Insights Session – Moving Toward the Firm of the Future

At Sage’s partner conference, Insights, I will be presenting a session entitled Moving Toward the Firm of the Future (GEN34) on Thursday at 1:30pm.

In order to begin the conversation even before the conference begins, I am posting the abstract and inviting all possible participants to share their ideas and questions.

Peter Drucker coined the term knowledge worker in the 1950s, but we are only beginning to understand the impact of the transformation on business and society as a whole. This session, delivered by Ed Kless, will walk you through the transformation that you company needs to make from being a professional service firm to becoming a professional knowledge firm. If you are not interested in completely changing the way you look at your business, please do not attend.

Most professional service firms today operate using a variation on the following theoretical equation: Revenue = Capacity X Efficiency X Hourly Billing. This equation is hopelessly flawed in that it confuses causes and effects.

In this session we will create a dialogue around moving to the firm of the future or what I like to call a professional knowledge firm. The theoretical equation for this firm looks like this: Profitability = Intellectual Capital X Effectiveness X Pricing with Purpose.

Specifically, we will have conversations about making the following transitions:

  • From focusing on revenue to focusing on profitability
  • From focusing on capacity to focusing on intellectual capital
  • From focusing on efficiency to focusing on effectiveness
  • From focusing on hourly billing to pricing with purpose

While there are no quick fix answers to any of these transitions, we can begin to lay the foundation for change within our organizations. In order to prepare for our dialogue, please spend some time reading at the VeraSage Institute.

Also, please post thoughts, questions, comments below.

11 thoughts on “Insights Session – Moving Toward the Firm of the Future

  1. Ed, this is definitely a journey we are on to make sure that we are providing the expected value (and more) to our customers and being properly compensated for providing that value.

    I’m glad to have the opportunity to participate in this very valuable discussion. I am confident that the conversations that we have and the people that we meet will make a positive difference in our businesses.

    Cheers,
    Ben

  2. Ed:

    A subset of this, that we are trying to accomplish, is shifting from a focus on the processing elements of the systems we sell and support to the end results of the systems we sell and support. Similar to focusing on our intellectual capital, we also want to focus on the systems intellectual capital. In theory, we should give away the accounting system, and get paid for the deliverable that actually helps improve the business (information, reporting, data warehouse, alerts, etc). Sort of like giving them the cow and charging them for the milk. I clearly don’t have my mind around the concept yet and hope this session can either help me clarify it or totally confuse me.

    Mike Fitzgerald

  3. Thanks, Ben and Mike for your comments. This is a radical journey we are on, but I truly think this must be done in order to survive.

    Both of you are clearly thinking in the right direction. I look forward to having you in the session. In the meantime, if anything specific comes up, please post it here. I think getting the conversation going before Insights could make Insights that much better.

  4. Focusing on hours and time spent on a project completely misses the reason for working on the project in the first place. The customer asked us to provide a result and did not ask to buy some time from us. The customer places value in our knowledge and how effective that knowledge can be in making their business more profitable.

    I think the most important (and most difficult) concept to get our minds around is that almost nothing about what we do is under our control. Not the customers and not the employees. Time sheets simply give the illusion of control and always mask what is really going on with both the customers and the employees. Anyone who thinks they are controlling the customers hasn’t dealt with customers lately. Anyone who thinks they are controlling their employees probably won’t hang on to those knowledge workers (or more precisely, volunteers) for very long….they will simply pick up the means of production (their brains) and walk out the door. I’m not saying that we shouldn’t manage our businesses….I’m saying that we have to completely change the definition of managing our businesses.

    Mike, I agree with you about “giving away” the ERP system. The software is a commodity but our knowledge certainly is not. And to get paid for a deliverable that improves the customer’s business we must also be able to prove how a partnership with us improves their business.

    Ed, there may not be any quick fix answers but there is also no dipping your toe in the water. To paraphrase Peter Block, the answer to how is just do it.

  5. Ed, I’m looking forward to this session. Here at Synergistic, we are undertaking a number of transformations.

    Whereas most VARs delivering SOFTWARE, we are moving our focus entirely to delivering BUSINESS VALUE. This is a radical departure. While many VARs often use language that is reflective of “business value” and “R.O.I.”, they often have on staff few skills and almost no incentive to deliver measurable business value.

    Rather than “selling to the budget,” we are transforming our focus to showing our prospective customers how to derive a budget by first determining the “business value” to be delivered (ala, increased throughput, reduced inventories or demand for new investment, and reduced operating expenses as the business grows). This approach moves the sale from a “commodity” basis to a “value” basis and diminishes the “feature/function” and “price” competition.

