Someone recently asked me which were the best business books I read last year. Since we here at VeraSage are inveterate readers, I’d love to know your best books from last year.
Tom Hood recently posted his, so I thought I’d share my Baker’s Dozen.
Some of these books I’ve already reviewed elsewhere, so will limit my remarks to books not previously discussed.
I’ve also noted my absolute Top Choices, so if you only read a few from this list, start with these.
Also, as always, you can access my shelf at shelfari.com for my complete library, my Top 100 Best Business Books of all time (see tag “bbb” underneath the shelf).
He was called “America’s Merchant Prince,” and “the melancholy Plato of retailing.” I consider Stanley Marcus the grandfather of Total Quality Service.
Here’s a man who understood the value of each and every customer, long before CRM and Lifetime Value became management fads.
The founders of Neiman Marcus also certainly understood their “Why” (see Simon Sinek’s Start with Why).
Stanley wrote four books during his lifetime, but this is one of the only ones I’ve seen written about him by an insider, Thomas E. Alexander, who met Stanley in 1965 and served nearly 20 years as his executive vice president of marketing.
This was an incredibly demanding job, since Marcus was the consummate marketer, and many previous men failed in this role. Alexander obviously did something right that made Marcus keep him around that long.
Alexander gives you an insider’s view of the famous Neiman Marcus Fortnights, a Dallas institution until they were discontinued in 1986.
There are many fantastic pictures and other inside stories of how Marcus conducted business, treated customers, his team, and foreign government officials. Many of the pictures come from the Stanley Marcus Collection at South Methodist University, DeGolyer Library.
You’ll read about the first out-of-state store in Bal Harbour, Florida, opened in January 1971, and also the controversy of the San Francisco store opening at Union Square.
The columnist Herb Caen was an vocal critic of Neiman Marcus opening there, and the irony was that Stanely Marcus was farther to the left than Caen ever dreamed of being.
One very amusing anecdote about Marcus are the two things that exceeded his expectations, which were very high. One was Sophia Loren, and the other was the Bohemian Grove in San Francisco.
In the final chapter, “Saying Goodbye,” Alexander tells of Marcus, age 95, reflecting: “Without change, there is no challenge, and without challenge there is only the status quo but no progress.”
Wise words. Stanley Marcus was an amazing man, and his story is compelling on many levels. This book adds another dimension to a man who has left an indelible legacy on the culture. Well worth reading after you read Marcus’s own, Minding the Store, the best book ever written on customer service.
Top Choice: Howard Hansen and Steven Geske. Healing Leadership. [Kindle Edition only].
I had the honor of writing the foreword to this book, but it doesn’t change the fact that this book had a profound influence of my thinking. Here is an excerpt from that foreword:
They say any writer should be able to sum up the purpose of their book on the back of a business card. I can do that for this book by using another author’s book:
The colossal misunderstanding of our time is the assumption that insight will work with people who are unmotivated to change. If you want your child, spouse, client, or boss to shape up, stay connected while changing yourself rather than trying to fix them.
Healing Leadership takes a totally different approach, and one that is not very comfortable for those of us used to reading business books. How many books on leadership have you read where the central message is you can’t succeed at affecting change in the people you lead? That you need to get out of the business of needing others to change? The authors even admit they won’t get rich by dispensing this type of advice.
Rather than assaulting the reader with endless platitudes and checklists of “do this and don’t do that,” this book advocates a “way of being,” recognizing that leadership is an emotional process, not a mechanistic science that treats humans like machines.
You are about to explore some very profound, powerful, and simple concepts. But please don’t confuse simple with simplistic. Virtuoso bass player, accomplished pianist, bandleader, and composer Charles Mingus said: “Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that’s creativity.”
Three creative concepts from Healing Leadership have permanently altered not only my worldview, but my behavior. The authors present the “Energy Management Model,” which teaches how we could have greater success in achieving our goals if we tried not so much to control time—an impossibility, as it is outside us—and instead tried to control energy—eminently possible, as it is within us.
You’ll learn the difference between episodic and chronic anxiety, along with the 10 telltale signs of someone who is chronically anxious, and what to do about it.
Finally, the concept of Emotional Triangles—what the authors call “the weather of human relationships.” This framework ties everything in the book together, while offering an enormously effective way to lower your anxiety. After reading about Emotional Triangles you’ll wish you had understood them in elementary school.
But don’t confuse simple with easy. These frameworks are very counterintuitive, and they will no doubt cause some confusion. Don’t despair. That’s a leading indicator that your understanding is deepening. You simply must wrestle with the concepts in this book if you want to achieve real change—transformations that will truly make a difference in your life.
One of my favorite definitions of the role of leaders comes from business consultant Peter Block: “The real task of leadership is to confront people with their freedom.” In Healing Leadership, Steven and Howard do exactly this. It’s not comfortable, it’s vexing, and it goes against everything you were taught in business school. The difference is: it works.
John Kay is an economist who has written many books I highly recommend. He does a good job blending economic theory with business strategy.
This book is all about obliquity, which he defines as “Goals are often best achieved without intending them.” Achieving complex objectives indirectly rather than directly. The real world isn’t like Sudoku, where you can arrive at your objective directly.
Citing many different examples of this concept, Kay does an excellent job of applying it to business. A couple of example of the obliquity route: cities. Jane Jacobs despised the urban planners who believe they can directly create a great city. Great cities flourish when they are unplanned, which leads to creativity.
Creating shareholder value (which Jack Welch called one of the dumbest ideas) is an example of a direct objective, but it’s obtained indirectly by creating great products (think Apple). No one works to maximize shareholder value.
