Chief value officer: no firm should be without one.
Really? What about the economists' "tragedy of the commons:" if everyone owns something, no one does. Therefore, no one has an incentive to protect and maintain the value of the asset in question.
GRADING YOUR PRICERS
Engage in this experiment: Grade the individuals in your firm on their pricing skill as excellent, mediocre or wimps.
Given that pricing is the No. 1 driver of profitability in a professional service firm, why are people who are mediocre--or wimpy--allowed to price? Just because they're partners? If I'm a lousy auditor, you wouldn't let me near an audit engagement. So, why let your sub-optimal pricers continue to handicap your firm's profitability with bad pricing?
Pricing is a policy, and for it to be effective someone needs to own the value and pricing functions, taking responsibility for creating and capturing value. Who is in charge of these functions in your firm?
THE WORLD'S FIRST CVO
If you worked at Ward Wilson, a four-office, 10 partner, 100-team member firm in Invercargill, New Zealand, your answer would be Brendon Harrex, who recently was appointed chief value officer and made responsible for creating and capturing value across the firm.
Harrex, 31, is the youngest partner in the firm and a visionary, who brings leadership to his firm and to our profession. He understands the significance of his appointment and realizes it will change the way accountants think of value and pricing for posterity.
A recent McKinsey study demonstrated that a 1 percent improvement in pricing results in a nearly 12 percent increase in net income, dwarfing what can be achieved with a similar 1 percent improvement in reducing fixed or variable costs, or increasing volume (you can excel at rain-making, but if you bring in that additional work at the wrong price you are simply adding layers of mediocrity to your firm). Other studies put this 12 percent at a 20 percent to 50 percent increase in the bottom line, depending on the industry.
Many Fortune 500 companies understand this and have a director of pricing who oversees a pricing department. UPS has approximately 200 pricers, while Honeywell has 150. These organizations realize they can only cut costs, re-engineer and implement TQM and Six-Sigma programs to a certain point. By focusing on creating value, and then capturing it through more intelligent pricing, they are realizing large returns for their investment.
MORE VALUE, NO TIMESHEETS
Jayme Schneider, an accountant with Easdown & Partners in Wagga Wagga, New South Wales, Australia, recently was appointed CVO for this five partner, 24-team member firm. At 27, Schneider has the same responsibilities and accountability as her counterpart Harrex: implementing a value pricing culture--and doing away with the timesheet.
Hourly billing is dead. Easdown & Partners will eliminate timesheets as of July 1, 2005, while Ward Wilson will eliminate them Nov. 1, 2005, joining some 300 other pioneering firms around the world that have trashed this antiquated measurement device.
Hourly rates and timesheets are internal looking metrics that have nothing to do with the external value created for the customer. They don't measure what's important to the customer. Do you care how long it took General Motors to build your car?
Timesheets don't measure knowledge workers on the most important characteristics of being a professional--interpersonal skills, passion, motivation, innovation, creativity, risk-taking and pride.
These traits do not show up on a firm's financial statement or timesheet, but they will determine the fate of the firm.
WE GET WHAT WE MEASURE
Isn't it time we measure what we want to become? No accountant entered the profession to bill the most hours. Unless someone in your firm owns the value function, it will not get the proper attention, respect and resources it deserves.
Harrex and Schneider, as CVOs, are eyeing a future where value is determined by customers, not by historical costs, efforts and hours billed.
So, who's in charge of value in your firm?
Ron Baker is founder of the VeraSage Institute; author of Professional's Guide to Value Pricing, Sixth Edition and The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services; and an instructor for the California CPA Education Foundation. You can reach him at (707) 769-0965 or Ron@verasage.com.
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|Title Annotation:||PRACTICE MANAGEMENT|
|Date:||Jun 1, 2005|
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