You know who you are. You LEAN, six sigma, black belt, ninja turtles.
Explain to me (and the world) how any of you and your methodologies would have come up with the idea of putting a piano in the atrium of the Mayo Clinic where this could happen?
The May 18th edition of Accounting Today will carry the Op-Ed article on abolishing the audit monopoly.
You can read the entire article online here.
I’d like to thank Editor-In-Chief Bill Carlino for publishing such a controversial article, which I’m sure will not be well received by my colleagues.
Nothing comes from nothing; nothing ever will. - Oscar Hammerstein
Boy, is that lyric ever wrong. (Bonus points, if you can name the song without Googling it.)
Recently, I read Charles Seife intriguingly titled book, Zero: The Biography of a Dangerous Idea and while I know it was recommended to me, I
cannot recall who provided me with the recommendation. I thought it was Ron Baker, but no, he has not read it. So, in a sense, even this review comes from nothing.
In this short, but fun read, Seife traces the history of the zero from its humble beginnings as an idea, through its use as a placeholder, to its current status as the only number capable of destroying everything (including temporarily disabling the USS Yorktown on the high seas. The humble zero shook the foundations of philosophy, caused arguments, even wars, and now is beginning to play its part in understanding the very origins and substance of the universe.
While I highly recommend reading the book, I did extract a few nuggets for reading here.
First, there are at least three ways that we can prove that something comes from nothing or to express it mathematically that 0 = 1.
Proof A:
Let a = 1 and b = 1; therefore b = a.
b2 = ab, Premise 1
a2 =a2, Premise 2
a2 - b2 =a2 - ab, subtract premise 1 from premise 2
(a + b) (a - b) =a(a - b), Factor
a + b = a, Divide both sides by (a - b)
b = 0 Subtract a from both sides
Since a = 1 and b = a, therefore 0 = 1.
Proof B:
Let a = (1 - 1) + (1 - 1) + (1 - 1)… = 0
Let b = 1 + (-1 + 1) + (-1 + 1) + (-1 + 1)… = 1
The ellipses in the previous two equations indicate the infinite repetition of the parenthetical express. Therefore the two are arithmetically the same, they are just grouped differently, therefore a = b, therefore 0 = 1.
Proof C: (hat tip to Joe Santoro)
00 = 1, therefore 0 = 1.
Why is this so important? Well, because if you can prove that 0 = 1, you can then prove that 0 = anything, certainly any number. For an example of this simply replace the 1 that leads the Proof B, let b example with any whole number, fraction, or decimal number. (By the way, there are an infinite number of decimal numbers between any two whole numbers.) In short, proving that 0 = 1 is the ultimate in understanding the idea of subjective value - value is what the customer says it is.
What is fascinating about the book was learning that some of the foundational mathematical concepts that we accept today are based on this idea that 0 = 1. Calculus is based on the idea than we can compute the area of an irregular object as long as we allow our estimations to set 0 = 1. Had this been explained in this manner to me back in high school or college perhaps I would not have dreaded the course so much. I equated calculating the area under a curve to torture. Theory is important.
One last idea I had while reading this book was to create a new formula (tongue in cheek of course) for computing value. Seife clearly points out that calculating speed in the old “A train leaves New York” type word problems is not always as simple as distance = rate times time. What train moves at an absolute constant speed? Any train would begin slowly, speed up, slow down around curves and crossings, etc. It does no good to calculate speed at a constant rate, i.e., 140 mph for 3.5 hours. What was required for mathematicians was a higher degree of understanding. They achieved this through Newton’s calculus. (Remember 0 = 1.)
An example would be calculating the velocity of a falling object, which falls at 32 feet per second per second. After one second, the object is falling at 32 feet per second after two seconds it is falling 96 feet per second and so on. This is expressed as v = gt2/2 where v is velocity, g the force of gravity and t is time. As Seife puts it, “Rate times time equals distance is not a universal law; it doesn’t apply under all conditions.”
Look at the last sentence again and replace the word distance with value. See where I am going. Imagine a formula for a professional firm using the “falling object” model (which, by the way, while still wrong, is less wrong than value = rate x hours). It would look something like this — value = rate x hours2/2. Picture explaining this to a customer, “Well we bill you $150 for the first hour, than $300 for the second, $675 for the third, etc., since we spent a total of ten hours on your matter, our bill comes to $7,500, any questions.”
Again, while still wrong, the above is less wrong. What is needed is for professionals to make the leap that 0 = 1 (that value is subjective). VeraSage has been sounding the alarm on this for years. Dare I say Ron Baker = Issac Newton.