We do so more in line with Simon Sinek’s Start With Why. Kay does a good job dispelling the notion that business is based on greed: “A corporate culture that extols greed cannot, in the end, protect itself against its own employees.”
He talks about how measurements can cloud judgment. Using [Benjamin] “Franklin’s Rule” (drawing up a list of Pro and Con to make rational decisions), Kay illustrates that real decisions aren’t made this way—though we think they should be.
Robert McNamara’s tragic management of the Vietnam war by the numbers illustrates the flaw in this thinking.
Kay also discusses the “teleological fallacy,” which infers causes from outcomes, and how it’s one of the oldest mistakes people make. Today we call it the Halo Effect.
Kay explains why business autobiographers can describe their success, but not explain it. Sort of like John Paul Getty’s advice: “Strike oil.”
Kay also explains why it’s more important to be right rather than consistent (unlike, say, in legal matters, where precedent is more important).
Numbers give a false sense of precision and it’s no way to build a great business. Think Six Sigma when Kay writes: “The process in which well-defined and prioritized objectives are broken down into specific states and actions whose progress can be monitored and measured is not the reality of how people find fulfillment in their lives, create great art, establish great societies or build good businesses.”
I met Tim Smith at the Professional Pricing Society conference in Chicago in April 2011. He told me he read my book (Pricing on Purpose) while in Prague, which kept him from getting into trouble...LOL.
He does cite my book in his, as a justification for pricing discrimination. Although this book is more like a textbook, and is very quantitative, it’s still very readable and enjoyable.
He’s got plenty of thought-provoking exercises (there’s a companion workbook for this text). Smith understands that pricing is not just about the numbers; that it’s more art than science, but he does discuss both, and even has a chapter on behavioral economics.
Overall, this book needs to be in every serious pricer’s library.
This book is also good, with three major themes: 1) Transforming your company; 2) shaking up your industry; and 3) challenging yourself.
A lot of it is profiles of change agents from a wide swath of sectors, some of whom you’ll find fascinating. Most change fails because it focuses too much on what’s wrong while undervaluing what’s right.
The book advises not to benchmark your competitors for new ideas (stop looking in the same places) and gather as many “zero-gravity” thinkers as you can—folks who are not weighed down by the baggage of industry expertise.
Taylor also understands the importance of a company’s “Why” or purpose, and provides many thought-provoking examples and research supporting this concept.
He’s wrong about the housing crisis at the start of the book, but other than that, this is good journalism, along with some important lessons. If you enjoy reading about entrepreneurs and change agents, this is well written and very interesting.
This is a great book by a former Swiss Guard, who are charged with guarding the Vatican.
Adreas Wedmer spent two years (1986-88) in his early 20s guarding Pope John Paul II, and this book discusses the leadership lessons he learned, which helped him become a successful entrepreneur.
He met Ronald Reagan at the Vatican in June, 1987, two days before Reagan delivered his “Tear down this wall” speech in Berlin. There’s a great discussion of ethics in the book, with the point being made that utilitarianism is the framework behind pornography.
Also, how firms are not moral agents because they have no soul. Hence, a person-centric framework is what the Pope espoused. Other lessons from the Pope apply to business as well, since business and faith go together.
I found the inside look at the Swiss Guards fascinating. A very worthwhile read.
This is an incredibly deep book, which contains a wonderful idea: Management is really a liberal art—not a science or a profession—and should be a humanities discipline.
This would lead to a more humane and moral society. The idea that business is a science has always seemed strange to me, since we are dealing with human beings, not machines. This is an idea Matthew Stewart discusses in his excellent book, The Management Myth.
A liberal art is defined more by what it’s not: vocational training. Its purpose is to educate citizens to be society’s leaders, by emphasizing judgments and values.
Drucker first mentioned this idea in 1988, but he didn’t clearly define it. The two authors of this book both knew Drucker personally, and they are scholars, one from business and the other a historian.
They have researched all of Drucker’s writings on this link between liberal arts and management, shedding light on how this could be accomplished.
Drucker defined himself as a social ecologist—someone who creates and maintains a society of functioning organizations that anticipate change, and manage both continuities and discontinuities.
The book is a deep look at which philosophers, political scientists, economists, and other thinkers influenced Drucker’s worldview. It discusses his concept of the knowledge economy and knowledge workers. It’s a bit long, but still a very worthwhile read.
I now believe society would be better off closing its business schools and folding them back into the humanities. On average, I rather be led by someone with a liberal arts degree than an MBA.
Why do we build such beautiful bridges, such as the Golden Gate? After all, the military build utilitarian bridges all the time, capable of handling extreme loads. It’s costly to achieve the aesthetic appeal of the Golden Gate, so why bother, especially since the Bay Bridge right across the way does the job just as well without the flocks of visitors or suicide jumpers.
The premise of Inder Sidhu in this book is you can do both most of the time. He’s a veteran of Cisco, the 1984 startup that is now the 14th most valuable brand in the world, according in Intrabrand, and part of the Dow Jones Industrial Average.
This book was recommended to me by a colleague who suggested it would shed light on the “efficiency vs. effectiveness” that we have been engaged in over at VeraSage for years. It didn’t really help settle that issue, but actually reinforced the view that effectiveness everywhere and always trumps efficiency. But it’s an interesting book nonetheless.
Doing both is not a balanced compromise between two objectives but rather a mutually reinforcing multiplier. Each chapter provides an example in broad categories, such as:
Sustaining and Disruptive Innovations. A company doesn’t have to choose between one or the other, but should strive for both.
