Meeting Goals

Done well, retreats and other partner meetings can be powerful tools to influence the success of a professional practice. Certainly, given the cost and time involved, they need to have a noticeable impact if they are to be justified. Alas, this is not always so.

One of the problems is that while management committees spend a great deal of time discussing agendas for the meeting, they rarely are precise about the meeting's goals. In too many cases, firms have not articulated what they want to have happen as a result of the retreat.

Firms should not even consider the agenda until they can give a clear and unequivocal answer to the questions, "What changes do we want to occur as a result of the meeting?" and "How will we know if it is a success or not?"

It is remarkable how often ready answers to these questions are not forthcoming. Firms know they want to have a meeting -- they're just not sure why.

Some Choices

Some of the most important choices that must be resolved are as follows: First, do we want to have a meeting that is broad or focused in the choice of topics? Do we want to cover many topics lightly or a few in depth? Either is doable, but with obvious trade-offs.

Second, having chosen topics, do we want to discuss what you, the individual, can and should be doing or what we, the firm, are going to do? (For example, discussion of marketing could either be sharing what each person has learned about what works for them personally or it could be a discussion of new firm policies and approaches in this area.)

Third, the firm must decide whether the goal of the meeting is to generate ideas or build consensus. One definition of a successful meeting is that many ideas surfaced and each person got something to take away, but each person may also have benefited from different ideas.

Alternatively, the real goal of the meeting may be set at achieving a greater degree of consistency of opinion or support for specific ideas. As before, either is an acceptable definition of success for the meeting and either is achievable. But you have to know which one you are aiming for.

A fourth choice is what benefit you want to provide to the participants: understanding and insight or practical suggestions. One way to serve an individual on a given topic is to help them look at an issue in a new way and have them walk away saying, "I've never thought about it like that before. Maybe I need to do some things differently -- let me think about it!"

Alternatively, understanding may be an insufficient goal (or perhaps everyone already understands the issue), and the real measure of success is to help people not with the "why" and "what" of new ideas but with the specifics of "how." Either can be done but each one uses meeting time very differently, depending on the objective.

Firms might also consider whether they wish the meeting to be the beginning or the end of a process. If the beginning, how are the topics to be introduced? What process will be followed after the meeting to further develop the exploration?

If the goal is for the meeting to bring issues to closure, how will the determination be made that such closure has been reached?

The Importance of Discussion

Part of the difficulty is that firms try to accomplish too much. Many firms construct an agenda covering numerous topics, with many different speakers organised according to a disciplined, military-like schedule. This approach has the virtue of covering a wide range of subjects but without the opportunity for much discussion or closure. It is not clear what such meetings accomplish.

They force the majority of partners to sit on their hands and listen to a long sequence of presentations -- hardly a device for bringing about any change. A retreat, in my view, is a time for partner discussion, not for (impatient) listening.

Too many partner meetings are filled with "information transfer" -- a series of presenters updating the assembled multitude on the latest facts and figures or the status of last year's initiatives. While there usually is a need for information transfer, a series of talking heads (often with lowered lights and 35 mm slides) is guaranteed to waste time and put everyone to sleep.

Instead, firms should find some way to get the information transfer over with quickly and early. Put the materials in the conference package (or better yet, circulate them in advance) and proceed straight to the discussion period for the topic.

A better approach is to focus the meeting around the goal of building consensus for action on specific ideas or initiatives. Note that there is (or should be) a clear distinction between building consensus and decision making. Partner meetings are perfect vehicles for exploring issues (in depth), but en masse decision making is rarely wise.

The best device for ensuring that this distinction is observed is to make clear precisely who will have responsibility for "running with the ball" once the retreat is over. Too many partner meetings have terrific discussions, with many an emerging consensus on a number of good ideas, and then -- nothing happens. Everyone goes back to their practice and nothing ever changes.

One Success Model

Here's one way it can work. The management committee of the firm should decide on what issues it would like to hear the views of the partners. (Hopefully there is something that fits this category!) A separate "retreat committee" might serve the role of proposing topics that management should listen to the partners on, but they'd better check that management is truly willing to listen. I've attended too many retreats where a retreat committee chose topics that the management committee had no intention of doing anything about, and everyone ended up frustrated.