We now have the math! Worshipers of the ABH give up! We have proven you wrong again, this time with your own beloved mathematical formulae.
Yesterday, the United States government agreed in principle to provide almost $8 trillion on behalf of American taxpayers. The complete story is available on Bloomberg and various other sources. The amount is more than one-half of the value of everything produced in United States last year alone.
The question of who is going to pay is settled. The citizens of the US are. This agreement is tantamount to repealing the Thirteenth Amendment to the United States Constitution which reads in part, “Neither slavery, nor involuntary servitude, except as a punishment for a crime...shall exist within the United States.”
If you think this is extreme consider this question, can I opt out of contributing without being put in prison? The answer of course is, no!
As a reminder the $8 trillion mentioned above does not include the unfunded liability for Medicare, Medicaid and Social Security. Our lives and our fortunes have been pledged to the government. We, in the United States, are all slaves.
For those of you, like me, out there with little financial understanding, I submit this quick video which helped me understand the concept of collateralized debt obligations or CDOs. It is my understanding that mortgage-backed securities (MBS) are at the heart of the trouble we are seeing.
If those of you with a better understanding of this topic have thoughts on this, I would love to hear about them.
Paul Miller and Paul Bahnson did it again in their regular article series “The Spirit of Accounting,” in Accounting Today. I wrote previously about their Sept 8-21, 2008 article, “The perils of clinging to the status quo—Part 1.”
In the September 22-October 5 issue, they are back with Part II of their response to the status-quo CPA, “Tom,” who is defending the increasingly irrelevant historical GAAP financial statements.
They slaughter more sacred cows in this article, such as comparability—the argument that GAAP produces consistent and comparable financial statements. This, of course, is nonsense. What it actually produces is a mindless adherence to principles that produce results valuable to no one.
As they say, GAAP never asks the auditor to question if the financial statements are useful for making decisions; they only ask if they comply with GAAP.
This point especially resonates to those of who understand GAAP is increasingly outdated for a knowledge economy:
Tom and the many who agree with him miss the point that the whole purpose for accounting is to provide useful information that facilitates rational and productive economic and other kinds of analyses. Rather, they seem to think that accounting’s purpose is to help accountants do the same riskless things over and over again.
As Ed Kless taught me this last week, project management can sometimes suffer from the same problem. It becomes the ends, rather than a means to an end.
CPAs seem to be doing GAAP because they can, with a historical legacy to justify their decisions. But they are ignoring the fact that these principles are virtually worthless to users of financial information for making future economic decisions.
If all the profession wants to do is to be scribes with respect to the past, then perhaps they should be relegated to that role, while letting others enter the market of providing financial statement attestation to interested users, willing and able to pay for knowledge they value.
This path would be far more challenging and full of opportunity rather than to continue playing historians with lousy memories. Miller and Bahnson seem to agree:
Our suggestion to [Tom] and others like him is to channel their energy and talent into achieving progress, instead of trying to protect and preserve the deeply flawed status quo. They deserve a better purpose for their professional lives, specifically leading the way into the new paradigm. We have nothing but best wishes for them and high hopes that they can see the world in the same new light that we encountered ourselves only a short decade or so ago.
It is so rare to read such candor in the accounting mainstream media. Miller and Bahnson are fearless pioneers, willing to challenge the status quo. I only wish there were more like them.
To be fair, there is one other voice in the same issue of Accounting Today, Wanda Wallace. At least in this article, “Take back the professions!” she is arguing against the check-list mentality and outside regulation of the profession.
One of the hallmarks of being a profession is autonomy—Greek for “self governance.” The CPA profession is no longer self-governed, what with the alphabet soup of regulators looking over the profession’s shoulders.
Due to rent-seeking and what economists call “regulatory capture,” the profession for the most part doesn’t have a problem with this. Witness Grant Thornton CEO Ed Nusbaum comment with respect to PCAOB being found constitutional in a recent court ruling:
Personally I think it [would be] a mistake to do away with the PCAOB, he said. The PCAOB is painful at times. We don’t always agree with their comments. They’re tough. Sometimes they even bring firms up on charges. I think they’ll continue to be aggressive, so it’s not like we love them. But, on the other hand, you need some oversight. They seem to be doing a pretty good job at that, and I think it would be a mistake to get rid of them, because then there’s no regulator.
I don’t doubt he thinks that, since his firm has benefited mightily from regulatory revenue. Even absent that, there’s enormous proof that PCAOB and SOX has hurt the very investors it was designed to help.
What happened to our profession’s belief in free markets, competition and capitalism?