Multiple business models. Cisco embraces new business models either by acquisition or internal development. This is not easy, but it’s often necessary in order to capture new markets and not be cannibalized. Software as a Service and Subscription based pricing, as with WebEx, are examples of how they have changed their business model.
From volume to value with partners. Cisco evaluates its 55,000 partners not based on volume, but on value contributed—new customers, solving difficult technical problems, entering new vertical markets, etc. Rather than just providing discounts that can be used by bigger partners against smaller ones, Cisco changed the criteria to evaluating value, a great idea.
Excellence and Relevance. “By zeroing in on what matters most to customers, Cisco became excellent by focusing on customer pain points. But it became relevant by moving from customer frustrations to their aspirations.”
Superstars and winning teams. You can have both in your company. I think this one is tougher to achieve than the author leads us to believe.
Westpoint and Woodstock. This deals with the governance model of authoritative vs. democratic leadership. Cisco has both types, and it is a very interesting model, including councils, boards and working groups for decentralized management, and the traditional functions, geography and countries for centralized management. This has potential for professional firms as well.
Overall, this is a short book and a good read. But I still remain convinced that efficiency and effectiveness cannot be “balanced” as they are different things, and this book supports that view.
Honorary Mentions
Two of my VeraSage colleagues wrote books that I read in 2011.
Even with all my bias, this is a fantastic book—a concentrated, yet cogent, look at how professional knowledge firms can position themselves based upon value creation.
Tim dispels many myths in this work, from size being the path to profit, and why going broad is not really as profitable as going narrow.
Tim also takes on “commodity” thinking, debunking this myth as well. As he writes, “Service is a commodity. Smart thinking is not.”
If you are a leader of a PKF, you will profit immensely from Tim’s intellectual capital on how to position and differentiate your firm. As Tim argues persuasively, this is the only way to capture more of the value you create and command premium pricing. A fantastic read.
This is an excellent guide to everything an employer needs to know in protecting its legal rights, and avoiding costly litigation and other legal issues. Written beautifully, and very non-lawyerly, it’s easily accessible to everyone. You will get the benefit of Jay’s 17 years of practicing law on the management side. Indispensable. (Ignore the foreword).
Nearly ten articles have been published on Holland & Knight’s Lobby Division saying bye-bye to the billable hour.
Actually, they are saying bye-bye to timesheets, as most of the revenue from H&K’s lobbying group was already on a fixed-price basis.
The first article was in Politico on December 13th. It quoted Rich Gold, head of H&K’s public policy and regulation group:
I think if you look out 10 years, this will be a very large trend...and we could either lead or follow.
Our favorite line from this article is from Ivan Adler, a headhunter with the McCormick Group:
This has the potential to be a real game breaker in law firm recruiting because it opens up a new vein of talented folks who have previously shunned law firms like a fruitcake at a Christmas buffet because of the billable hour.
Another telling fact from the article is:
Several former aides-turned-lobbyists said they opted for consulting firms and lobby shops over law firms for two reasons: Nonlawyers are treated like second-class citizens at firms, and they didn’t want to have to keep track of their time.
One of the issues that must be addressed when moving away from timesheets is how will the firm allocate revenue per person going forward if there are no timesheets.
Another article, dated December 14th, from The Washington Post explains how H&K will account for revenue:
Now, instead of billing hours to a matter, Holland & Knight will allocate upfront a portion of the monthly or yearly retainer to each individual working on the matter, based on estimates of how much they’ve charged in the past.
Ed Kless and I were privileged to be involved with H&K’s transition, working with Rich, Friedrich Blase, and several other partners from the PPRG group.
The group innovated the “Client Value Share” KPI. Since the price to the customer is already fixed, this KPI is a way to allocate, prospectively, that value amongst the team members who will work on the matter.
The beauty of this KPI is it forces the team to collaborate, upfront, on who will handle what, and decide what the value contribution will be from each person.
Someone may bring incredible value to the engagement but have relatively low billable hours. The CVS KPI will now account for that discrepancy.
And since the CVS is decided upfront, there will be less conflict regarding write-downs and allocations that are a normal part of the timesheet culture.
If someone on the team doesn’t pull her weight, the CVS can be adjusted, and reasonable people should be able to agree on that process.
This is a momentous change within the culture of H&K, and we applaud the vision, leadership, and courage of Rich, Friedrich, and the other partners, who understand what an enormous competitive advantage this will bring to the firm’s ability to attract top talent, while providing a better level of service to its customers.
It is one more data point that the naysayers, who believe it’s not possible for a law firm to eliminate timesheets, will have to contend with.
Dan Morris and I will be conducting the Sole Proprietor’s Retreat this December 9-10 for the California CPA Education Foundation. This 1.5 day program was designed as a way to give sole props the opportunity to have a retreat with their peers, since they don’t have partners.
It was a predecessor program to the Firm of the Future Symposium, but designed specifically for sole props and all the issues they face.
Ric Payne has agreed to offer a 12-month membership to the Principa Alliance, which provides access to its Practice System (a $1,295 value).
If anyone is interested, don’t hesitate to contact me, or Dan. We always limit the participation to 7-12 to make the group more intimate.
Also, if you could help spread the word that would be much appreciated.
I am thrilled to announce that Ron Baker and I will be conducting four Sage Firm of the Future Symposia in 2012. The dates are:
March 20-21 in Toronto, ON
April 24-25 in Irvine, CA
May 23-24 in Vancouver, BC
July 17-18 in Boston, MA
The symposium will feature Ron and myself and is dedicated to the possibility that a professional organization can be run more effectively when it becomes a knowledge firm rather than a service firm. Creating such an organization is hard work and not for everyone as it requires partners to think differently than they have in the past about what it is that they do.