Management's job at the meeting is to shut up and listen. It is not very productive for management to spend much time at a partner meeting on exhortation, inspiration and sharing its views of the firm's strengths and weaknesses. (I have no moral objection here -- I've just never seen it accomplish anything.)

Management already has many opportunities during the year to communicate with the partners about its views and its sense of priorities. A partner meeting is one of the few occasions for the rest of the partners to be heard both by management and other partners.

At the end of the meeting, management's job is to stand up and say, "We've listened to you all weekend, and here are the highlights of what we've heard you say. We now make you a promise that we will go away and deliberate, and we'll come back to you with a concrete action plan. We will undertake to put a specific proposal in front of you within X weeks."

Of course, to pull this off requires preparation, which many firms neglect. I am constantly surprised at retreats where issues are put up for discussion with little or no collection of special information on that issue. Vigorous, fact-free discussions then result. A well-run retreat, in my view, should have special data collected so that the discussion is based on an external reality, not just on previously held biases.

For example, if the topic is marketing or client service, has anyone polled or interviewed clients about the firm's strengths and weaknesses? If the topic is associate development, has anyone polled the associates on what they think we do well and what we do poorly? If the topic is strategy, have the partners been polled (in advance and anonymously) on their sense of priorities and which initiatives have their highest interest?

If the topic is profitability, has any special in-depth analysis been done on precisely where the profits are coming from, which kinds of matters we make money on and which kinds we don't? Partner meeting discussions are too often incestuous: all about what we think about ourselves. It's a simple enough question, yet a frequently neglected one -- if we want the partners to debate an issue, what facts can we put on the table that will enhance the debate?

An Example: Client Panels

A perfect example is provided by client panels. These are so powerful that I am tempted to recommend that they be an essential component of every all-partner meeting. Invite four, five or six good, existing clients of the firm and ask them to address these questions: What do we have to do to deserve and earn more of your business and to obtain unbeatable referrals from you? What should we be doing more of, what less of? Tell us how you buy, and what we can do that is likely to make us attractive to you?

Done at the beginning of a partner meeting, such panels enrich the subsequent discussion immensely, whether that discussion is to be about foreign offices, training, technology or marketing. The fact is that retreats and other partner meetings must be grounded in a market-place reality, and there's no better way to get that information than straight from the horse's mouth.

And, of course, the mere presence of the clients sends an important signal to all partners about the need to test the firm's policies and intentions against the clients' desires. To say, "Oh, yes, we did a client panel a few years back," is insufficient. Listening to the market is an ongoing activity, and I contend that a retreat is the ideal forum to conduct one.

Ensuring Discussion

If the essence of a good retreat is discussion, how do you ensure that a good discussion is held? Some firms deal with the problem of large groups by using "breakout" sessions, dividing the partners into a number of smaller, parallel discussion groups. I have become sceptical about whether breakouts are a productive use of time.

The problem is that if a small group is to tackle an issue of any substance (and it is clearly a waste of time if they do not) then they must be given at least 90 minutes for their deliberations and at least 30 to 45 minutes to report their conclusions. Nothing will have been accomplished if a small group has a discussion but the rest of the partners and management don't get to hear what they concluded.

If there are (as is typical) more than four breakout groups, it can consume a large amount of time just in reporting -- and even that does not allow for the other partners to comment on or react to what the small group had to say. The partnership, in my view, will be better served by staying together and discussing issues together. If the goal of the retreat is to convince, persuade and build consensus, what is important is that everyone participates in the reasoning process, not just the conclusions. Reporting small group conclusions is insufficient for the purpose.

If the group stays together, this can mean a large meeting. How do you handle this? Appointing a facilitator (whether one of the partners or an outsider) is an obvious choice. A good facilitator should be able to "manage" a discussion with up to 100 people and sometimes more. The facilitator's job is to craft the subject matter for specific sessions, run the discussions and "moderate" the debate.

One virtue of a "neutral" outsider is that such a person can often play the St. Sebastian role of being the target for all the arrows, floating provocative ideas and challenging cherished (if hidden) beliefs the firm has about itself. If an outsider is running the discussion, the sessions are less likely to get out of control, particularly if the facilitator has a fund of stories and experiences about what other firms are doing that can be slotted in as quick lecturettes, thus commanding the floor and preventing unproductive discussions from continuing.