We seem to be willing to run to the nanny state, hat in hand, lobbying for regulations that increasingly decrease our liberty and freedom. All under the guise of protecting the investor class. How far we’ve drifted from the signers of the Declaration of Independence.
Want to protect investors? Open up markets to competition, including the auditing profession and establishment of GAAP. Let the market sort out what are the best processes.
We do this with everything else in our lives, why not the accounting profession?
There’s nothing sacred about a profession. They can and do die, especially when they no longer add value to those they are pledged to serve.
If “Tom” is representative of the thinking among the leadership of our profession, then we may very well be at the beginning of the end.
As Henry Ford said: “The man who is too set to change is dead already. The funeral is a mere detail.”
Paul Miller and Paul Bahnson are at it again in their regular article series “The Spirit of Accounting,” in Accounting Today. I wrote here about their recent article on GAAP deficiencies, and in the Sept 8-21, 2008 issue, they have another excellent article, “The perils of clinging to the status quo—Part 1.”
The May 2008 issue of The Journal of Accountancy included some commentary by Paul Miller. In response, a CPA emailed him and defended the status quo against “the ravages of value-based accounting practices,” stating that “When we increase subjectivity, we decrease value [of the financial statements].”
Miller and Bahnson spare no contempt, or logic, for this status-quo CPA. Here’s my favorite part of their reply:
An audit cannot make GAAP statements useful any more than an alchemist can turn lead into gold or a weaver can turn a sow’s ear into a silk purse.
What we see in his premise is a reflection of the profession’s blind spot that causes it to overlook the fact that, more often than not, compliance with GAAP doesn’t produce useful information.
Amen. How refreshing to hear criticism like this coming from inside the profession.
Too often, the accounting press is like reading Pravda in the old Soviet Union. If you don’t tow the party line, you’re exiled to Siberia.
Miller and Bahnson are fearless at pointing out the deficiencies in our decrepit, ossified reporting model known as GAAP.
But it seems that the rest of the profession is happy to continue to produce information that is of limited usefulness and value to users of financial statements, for fear any change will imperil their overblown “objectivity and independence.”
We are one of the least innovative professions on the planet, the current GAAP reporting model being Exhibit A. It’s 500 years old, and all we’ve managed to do with it in that time period is add more rules—oh, and to be fair, we did innovate the financial statement compilation and review services, in 1978.
This is why Thomas Stewart, editor of Harvard Business Review, refers to the GAAP financial statements as the three blind mice. And he’s not the only one.
It’s apparent that the profession is happy with its role of financial historian with a bad memory. We don’t look outside ourselves for new ideas, innovations, and we are constitutionally incapable of self-criticism, taking each one as a personal affront to our beloved integrity.
This is precisely why CPAs are destined to become less and less relevant in the economy of the future. They simply are not adapting quickly enough to their changing environment.
There’s absolutely nothing sacred about a profession. They can and do die. They do so because they are no longer relevant, adding little to no value to those who utilize them.
Is this where the profession is at this point in time? It may be. There’s very little on the horizon that demonstrates the profession is willing to change, innovate, or experiment with new services that offer users what they are most interested in—information that helps them peer into the future rather than simply confirming the past.
The profession’s leaders, collectively, don’t seem to be up to the challenges. Perhaps the younger generation of CPAs offers more hope? But I’ve scant evidence for that wish, given that they are trained to b greyhounds in bookkeeping while paying little attention to what is happening in the world around them.
Few CPAs we’ve met around the world even know there is a debate about the usefulness of GAAP, or what the criticisms are.
A good proxy is to look at what they read, if they read at all—since most firms don’t give their knowledge workers the time to read because it impairs billable hours. And we wonder why we’re in the mess were in.
At least their is a light at the end of our tunnel vision. For now, it’s Miller and Bahnson—and others like them—who have the courage to say the emperor doesn’t have any clothes.
Be sure to tune into the next issue of Accounting Today for Part 2 of their response to the status-quo CPA.
Friends of VeraSage know that we have major problems with Generally Accepted Accounting Principles. We refer to the financial statements as the “three blind mice,” a term used by Harvard Business Review editor Thomas Stewart. Dan Morris and I teach an entire course entitled When Debits Don’t Equal Credits.
It’s also why I always enjoy reading Paul Miller and Paul Bahnson’s The Spirit of Accounting, their regular articles featured in Accounting Today. In the Aug 18-Sept 7, 2008 issue, they reprinted an older article they had written, proposing the following thought experiment: what if keeping score in golf was similar to GAAP?
The article is excellent, illustrating how—more and more—GAAP is becoming irrelevant. Where I disagree with the authors is they believe it can be reformed while I emphatically do not.