If you are interested visit sageu.com, and navigate to Academies and Bootcamps > Mid Market ERP. Not a Sage partner, but still want to attend? Email me and I can get you registered. The price is $2,500 per person and comes with a 100 percent money-back guarantee.
Today’s HSD (high satisfaction day) comes from this interview I did with Sage Simply Accounting partner Carol-Ann Brouwer of Simply Made Simple.
Carol-Ann attended a workshop on Firm of the Future in October 2010 and in one year has completely transformed into a Firm of the Future. In this year alone she doubled her income. Yes, I said doubled!
Get this, one of the first things she did was trash the timesheet!
I’ve long been a fan of Michael Gerber’s E-Myth book. His concept of working “on” the business rather than “in” the business was a major theme of the Accountant’s Boot Camp, developed by my good friends Paul Dunn and Ric Payne.
So when I learned that Darren Root co-authored The E-Myth Accountant with Gerber, and especially since I was presenting with Darren at the Sage Summit, I was looking forward to reading their views on what Darren calls The Next Generation Accounting Firm™. The Firm of the Future is a topic near and dear to my, and VeraSage’s collective, heart, and I was looking forward to learning another perspective.
Areas of Agreement
There is a lot of good advice in this book with which I agree. Here is a bullet point summary of some of their better recommendations, most of which come from the chapters that Darren Root wrote:
Darren asks a good question: “How did the accounting profession become a mass of technicians and very few business leaders?” David Maister’s book, True Professionalism, is necessary reading to overcome this.
Firms engage in mass client acquisition, whether or not they are a good fit for the firm. We call this the market-share myth, a form of cancer (growth for the sake of growth). It leads to incredibly weak pricing power.
Same as above with offering too many services, which Darren argues keep CPAs at the technician level as well. The debate between the specialist and generalist is over—the specialist won. This video from the late Paul O’Byrne illustrates this very effectively.
Darren writes:
It’s time to trust your people, let go, and give yourself the opportunity to work on your practice...not in it.
Good point. Follow this path to its logical conclusion: it leads to scrapping timesheets and implementing a Results-Only Work Environment (ROWE).
It’s hard to disagree with this:
The old business model has long been to sell billable hours. Instead of selling billable hours, your firm sells complete solutions. If your goal is to get off the proverbial hamster wheel and build a business, it is critical to abandon the billable-hour model and adopt value billing [sic—he means value pricing].
Darren believes that accountants are finally starting to hear the value pricing message, and I hope he’s right. He says that hourly billing doesn’t take into account efficiency or new technologies.
However, that’s not the major weakness of the billable hour. It’s Achilles heel is it doesn’t take into account customer value, and is based upon an incorrect theory of value.
In a chapter written by Gerber ("On the Subject of Clients"), he discusses how to deal with client dissatisfaction with a 7-step process. What’s missing, though, is the recommendation that firms offer a guarantee to all customers.
Darren suggests spending a good portion of your marketing budget geared toward strengthening existing client relationships. Indeed. As the AICPA pointed out years ago, it costs eleven times more to acquire a customer than to retain one.
The Gap
For as many topics as we agree on above, I’m afraid the chasm that exists between my vision of the Firm of the Future and the one laid out in this book is simply irreconcilable.
But as with most disagreements, this is more a conflict of visions rather than a disagreement about facts. I’m reminded of what Blaise Pascal wrote in Pensees:
When we wish to reprove with profit, and show another that he is mistaken, we must observe on what side he looks at the thing, for it is usually true on that side, and to admit to him that truth, but to discover to him the side whereon it is false. He is pleased with this, for he perceives that he was not mistaken, and that he only failed to look on all sides.
The side the authors are coming from is to build the McDonald’s of professional firms, by laying out a path for creating “a highly efficient money-making practice.”
Yet a glaring omission from this work is any mention of the knowledge economy, or knowledge workers. This is the dimension the book ignores completely.
A professional knowledge firm isn’t McDonald’s, nor should it be. This example of Gerber’s has always irritated me, but it is particularly egregious in a book for professionals.
This is where the author’s analogies to the importance of systems break down in a knowledge economy. Gerber posits “The People Law: without a systematic way of doing business, people are more often a liability than an asset.”
This is strange statement, given that 75% of the world’s wealth resides in human capital, according to the World Bank.
The prominence given to the “system” over people is redolent of Frederick Taylor, who wrote:
In the past the man has been first; in the future the system must be first.
What made the traditional workforce productive was the system—whether it was Frederick Winslow Taylor’s “one best way,” Henry Ford’s assembly line, or Ed Deming’s Total Quality Management. The system embodies the knowledge. The system is productive because it enables individual workers to perform without much knowledge or skill....In a knowledge-based organization, however, it is the individual worker’s productivity that makes the system productive. In a traditional workforce, the worker serves the system; in a knowledge workforce the system must serve the worker.
Yes, knowledge workers will create their own systems. That’s the point. Two surgeons will not perform an operation the same way. Even two barbers won’t cut hair the same way (nor would we want them to).
This is why Steve Jobs says:
The system [at Apple] is that there is no system. That doesn’t mean we don’t have a process.
Sure, there are things that can be turned into a repeatable process, but the value in knowledge work lies in where there is applied judgment, creativity, and wisdom. And you simply can’t systemized those virtues. Indeed, if you try—with Six-Sigma, Lean, etc.—you kill them.
The better solution is to capture the knowledge that is tacit in those unique ways of doing things so the knowledge can be spread across the firm. Yet any discussion of knowledge management and capture is missing from this book.