Voting Machines

In the last few years, technology has immensely improved the ability to run discussions with large groups. At many recent retreats, I have used a system of voting (or "audience response") machines. They work like this: Each participant has a keypad with buttons marked 1 to 10 and a Yes/No button. At any time during the meeting, with or without pre-planning, the group can be polled as to their feelings about an issue or a proposed action.

They can be invited to agree or disagree with various propositions, vote on a rank ordering of priorities, estimate various percentages (for example, on the use of their time), indicate whether they support or oppose the last speaker and any other types of questions. The results show up immediately on a screen visible to all. If someone feels the question was poorly phrased, then within a matter of seconds the poll can be taken again.

The first virtue of this system is that everyone is involved in expressing their views, not just the handful of people who choose to speak up. At the typical retreat, firm leaders always try to judge the "sense of the meeting," but I have learned that this is uniformly unreliable.

I have been in many meetings where three speakers in a row pointed out the flaws in an idea, leaving a strong sense that the idea was being rejected by the partnership, only to discover that when invited to vote anonymously through the machines more than 90 percent of the partners supported the idea, though they did not wish to speak up.

Second, all views expressed with these machines are anonymous, which is no trivial matter. I long ago learned that what people will say openly and in public at a partner meeting is not always what they really believe. Anonymous voting uncovers what the partners truly believe and not what they feel stampeded into voting for.

Some firm leaders are a little nervous about this, asking, "But what if everyone votes against my proposal? Do I really want that rejection to be so open?" My answer is that if the partners don't buy the idea, management is better off knowing this so it can get to work persuading, convincing, discussing and cajoling -- in other words, leading. Professional firms are (usually) partnerships, and leaders must persuade, not tell.

The third virtue of voting machines is that they make the discussions so much more productive, and that leads to a wise use of time. I have attended many meetings where an hour or more was spent discussing an issue on which everyone already agreed. A simple vote would have enabled the discussion leader to say, "OK, that's a done deal. Let's move on!"

If a vote is taken that shows the group is divided, then it is easy to list the pros and cons and then take the vote again 15 minutes later. If after 30 minutes of discussion the vote remains the same, it is clear that the discussion is changing no one's mind, and it's time to change course.

Finally, it should be noted that voting machines allow demographic information to be inputted, so that while still preserving individual anonymity, it is possible once a vote is taken to say, "Let's see how the responses differ for younger partners versus older partners or how partners in different offices responded." Subgroup averages like these can then be shown instantaneously on the screen.

It is necessary to restress that these machines are not intended to turn the meeting into a vehicle for decision making -- the votes are positioned as a vehicle for taking a "preliminary sense of the meeting." In such a role, this technology will enhance the value of any retreat.

Finally, what about outsiders in roles other than pure facilitation? If you do want to use an outsider, you must first decide whether you want your outsider to function as a speaker or as a consultant. Speakers will convey their own information but will not be able to address the specific circumstances of your firm -- as in, "What does that mean for us?"

It is wise to organise an explicit discussion session immediately following a speaker's remarks to discuss implications, otherwise the speaker's ideas might disappear into the ether. Effectively, a speaker is primarily entertainment; he or she is rarely part of the change process.

The consultant route implies that you will prepare your outside consultant by sharing a great deal of information about the firm -- financials, past strategic plans, client surveys and internal management memos. In addition, it is probably wise for the management committee to meet with the consultant prior to the retreat. If management disagrees with what the consultant believes, you're better off finding that out in advance and resolving any conflicts.

The management and consultant should share a mutual goal -- helping the firm to improve -- and this deserves more than a little scheming. If, as I have argued, a retreat is aimed at making something different occur in the practice, then both management and consultant must understand what it is that the firm wants to improve and precisely how the retreat can be used to make that happen. With the right planning and the right approach, retreats truly are an effective management tool.

Garbage Can Decision Making

I have attended a number of partnership retreats held by professional service firms wherein the partners attempt to wrestle with some important choice, such as compensation system design, the issue of non-equity partners or forms of governance.

What is striking about these discussions is how disorganised they are and how far-reaching the debate usually becomes. Partners rarely speak to the topic at hand and frequently use the forum to air old grievances, wrestle with issues not on the agenda and waste time repeating points already made.

