last two points are where most of us struggle.

The third aspect of being trusted is intimacy. Do clients see us as dealing with them not as problems to be solved -- do we enter their world able to deal with the emotions that the individual might have? You might think that HR should be naturally good at this, but I don't think many people are naturally good at it.

Let me give you an example of intimacy. I was working with an executive committee trying to decide on a policy, and the room was very uncomfortable, very quiet. I said to the group, "What's going on here?" They said, "If we go with this policy, then we seem to be asking some very powerful people to change." I said, "Yes, that's what we're all saying, we should change the policy." They replied that they were not sure they had the courage. They didn't know who could confront those powerful people we would be asking to change.

Now to understand what is happening here, we need to recognise that there are all kinds of emotions involved, even among high-level executives. As an advisor in this kind of situation I have a decision to make. I can try surfacing those emotions and helping people think through the decision, or I can be uncomfortable and afraid and then somehow get through the meeting ignoring the emotions. If I take the latter tack, then I'll get all kinds of stolen, whispered discussions at the coffee break. "Yes, we agree with the policy but ..." The skill of raising those issues and helping people work through them is a skill that must be learned and is never taught to any of us.

To finish off the list, the fourth thing you must have to be a trusted advisor is a lack of self-orientation. When you are giving advice, does your listener think that you're motivated by making yourself look good or do they really believe you are trying to help them? Do they react by saying, "Oh well, he or she would say that. He or she is in HR"?

The oldest joke in business is, "I'm from head office; I'm here to help." No one believes you are sincerely trying to help. HR is usually seen as a policeman, or a nun with a ruler, forcing policy on people.

At HR.com we have been saying that HR managers should understand business, but this goes one step further. You're saying they need to understand it from the point of view of the manager they are serving, to put themselves in the manager's shoes.

RW: That's exactly the point. I hope no one takes too much offence (I only wish to give a little offence), but in my own experience most business problems are like losing weight. I don't need another speech about why I need to lose weight. I already know the benefits; similarly, every manager in the world already knows the speech about needing to energise the staff.

We've already heard the advice "Eat less, exercise more." Not only do we know what to do, we know how to do it.

We've talked to Jeff Pfeffer about this problem. He calls it the "Knowing-Doing Gap."

RW: Yes, and his book's brilliant, but my own view is that Jeff missed this one slice of it. The reason we don't act on what we know -- and Jeff fails to stress this -- is that we have to be ready to get on the diet. We have to be willing to live through all the short-term inconveniences to get the long-term benefits.

The biggest added value we can bring as advisors is not some intellectually sophisticated new HR technique, but to act as wise counsellors, helping people to get on the diet and deal with the determination and self-discipline to stay with it. I don't need the next brilliant idea that won't be implemented. What I need is someone to help me implement what I already know.

The question you have to ask as an advisor is, "Can I help other people change their behaviour?"

Typically HR tries to change behavior by putting in some kind of training course or new program like 360-degree feedback.

RW: All absolutely useless. There are no more useless things in business than training and 360-degree programs, because the good content they offer is never followed up or implemented. You can't lose weight just by getting on the scale more frequently.

HR needs to be able to work with an executive, to take something that is that executive's idea and be available to them as they struggle with the picayune details of how they're going to change their behaviour.

We were talking to Cliff Ehrlich, who used to be the head of HR for Marriott, and his approach to HR was based on simple person-to-person relationships rather than sophisticated programs.

RW: Yes. Let me give you a catchphrase: "The only management worthy of the name is one on one."

One simple piece of tactical advice your readers can use is to telephone in advance everyone who is coming to a meeting to ask for their reactions and their interests so that when you get to the meeting you know where every individual is coming from. You'll know when to ask a question and when to hold off so you can achieve consensus. It's tempting to think, "I'll just show up at the meeting and convince everyone," but very few of us can pull that off.

A problem we face in HR is that it's hard to know who the client is. Is it our boss, the CEO, line managers or the broad employee base?

RW: Welcome to the real world. That's the problem all advisors have. If you can't learn how to deal with different constituencies, you'll never be an effective advisor.

How do I make sense of all the potential clients?

RW: The trick is very much like the tactic I just described for managing a meeting. You cannot represent that you will always be on any one person's side or that their vested interest will prevail. What you must do is make each constituency believe that you are working very hard to be sure that their interests are understood and are part of the process. Even if you don't end up on their side, you end up as a trusted advisor of the process.

How can HR become an important trusted advisor when they are simply not invited to participate at the highest level?

RW: It cannot be done as end run. The answer is that you make the people you are currently working with admire your ability to help -- not to be right; to help. Then you create advocates within the organisation.

But notice the test. That they think you are smart does not get you invited. That they think you are useful does get you invited.

I'd like to ask your opinions about the broader issue of social trust. Fukuyama, who wrote Trust, and Putnam, who wrote Bowling Alone, both talk about the importance of social capital, which relates to broad levels of trust across society.

RW: Yes, I've read them. They are very exciting intellectually. But I'm a very practical person, not an intellectual, despite all my intellectual training. I think the issue is simpler than they describe. Trust will always be an interpersonal issue -- it's not about institutions.

How do organisations create a positive, trusting environment?

RW: You get to be what you are willing to enforce. Your strategy is not "what you plan to do someday," but what you are willing to enforce today. I do know of institutions that have an incredibly high level of trust.

Now here is the issue: how do you create an organisation where people feel that "people are treated with respect around here?" And here's the answer: you fire anyone who doesn't treat others with respect. Enforce that and you can achieve an environment of trust and respect.

I have statistical evidence in my forthcoming article [to be published in 2001] indicating that when people in an organisation believe that "people are treated with respect around here" then the organisation will make more money. Don't just manage the money, manage what makes the money.

There is proof that the way to make more money is to treat people with respect. The way to get this is to enforce a standard of behaviour. If management doesn't have the guts (because it's a short-term cash inconvenience), then you'll never get there.

This is consistent with the evidence that Pfeffer discusses in The Human Equation.

RW: Yes, but I'm going to disagree with Jeff in this one respect. Knowing about and encouraging a behaviour is not enough. The important lesson is that we do not get the benefit from that which we encourage; we get the benefit from that which we enforce.

Do you have any closing advice?

RW: In my whole career I've learned from the principle, "They are us." If you want to understand why someone is responding in a certain way, think of how you respond in similar situations.

How they respond is how we respond. If you want people to trust you, ask yourself how you respond to people. How do I want someone to deal with me? It's nothing more sophisticated than the thousand-year-old Golden Rule: Treat others as you wish to be treated.