The authors also seem to think that the systems should only be designed by the firm’s owners, rather than its workers—this is a large part of working “on” the business rather than “in” it.
But to borrow from Steve Jobs again, does it really make sense to hire smart people and then tell them what to do? Apple hires smart people so they can tell Apple what to do. Welcome to the knowledge era.
The idea that all the intelligence rests with management didn’t work in Frederick Taylor’s industrial era and it certainly doesn’t work in a knowledge economy. Worse, you cannot inspire creative knowledge workers by spouting Taylor’s efficiency mantra.
Today, knowledge workers are the system, which means they have to have a hand is designing it. Even auto manufacturers understand that those closest to the work are the ones who can improve it the most. See Toyota.
Yet the cult of efficiency is worshipped throughout the book, even though Darren quotes Steven Covey:
If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.
Nowhere is the recognition that there’s nothing more wasteful than being efficient at doing something that shouldn’t be done at all. Or that efficiency—and technology—are mere table stakes, not a competitive advantage, since your competition can easily replicate those gains.
Darren even suggests you identify those services you do best, which he defines as being able to perform with a high level of efficiency. But surely you should identify those services that you can perform most effectively—better yet, efficaciously—and that create the highest value.
If there’s that much efficiency to be gained, they are probably low-value services that should be outsourced (see the Stan Shih Smile Curve).
The same error is made when he claims the major factor driving realization is the existence of proper systems and processes. But this is incorrect. Price drives profit more than any other factor.
Further, he writes that his firm’s realization is over 100%, but that just means he’s still comparing price to hours x rate; it has nothing whatsoever to do with pricing commensurate with value, as he claims.
He also proclaims he’s not a proponent of throwing away timesheets, since they can catch scope creep, measure efficiency, benchmark against other firms, and allow him to manage what he can measure.
These are weak arguments for timesheets. If you’re catching scope creep from timesheets, it’s way too late to price it—you’re billing and ducking in arrears at that point, and by the hour. Project management is far more effective.
And the idea that timesheets measure the efficiency of a knowledge worker has been well destroyed in all of my books. This is illusion of control and one of the seven moral hazards of measurement.
This defense of timesheets is particularly amusing when compared to what he writes toward the end of the book:
Remember: Just because you’ve always done things in a certain way doesn’t mean you have to continue that tradition. If it’s not working, it’s not working. Abandon the old and make way for the new.
Except, of course, when it comes to the ancient tradition of maintaining timesheets.
Also, towards the end of the book, Gerber explains that Time is not money; time is life. If true, then why are we dividing a firm’s revenues and costs by life?
[And even if you still believe the old canard that time is money, all that means is we are dividing cost by cost if we use the hourly metric system].
There are other major areas of disagreement with the book. Their concept of a firm’s vision is too focused on what and how, not why. It’s far more effective to develop your firm’s why, letting that drive your what and how, consistent with Simon Sinek’s TED talk, and book Start With Why.
Gerber posits that there are six types of clients around which your entire marketing strategy must be based. But I find this unconvincing, and it could benefit from Occam’s Razor. Asking customers about their expectations would be more effective. Also, innovation is the firm’s job, as customers don’t innovate, they iterate.
Then Darren writes that clients are a firm’s greatest assets. But customers are not owned by firms, anymore than human capital is owned. Speaking of them as assets is inhumane and demoralizing.
The book does not contain any endnotes, a bibliography, or index. Outside of the few books and authors mentioned, it would be helpful if the authors shared the books that have shaped their thinking.
In conclusion, if you read this book, do so with this caveat: the book’s gap of not discussing the knowledge economy is simply too wide for me to overcome. It overshadows everything they write, and the logic traps them into the cult of efficiency rather than one of creating value.
We no longer live in an industrial economy where the talisman is Frederick Taylor’s enigma of efficiency and the “one best way.” A PKF is a human relationships-based entity, not a factory.
On the positive side, now that I’ve met Darren, there’s an opportunity for ongoing dialogue. If all goes well, we’ll get him to trash his timesheets someday.
OK, not exactly, but if there were such a designation, today would be the day.
This is the Gospel read in all Roman Catholic Churches throughout the world.
Matthew 20
The Parable of the Workers in the Vineyard
1 “For the kingdom of heaven is like a landowner who went out early in the morning to hire workers for his vineyard. 2 He agreed to pay them a denarius for the day and sent them into his vineyard.
3 “About nine in the morning he went out and saw others standing in the marketplace doing nothing. 4 He told them, ‘You also go and work in my vineyard, and I will pay you whatever is right.’ 5 So they went.
“He went out again about noon and about three in the afternoon and did the same thing.6 About five in the afternoon he went out and found still others standing around. He asked them, ‘Why have you been standing here all day long doing nothing?’
7 “‘Because no one has hired us,’ they answered. “He said to them, ‘You also go and work in my vineyard.’
8 “When evening came, the owner of the vineyard said to his foreman, ‘Call the workers and pay them their wages, beginning with the last ones hired and going on to the first.’
9 “The workers who were hired about five in the afternoon came and each received a denarius. 10 So when those came who were hired first, they expected to receive more. But each one of them also received a denarius. 11 When they received it, they began to grumble against the landowner. 12 ‘These who were hired last worked only one hour,’ they said, ‘and you have made them equal to us who have borne the burden of the work and the heat of the day.’
13 “But he answered one of them, ‘I am not being unfair to you, friend. Didn’t you agree to work for a denarius? 14 Take your pay and go. I want to give the one who was hired last the same as I gave you. 15 Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?’
16 “So the last will be first, and the first will be last.”