The conversation swings back and forth between issues of some importance and trivial matters of administrative detail. What's more, there appears to be an inverse relationship between the importance of the topic and the amount of time devoted to it.

As a partner in one law firm pointed out to me, "These retreats are just like our normal partnership meetings. We spend hours arguing about the decoration of offices and then open a branch office because it seems 'right.' Everyone has to have their say, no one sticks to the point and we always end up talking about the same major issues, which never get resolved."

This form of decision making is not restricted to professional service firms. It is, for example, also typical of many university faculty meetings I have attended. It occurs most frequently in organisations that attempt to run themselves on democratic, consensus-building principles. In a book entitled Leadership and Ambiguity, Cohen and March identify a type of organisation they term as "organised anarchy." Many of the ideas discussed here derive from their work. These organisations, they argue, have the following characteristics:

• An ambiguity of goals, with inconsistent and ill-defined preferences and a multiplicity of objectives: Because of this ambiguity, few issues can be resolved by appealing to unequivocal and mutually shared (or prioritised) goals.
• An unclear technology: Activities such as teaching, lawyering, consulting and other forms of professional service have ambiguous processes. While there are some regularities of procedure, the activities to be performed remain an "art," learned by experience, trial and error, imitation and inventions born of necessity.
• Fluid participation: The members of the organisation differ in the degree of time and effort they devote to its concerns. Sometimes a partner will focus solely on his or her own work, leaving organisational decision making to others; at other times, they may be exceedingly concerned with organisational matters and want to be involved. The degree of participation is not specified by an organisational chart, but by the issues addressed, the choices to be made, timing and temperament.
• Most issues most of the time have low significance for most of the people: The decisions made often secure only partial and erratic attention from the participants, and a major share of the attention devoted to a particular issue is tied less to its content than its symbolic significance and its impact on group esteem.
• As a consequence of this (previous point), there is high inertia: It takes a great deal of force and energy to get anything changed. There is a tendency to continue with the policies, procedures and patterns of the past.
• Finally, there is a weak information base: The data necessary for informed decision making is not commonly collected (perhaps because of the unclear technology) and not well disseminated (because of the fluidity of participation).

How do decisions get made in an organised anarchy? Michael Cohen, James March and Johan Olsen, in an article published in Administrative Science Quarterly, called it "garbage can" decision making.

In a garbage can process, there are a large number of unresolved issues or problems: "What do we reward around here? Who has status? What clients should we serve? How can we market ourselves better?"

There also exists a related but quite separate stream of choices to be made: "Should we open a branch office? Should we hire a new lateral partner?"

Third, there is a set of stock "solutions" constantly in the air: "Let's get a computer! Let's departmentalise! Let's hire a more high-powered business manager!"

Finally, there are the participants who are involved to varying degrees with particular problems, solutions and choices.

All four of these elements -- problems, choices, solutions and participants -- are intertwined. There is not (in a garbage can environment) a "clean" decision-making process with circumscribed issues to be decided by a well-defined set of participants with clear, independent choices. Instead, it's all jumbled up.

Cohen, March and Olsen discovered some major properties of such situations:

• Few problems or issues are dealt with by direct resolution. They are avoided, suppressed or disposed of as a secondary consequence of choice made on some other issue.
• The more issues there are on the table, the more likely individual problems will not get solved or will take longer to resolve.
• Although nominally considering different choices at different times, the decision makers keep encountering the same issues again and again.
• Given the complexities of interrelationships between decisions, issues, actions and people, it matters a good deal in what order issues and choices are confronted.
• Big choices are much less likely to resolve problems than unimportant choices because big choices are frequently dealt with by compromise.

In such an environment as this, how does one manage? Fortunately, Cohen and March do offer some practical advice. After a semi-apology for the Machiavellian nature of their proposals, they offer the following guidelines for success in leadership in a garbage can environment:

(1) Spend time. A person, they assert, who is willing to spend time on decision-making activities by exploring issues, choices and solutions lays claim to more tolerant consideration of the problems he or she considers important and becomes a major information source in an information-poor world. Influence is obtained by doing the work, serving on the committee, having more facts than others and freeing others from having to worry about management issues.

(2) Persist. In a garbage can world, few issues are resolved once and for all. If a proposal has been rejected today, it may be accepted tomorrow. Decisions are made as a result of a series of episodes involving different people in different settings, and they may be unmade or modified by subsequent episodes.