    When a sales is made, our consultants are not on site simply “installing what was sold.” Instead, they are present with the specific mission of making the client firm a better, more profitable company because they chose to engage with Synergistic. That means delivering on the promise of increasing throughput, reduced inventory/investment, and growth while holding the line on operating expenses.

    Furthermore, our consultants are not there just to “train the staff.” We become actively involved in helping our clients transform their own business processes for improvement. No more automating of bad processes to help our clients do stupid things faster and at lower costs.

    As part of this approach, we do NOT seek stakeholders’ approval. Instead, we are interested in achieving stakeholders’ no-holds-barred buy-in to the new and improved organization we are helping our client deliver for their own success.

    And last, we don’t just “gather requirements.” We let the client know from before day-one that as we move forward in the project their own VALUE PROPOSITION will change. The project is not and will not be a “straight line” from point-of-purchase to go-live, and the reason it will not be a straight line is because, as we move together through the process, the organization will be changing. The organization will be growing and changing partly due to the project itself and partly due to forces in the market and elsewhere. The transformation will cause them the see opportunities that the do not even perceive today and will, likewise, probably diminish the value of certain things that they probably see as vital at this moment.

    Therefore, we tell them that we will work with them — working closely to adapt and adjust based on user feedback throughout the course of the project. These incremental adjustments will change goals, costs and maybe even the duration of the project, but will also help assure that OPTIMUM BUSINESS VALUE is delivered on go-live day.

    So, we’re anxious to see what you have to say, Ed.

  6. I’m going to be a little “off message” here.
    1)I definitely agree that focusing on results and the value of them is key to significant success. However, I think 10 years from now, 80% of the SMB backoffice industry will still be largely T&M based.
    There are two obstacles I see:
    2)While most of us can figure out how to do a reaonable ROI/Value analysis for a new implementation, it is much, much harder to figure out how do this for ongoing maintenance.
    3)The Elephant In The Room: except for contingency-based legal work (“ambulance chasers”) I cannot find another industry that successfully gets its customers to think of “value” of the service instead of the cost. In autos, once you get away from a comprehensive 3-yr warranty, it’s still T&M based. Except for building a new house, repairs there are fixed price, but the value is easy to find, as the buyer has a clear image of the result in mind, and the dangers of going cheap are littered through the BBB archives.

    The key hurdle I see to successfully concentrating on this approach is Marketing and Sales: when start talking about our work differently from others, most propects start to hide their wallet because they sense this will cost them more than they COULD pay with somebody else.

    SO I am particularly interested in learning how other Professional Knowledge Firms WHO SELL TO COMPANIES WITH REV < $50M, deal with changing the expectations and demands of the customer.

    I look forward to another interesting dialog (not a “discussion”) in a Kless Graduate Seminar!

  7. Thanks for the comment Jerry. It is funny on point 2) I hear the exact opposite from many partners. That is, “I can fixed price on-going support, but new implementations, no way.”

    Prospects will not hide their wallet if you explain you intention, which is, of course, to discover value so that the prospect can make the best possible decision.

  8. Ed,
    Your comment makes my point, I think. I wasn’t talking about our COST of the project/support, or whether we can set a price that covers these costs.
    I was talking about the customer’s perception of VALUE for the resulting “product.” So, implementing a new system is going to meet some specified goal, which are not too hard to hang $$ on. For example, we could know that by controlling their inventory better than now, they will lower COGS by 4 pts ($400k/yr on a $10MM firm), so the payback on $70k system is huge. But addressing the value of support is not as obvious; THAT is where it is hard to remind them that 3 years ago they agreed that 30% annual m&S (Sage + VAR) was a reasonable investment to keep it all working toward that payoff.
    So, it is how we can better get the customers to see the value – a marketing question – that I am especially interested in. Especially getting started.
    It will be a great class, I’m sure.

  9. Jerry, thanks again for your comments. As I am not sure if I will get to address service level agreements in this session, I appreciate the opportunity to answer you here.

    IMHO, the value a customers sees is primarily in the ability to access you if they need you. This is why I advocate a fixed fee service level agreement with a guaranteed response time. There are other elements, but a customer who wants access to you within a four hour window should be willing to pay something for that privilege, say $1,000 a year.

    For that, the get unlimited access (i.e., calls), however each call will be a diagnosis. In some cases, you will tell them they need to restore from backup (no extra fee). If however, they need you to do the restore and check the integrity of the data, you would put another fixed price on that.

    This is a 30,000 foot overview, but I think you get the idea. Perhaps some bar conversation will be in order.

    Take care.

  10. Ed, Looking forward to the “throw out the timesheet” discussion to come in your session. I didn’t think I would ever say this, but I think you are right about timesheets( I owe you a beer). We have started the journey. PS the “VegaSage Institute” is excellent reading
    Signed: Convert to value pricing

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