Most interpret this as demonstrating the generous nature of God (which it certainly is), but adding an assumption (which is clearly NOT in the text) offers a more economic exegesis.
Perhaps the owner of the vineyard believed there to be a frost coming that evening which would destroy the unharvested grapes. This would make the grapes gathered later in the day of much greater value to him. Value is subjective!
What I find fascinating is that it is one of the few economics lessons in the Christian Bible - only appearing in the Gospel of Matthew. It is clearly a refutation of Marx’ Labor Theory of Value written 18 centuries early. Lastly, it is certainly classically liberal in that the owner is free to do with his money as he sees fit.
On December 21, 2006, my mentor, George Gilder, wrote on his blog about the last time he saw Peter Drucker live. It is such a profound piece that goes to the heart of how accounting is becoming increasingly irrelevant to the spirit of enterprise, it is worth quoting in full:
The last time I saw Peter Drucker, he was keynoting a Forbes conference in Seattle for CEOs. In the auditorium at the International Trade Center next to the bay, they had wheeled out the great man to the middle of the stage in a great fluffy easy chair.
Close to 90 years old—at the end of the previous century gazing toward the next—he was the numinous name and Delphic presence at the conference. Everyone leaned forward to hear what he had to say.
Then a gasp shook the rows of CEOs. The conference management stood there stricken, unable to move: “For the Love of Malcolm’s motorcycle...What is this?” The CEOs sat popeyed.
The hoary sage’s balding pate flopped back in the chair as if he had fallen asleep...or worse.
Perhaps Forbes had erred in staking a major conference on an aging guru seemingly well over the hill and in parlous health.
Then his entire body fell forward. I was ready to run up to catch him if he should tumble toward the crowd. But he somehow caught himself. His eyes opened, and he looked out intently at the throng of CEOs. Everyone sighed with relief. He was awake. He had their attention.
Drucker growled: “I have just one thing to tell you today. Just one thing...”
Wow, I said to myself, it better be good.
“Noone,” he continued, “but noone in your company, knows less about your business than your See Eff Oh.”
Huh?
This was the era of the heroic Chief Financial Officer (CFO). Scott Sullivan of Worldcom, Andy Fastow of Enron, clever, inventive folk like that.
You remember them. Across the country, CFOs were in the saddle. CEOs would not move without consulting them.
What could Drucker have meant?
He was stating law number one of the Telecosm.
Knowledge is about the past. Entrepreneurship is about the future.
CFOs deal with past numbers. By the time they get them all parsed and pinned down, the numbers are often wrong. In effect, CFOs are trying to steer companies by peering into the rearview mirror. Past numbers do not have anything much to do with future numbers.
Moreover, CFOs tend to focus on internal problems. But most internal problems cannot be solved internally.
Determining business outcomes are decisions made by customers and investors and both are outside the company and not directly managed by the company. Their views can change in an instant, casting all the existing numbers into oblivion.
To reach customers and investors takes outside vision and leadership, not internal problem solving.
Tech companies should not try to solve problems. Solving problems sounds good, but it is a loser. You end up feeding your failures, starving your strengths and achieving costly mediocrity.
Don’t solve problems—that’s the CFO’s forte and pitfall. Pursue opportunities.
A Deteriorating Paradigm
Approximately 70% of the average company’s value cannot be explained by traditional GAAP financial statements.
Adding more arcane and picayune rules to GAAP, or converging existing GAAP with international accounting standards, will not solve this problem.
The accounting model is suffering from what philosophers call a deteriorating paradigm—it gets more and more complex to account for its lack of explanatory power.
In all fairness to accounting, it never was meant to predict value prospectively, only to record transactions retroactively. In effect, accounting can only measure the price of exchanges after they have taken place.
This is why accounting can only record the “goodwill” of a business until after is has been sold. Accounting has no way to place a value on that goodwill until a transaction takes place. That is why our late colleague Paul O’Byrne said goodwill is the name we give to our ignorance.
The best an accountant can do is to extrapolate the past into the future, and unless one’s theory is that the future is going to be the same as the past, this technique is fraught with hazards. This was Drucker’s point at the CEO conference in Seattle.
CEOs have to create the future, not relive the past, and the only way to do that is with a theory of the business, and to get outside of the four walls of their organizations and connect with external reality—where all value is created.
David Vilensky, managing partner of BBV in Perth, Australia, is profiled in this article from the Australian Financial Review.
It’s an excellent explanation of the effects on collaboration, attitudes, and customers when you have professionals work in an environment that doesn’t track time.
Congratulations, again, David, and the entire Team at BBV.
The world’s first and most famous preacher of the efficiency gospel was Frederick Winslow Taylor, born on March 20, 1856, into a prominent Quaker family in an upper-middle-class suburb of Philadelphia.
His ideas permeate our thinking to this day, a classic example of a thinker of whom Justice Oliver Wendell Holmes wrote, “a hundred years after he is dead and forgotten, men who never heard of him will be moving to the measure of his thought.”
Today, if you work in a professional firm, you are still moving to the measure of this man’s thought. Peter Drucker wrote that Taylor’s Scientific Management (SM) idea is perhaps “the most powerful as well as the most lasting contribution America has made to Western thought since the Federalist Papers.”
Robert Kanigel has written a scholarly, well-balanced, book on Taylor’s life. At over 600 pages, it is not an easy read, so I thought I’d provide a review, albeit long, that synthesizes the work of Taylor as well as this enigma known as “efficiency.”
Taylorism Defined—Sort of
Taylor set out to prove that management is “a true science” with “laws as exact, and as clearly defined...as the fundamental principles of engineering.”