(3) Exchange status for substance. Cohen and March note that in the universities they studied (as in the professional service firms I have studied), "governance is simultaneously a system for making decisions and a system for certifying status. Participation is an end in itself, not just a means." They suggest that some substantial elements of the governance of universities (and, I would argue, of professional service firms) can best be understood in the light of the hypothesis that "most people are most of the time less concerned with the contents of a decision than they are with eliciting an acknowledgment of their importance within the community." Accordingly, to get things done, exchange status for substance -- a simple rule, but a powerful one.

(4) Facilitate opposition participation. Since in garbage can situations most people do not participate much or very frequently, and since such organisations are generally information weak, many participants' expectations about what can and cannot be achieved, internally or externally, have a tendency to drift away from reality. Accordingly, "educating the opposition" is an important task. Involving them in decision-making committees will tend to correct this situation.

(5) Overload the system. Within an organised anarchy, Cohen and March note, it is a mistake to become absolutely committed to any one project since there are innumerable ways in which the processes will confound the cleverest behaviour with respect to a single proposal, however imaginative or subjectively important. What such organisations cannot do is cope with large numbers of projects. Someone with the habit of producing many proposals, without absolute commitment to any one, may lose any one of them but cannot be stopped on everything.

(6) Provide garbage cans. Since garbage can situations are ones where any choice or decision can provide the opportunity to raise any number of unresolved problems or issues, it is pointless to try to react by attempting to enforce rules of relevance, which are generally somewhat arbitrary. Instead, Cohen and March suggest providing "garbage can topics" to draw the attention of those who wish to raise the extraneous issue and divert these issues away from the topic at hand. The first item on a meeting agenda is suggested as a perfect garbage can.

(7) Manage unobtrusively. As is obvious by now, direct confrontation is unlikely to succeed in a garbage can process. The energy and forces at work in the organisation cannot be suppressed, but they can be redirected to different purposes. Minor actions can produce major effects, although these effects are not perceived by the organisation when the "unimportant" choice to take a minor action is made. Cohen and March point out that the major instruments of unobtrusive management are bureaucratic. For example, if you want to get an organisation used to departments, don't attempt to enforce a formal change. Instead, try changing the format of the accounting reports so that results for different groups are separated out. In time, the groupings will come to be seen as natural. No war will be launched over the format of reports, but the attitudes of the players will be subtly changed. Once this is accomplished the burden of overcoming inertia will be placed on the opposition.

(8) Interpret history. Since most events in organised anarchies are complex and vague, they are subject to various interpretations. (Why did we lose that client? Why are profits down?) He who gets to interpret history gets to influence the future. According to Cohen and March, minutes should be written long enough after the event so as to legitimise the reality of forgetfulness. If you try to write history (in other words, provide the meaning) too soon, opposition will arise, but after a suitable period of time, the "official" history is accepted. By being in command of the written history, the basis can be laid for subsequent independent action in the name of collective action.

The best professional service manager I ever met proceeded in the following way: He never brought an issue to an open forum until he had visited each partner on a one-on-one basis. He listened to their position, reasoned with them in private and framed his proposals for partnership meetings only when this process was completed.

Each person felt consulted and involved, as if he or she had participated in the decision-making process. But the chairman controlled the agenda at meetings and dealt with objections in private. Only when he had discovered what would "sell" did he raise a topic in open debate. Votes on his issues were always unanimous, and issues were not rehashed in public.

There is an art to building consensus. Garbage can situations need leaders who know how to make the organisation work for them rather against them.

As I review the advice Cohen and March provide to leaders of garbage can organisations, I am struck by the analogies between the behaviour they recommend and that exhibited by an astute politician.

It is almost as if they are summarising the tactics a parliamentarian uses in winning support for a bill on Capital Hill. He or she too will win "ownership" of an issue by investing time on behalf of others, persisting, exchanging status for substance (that is, offering co-authorship of a bill), co-opting powerful opponents early on and managing unobtrusively until ready to "go public."

Consensus-based "democracies" are political arenas, whether they are law firms or national assemblies, and the secrets to getting things accomplished are the same. Garbage can leaders in the law could usefully study political biographies (such as Robert Caro's work on Lyndon Johnson), not only for amusement but for sound managerial advice.

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.