For a fundamental reason: Accounting is not a theory. It cannot be a source for “predicting the future,” as the authors say, because it is simply an accounting of the past. Data can only shed light on the past, it cannot peer into the future. For that, you need a theory.
Unless, of course, your theory is the future will equal the past, a perilous assumption in a dynamic, capitalist economy.
If you are a golfer and a CPA, you will enjoy their analogy. It may sound tongue-in-cheek, but it conveys a serious message: GAAP is deeply flawed. Rather than being supplanted, it needs to be supplemented with more meaningful information, such as Key Predictive Indicators.
All we can hope for blind GAAP is that someone yells “Four.”
I will be conducting three Webinars for Business Expert Webinars (BEW) in the coming months.
BEW was founded by Lee B. Salz to bring together a community of business experts comprised of best-selling authors, award-winning speakers, and business gurus, designed to share their secrets of success.
I was honored when Lee invited me to participate. The Webinars are designed for a generic business audience, not just professional firms; the type of program professionals could recommend their business customers attend.
My three programs will be:
Pricing on Purpose: Creating and Capturing Value. Friday, August 8, 2008, 3-4pm Eastern Time.
When Debits Don’t Equal Credits. Wednesday, September 24, 2008, 12-1 pm Eastern Time.
The Experience Economy: Succeeding in Today’s Dynamic Economy. Wednesday, October 8, 2008, 4:30-5:30 pm Eastern Time.
I hope you can join us, and check out the other programs BEW conducts.
I don’t know Michael J. Daillak, CPA, from Bakersfied, California, but he recently wrote a letter to the editor of Accounting Today (June 16-July 6, 2008) that I found quite interesting, especially in light of my previous posting of Tim Williams’ article on the death of the advertising agency.
Essentially, Michael is arguing for audit-only firms, otherwise the CPA profession could slip into irrelevance (a condition I would argue, along with others—such as Thomas Stewart, Editor of Harvard Business Review—has already happened). He states the case for the CPA profession having a monopoly on audits:
The given for this profession is that the only thing—I repeat, the only thing—that a CPA can do that no one else can do is perform and report on an independent certified financial audit.
This is our raison d’être, our reason to be!
From there he leaps to this conclusion:
Audit fees should be sufficient to pay CPAs who choose to be so employed an attractive, competitive professional income to do the only thing that they can do that no one else can do. The future of the world’s financial system may be at stake.
This is hyperbole at its finest. I have a thought experiment: which would be noticed by society first—1) if garbage men went on strike; or 2) if CPAs stopped doing audits?
To believe that the world’s financial system would grind to a halt unless auditors continue to publish historical financial data is beyond belief for anyone who understands economics. Using audits to run a company—let alone a financial system—is like timing your cookies with your smoke detector. Audits are lagging indicators, and they can only explain about 15% of a company’s market capitalization. Coca-Cola’s brand is worth some $65B dollars, but you’ll look in vain to find it on its GAAP-based audited financial statements, which is why Thomas Stewart of Harvard Business Review refers to the traditional financial statements as the three blind mice.
But what’s worse is that Michael actually believes that auditors having a monopoly in auditing is a good thing. Economists don’t like monopolies; we prefer competition. Why not remove the attest monopoly from auditors and open them up to competition from banks, insurance companies, etc. The market would innovate new and better financial models, audit insurance, and a host of other innovations we can’t even fathom since we are constricted by a one-size-fits-all government granted monopoly.
I wrote an article on this very issue years ago.
But it’s really the second comment that disturbs me the most. It appears that Michael believes simply because some people choose to be CPAs who perform audits they should be guaranteed a living wage. That’s not how capitalism works, but it is how the former Soviet Union operated, as well as Cuba, and North Korea today.
We could have government mandate oil companies drill using corkscrews and create all sorts of employment, but it wouldn’t be very effective, nor would it create any wealth.
If auditors can’t make a decent living providing a government backed monopoly service it’s a testament that they aren’t adding much value. Innovation and competition are the answer, not a further mandate for audit-only firms.
Ignorance in economics is one of our most expensive commodities in this world, as this letter attests.
One of the problems with education is the constant pursuit of practical knowledge at the expense of pursuing answers to profound questions. No doubt we all need practical knowledge to function in everyday life, earn a living, to just get by in the world. But I now realize people are not guided by what they know, but rather what they believe—their worldview, through which we all refract reality.
And in August of 1981, my worldview was about to be punctured permanently, albeit quite gradually, indeed, imperceptibly at the time. Looking back, Playboy magazine may be most responsible.