Thus Taylorism can be defined as:
The application of scientific methods to the problem of obtaining maximum efficiency in industrial work or the like.
To his credit, he viewed knowledge as the prime productive resource. The problem is he thought the knowledge only existed among management, not the workers, and that the system would embed the knowledge, saying in 1911: “In the past the man has been first. In the future the System must be first.” He separated the doing from the thinking.
Economists of the day coined the term “Deskilling,” the idea that knowledge lies with management, not the workers. Taylor, in effect, help create the white-collar workforce.
Taylor wasn’t as interested in how long a job took, but rather how long it should take. He searched for the ideal human performance. Work consisted of discrete pieces, each of which could timed and studied to maximize speed.
He began work at Midvale Steel in 1878, where he became an industrial engineer, testing his time theories on the factory floor among his coworkers.
He pleaded, cajoled, and even fined workers, creating a shop full of resentment. He believed a 35% pay increase was necessary to induce workers to extraordinary efforts, even more for some types of work, such as 70-80%, or even a doubling.
But how do you get workers to work faster? Pay them. Accumulative rates, Taylor called it the differential rate: you earned an amount that depended on your output for the whole day: thirty-five cents per piece, say, for producing less than what Taylor’s science decreed, fifty cents for exceeding it. And you earned the fifty cents for the whole output, not just the amount exceeding the first tier.
The Spread of Taylorism
After he left Midvale, Taylor became a “management consultant” in the 1890s, charging $35 per day (approximately $1,000 today).
He presented a paper on June 23, 1903 at the 47th meeting of the American Society of Mechanical Engineers titled “Shop Management.” In it, he laid out time-and-motion studies, including a sketch of a decimal-dial stopwatch.
With the notoriety this paper achieved, SM came to be described as a religion, with Taylor the messiah, attracting both disciples and apostles, and the rest becoming members of the church.
A writer to the New York Times asked: “And didn’t the legal profession need some science, too?” ...get Mr. Taylor to take a few stop watch observations in a typical court, and in a typical lawyer’s office, and make an estimate of the existing and obtainable efficiencies.”
Sound familiar? The father of both the timesheet and the billable hour, Reginald Heber Smith, was greatly influenced by “Speedy Taylor,” as evidenced by his writing “Efficiency and economy are a race against time.”
Taylor’s champions included Louis Brandeis, “the People’s Lawyer,” and Ida Tarbell, the legendary muckraking journalist. Henry L. Gantt—known for his eponymous chart—was a disciple of Taylor.
Frank Gilbreth, a former bricklayer, read the 1903 paper and became a disciple, calling the paper “a work of genius.” Gilbreth was even more obsessed with motions than was Taylor, and 2 of his 12 children later wrote a portrait of him titled Cheaper by the Dozen, later made into a Hollywood movie with Clifton Webb as Gilbreth.
If Taylor was idiosyncratic, Gilbreth was an even stranger duck, as David Boyle humorously points out in The Sum of Our Discontent:
Gilbreth was obsessed with measuring, breaking down every manual operation into what he called “therbligs” (Gilbreth spelled backward). He buttoned his vest from the bottom up because it took four seconds less than buttoning it from the top down. He cut 17 seconds off his shaving time by using two brushes. Using two shavers cut 44 seconds, but then he cut himself and had to spend another two minutes looking for a plaster.
But it wasn’t until 1910 that he became known across the country, thanks to the efforts of one of his disciples—Louis Brandeis.
Taylor Becomes Famous
In November 1910, a group of powerful railroads petitioned the Interstate Commerce Commission (ICC) for a $27 million rate increase. Lawyer Louis Brandeis, whom Woodrow Wilson would appoint to Supreme Court 6 years later, submitted “The Brandeis Brief.”
He claimed the railroads could save a million dollars per day if they followed Taylor’s SM System, so the rate increase was unnecessary. Brandeis asked a railroad executive a very unscientific question:
What evidence have you that these costs however they may be made up, represent not merely what was actually paid, but what should have been paid?
This is a stupid question, since all “costs” are themselves “prices,” with their own value assessments. The ICC ultimately denied the rate increase, but not because of Brandeis $1M per day savings assertion, which it deemed only a theory.
But it didn’t matter, for the $1 million savings per day was splashed on the headlines of newspapers across the country, turning the relative obscure Frederick Taylor into a person of curiosity.
People flocked to his 12,000-square foot home in the Philadelphia suburb of Chestnut Hill, which he called “Boxly,” to hear his ideas.
These “Boxly Talks” were then turned into a book in 1911, The Principles of Scientific Management, the In Search of Excellence of the 1910s. Two of Taylor’s principles are worth noting:
...[T]he workman who is best suited to actually doing the work is incapable of fully understanding this science, without the guidance and help of those who are working with him or over him, either through lack of education or through insufficient mental capacity.
...[A]lmost every act of the workman should be preceded by one or more preparatory acts of the management which enable him to do his work better and quicker than he otherwise could.
This advice seems crude and unenlightened in today’s knowledge economy, and organized labor viewed Taylorism as nothing more than a method to extract more sweat from labor, turning workers into impersonal slaves.
In 1915, Congress passed legislation, which stayed on the books until 1949, banning Taylor’s beloved stopwatches from government factories. But while government eschewed Taylorism, the private sector embraced it—and does to this day.
Unscientific Management
Any approach claiming to be “scientific” has to include a crucial element: verifiability. Yet Taylor never supplied the data or the methods that would allow others to reproduce and verify his results.
Instead of science, Taylor offered a kind of parody of science. He confused the paraphernalia of research—stopwatches and long division—with actual research.
One can go grocery shopping with a scientific attitude. But it does not follow that there is a science of grocery shopping.
Even Taylor himself would say repeatedly that his system had not emerged full-blown as a theory, but that it had bubbled up from the cauldron of shop experience:
Scientific management at every step has been an evolution not a theory. In all cases the practice had preceded the theory.
Of course, that’s the problem—it’s not a falsifiable theory, nor is it correct, since there’s no such thing as generic efficiency, as economists have pointed out for centuries but businesspeople—especially Lean and Six-Sigma types—continuously ignore.
Taylor’s statements were essentially tautologies, such as “work smarter not harder,” and “an efficient shop is more productive than an inefficient shop.” These are not scientific, verifiable hypotheses, but simply nonfalsifiable platitudes.
Taylor’s own work at Midvale Steel did not increase production beyond the average before his arrival. Bethlehem Steel tried his “System.” It failed, created labor unrest, and Taylor was fired. These facts were later sanitized from his work history.
Taylor was a master at taking modest successes and blowing them up into major accomplishments. Much of his touted increases in efficiency were simply the learning curve and new technology in practice. His taking credit for these natural improvements is similar to the rooster crowing and taking credit for the sun rising.
There were management consultants who criticized Taylorism, concluding “there was nothing tangible behind it.” C. Bertrand Thompson explained how loose and ill-defined a concept Taylorism had become:
As the number of those talking and writing about Scientific Management has increased, the principles have become vaguer and the spirit more tenuous, until now they are taken to cover every supposed improvement in managerial practice. I have myself seen the installation of an adding machine, or even of a telephone, referred to as “Taylorization.”
In other words, Taylor was a fraud. He claimed to bring science to the study of work, management, and efficiency, but no such science could ever be replicated.
Scientific Management is not science, nor is it a religion. It’s a business. Today’s Lean and Six-Sigma belts carry on the tradition, all the while impervious to the idea—suggested by Stephen Covey—that we are efficient with things, but effective with people.
Ridicule vs. Logic
Ridicule is often a more effective way to persuade people than logic, and Taylorism received its fair share. One of the funniest was Nelson Algren’s character Highpockets, a hardworking “hillbilly from way back at the fork of the crick”:
The time-study man, that mother-robbing creeper that watches you from behind dolly trucks and stock boxes, he’s always trying to figger a way to get more work out of you at the same pay. He’ll even ask you if they ain’t some way you could do a little more than you are. He never expects you should say yes.
But Highpockets does say yes. Let him run another machine with his left hand. Soon he’s turning out twice as much as before, which spurs the time-study man to new depths of fiendish ingenuity. Soon a block and tackle is attached to Highpocket’s right leg, and then a band to his left leg with which to pick things off a conveyor.
Finally, with a rod stuck between his teeth, he’s jerking his head back and forth to run something else. The time-study man is thrilled, and Highpockets has caught the spirit. “If you want to stick a broom someplace,” he cries, leaving scant doubt where “someplace” is, I think I could be sweeping the floor.
In his autobiography, Peter Falk (R.I.P.) reveals how he began his acting career:
I quit my job. I was working for the Budget Director of the State of Connecticut as an efficiency expert (the truth is the first day on the job I couldn’t find the office—it was in the state capitol—I ended up in the post office).
Was Columbo efficient? Did you care?
An Early Ending
Frank Gilbreth eventually went on to repudiate the validity of time-and-motion studies as unethical and “absolutely worthless.” In the meantime, Taylor pressed on, espousing his platitudes until his final day.
On March 9, 1915 Taylor was admitted to the hospital with pneumonia. Every morning Taylor arose out of bed to wind his precious watch.
One day after his 59th birthday, March 21, a nurse saw him winding his watch uncharacteristically early, 4:30 A.M. When she returned a half hour later, Taylor was dead.
He’s buried in West Laurel Hill Cemetery, high over Philadelphia’s Schuylkill River, with a gravestone proclaiming “the father of scientific management.”
Many of the so-called efficiency experts met an early death—which makes you wonder what, exactly, were they saving all that time for?
In ancient Rome, during the Punic Wars, Cato the Elder is said to have ended every speech he delivered before the Roman Senate with the phrase, “ET CARTHAGO DELENDA EST” (and Carthage must be destroyed!). He did this without regard to the subject of his speech.
It is in this spirit that I will begin to close all my post with the phrase, ET HORA LIBELLUM DELENDA EST which, loosely translated, means, “and the billable hour must be destroyed!”
On August 9-10 in San Francisco, Ron Baker and I will once again be presenting our Firm of the Future Symposium sponsored by Sage North America.
This symposium will be dedicated to the possibility that a professional organization can be run more effectively when it becomes a knowledge firm rather than a service firm. Creating such an organization is hard work and not for everyone as it requires professionals to think differently than they have in the past about what it is that they do.
Objectives
From a focus on revenue to a focus on profit
From a focus on capacity to a focus on capital management
From a focus on efficiency to a focus on effectiveness
From a focus on cost-plus pricing to a focus on pricing on purpose
Sage (Ed’s employer) has agreed to open a limited number of spots for firms that are not partners of Sage. If you are interested in joining us, please send me an email and I can get you registered. The price is $2,500 per person and comes with a 100 percent money back guarantee!
One of the more interesting stories to emerge from our previous FotFS, was that of Peter Coburn of Commercial Logic. They are publishers of, you guessed it, time and billing software. Peter underwent a conversion of sorts and posted a terrific article on it.
Carol-Ann attended a workshop on Firm of the Future in October 2010 and in one year has completely transformed into a Firm of the Future. In this year alone she doubled her income. Yes, I said doubled!
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