No, not for the prurient reasons you are forgiven for immediately thinking of, but a far more banal explanation. As a barber, my father was an inveterate reader of Playboy’s interviews, which are excellent if you have ever bothered to read one with someone in whom you have an interest. The roster of interviewees is quite impressive—world leaders, politicians, writers, and so forth—some of whom, no doubt, are self conscious about appearing in such a publication.
As a matter of fact, when devout Catholic William F. Buckley, Jr. was asked why he would write for such a magazine, he wittily answered, “I write for Playboy because it is the fastest way to communicate with my 17-year-old son.”
In any event, my father read the interview with George Gilder in that August 1981 issue, which impressed him. Gilder had written Wealth and Poverty, a book Ronald Reagan was photographed with, along with giving it to members of his cabinet.
Fortunately for me, my father purchased a copy of Gilder’s book, convincingly insisting I should read it. I did. In one sitting. It changed my life. It opened my eyes to an entire new worldview that is beyond my capacity to describe in so brief a space.
I came to recognize I was ensconced in the accountant’s worldview, a belief system and body of knowledge that cannot really explain how wealth is created—it can only record it after the fact. Accounting is not a theory, so it cannot help us peer into the future; it can only provide assurance on the past. It understands nothing but itself, since it is an identity equation.
Worse, it leads businesspeople to believe they can only manage what they can measure, as if weighing ourselves more frequently will change our weight. It confuses cause and effect, and results with process. It can audit the drunk’s bar bill, but cannot change or explain his behavior. Even more pernicious, it focuses businesspeople on solving problems and fretting over yesterday, rather than pursuing opportunities and creating our futures, resulting in a costly mediocrity.
Thus began a passionate study of value, effectiveness, intellectual capital, along with the real source of profits, all represented in the new business equation at the top of this Web site. The Philosopher Heraclitus wrote, “You cannot step in the same river twice, because by the second step it will already have changed.”
Thus began my crossing of the river to reach the other side, seeing the world from a different direction—one of value, opportunity, and risk taking, rather than history, costs, problem solving, and an increasingly irrelevant accounting equation. I must say, this side of the river is more wondrous and panoramic, allowing me to explain to myself with much greater clarity how the world really works.
Gilder explains the ultimate source of wealth in his book Men and Marriage:
Demand, whether avaricious or just, is impotent to impel growth without disciplined, creative, and essentially moral producers of new value. All effective demand ultimately derives from supply; a society’s income cannot exceed its output. The output of valuable goods depends not on lechery, prurience, lust, and license but on thrift, sacrifice, altruism, creativity, discipline, trust, and faith.
Greed, in fact, impels people to seek first their own comfort and security. The truly self-interested man most often turns to government to give him the benefits he lacked the moral discipline to earn on his own by serving others....Any system that does not uphold the value of freedom of individuals, however lowly, will miss most of the greatest technical and economic breakthroughs.
I have had the great good fortune of meeting Mr. Gilder at several conferences and he never ceases to amaze me with his prescient insights, usually far ahead of their time. His recent talk at the Telecosm 2007 Conference can be viewed at the Discovery Institute’s Web site, where Gilder is a senior fellow. As usual, Gilder makes some brilliant points, even quoting Peter Drucker from his last speech, before he passed away, in Seattle, which I blogged about here.
As usual, Gilder pays homage to the entrepreneur, stating that knowledge is about the past while entrepreneurialism is about the future. Having just read Prophet of Innovation, the life story of Austrian economist Joseph Schumpeter—famous for the phrase “creative destruction” and also positing that the little-understood entrepreneur is the chief source of growth and dynamism in any economy—Gilder’s talk is a theme that needs to be repeated often.
In fact, Gilder is in a new movie produced by Acton Media, of the Acton Institute of Grand Rapids, Michigan. The movie is The Call of the Entrepreneur, and you can view a trailer here. The movie has been premiering around the world, and finally, I will be going to see it on December 12th in New York, along with Dan Morris and Chris Marston. Father Sirico, of the Acton Institute, along with George Gilder, will be present to provide commentary after the screening. For more information on this event, and others, go here.
In fact, we at VeraSage are planning to host our own screening of this movie, most likely near the end of the first quarter of 2008, in both San Jose and Dallas. Stay tuned for details, and please let us know if you are interested in attending, along with guests—customers, colleagues, etc.
I strongly encourage anyone interested in how wealth is created, the morality of capitalism, the ethics of free markets, and the central role entrepreneurs play in creating our future to read anything by Gilder. His Soul of Silicon speech to the Vatican on May 1, 1997 is one of the most profound things I have ever read in my life.
He is one of the most eclectic writers and thinkers of the past century, an Adam Smith of our times. If he doesn’t change your world view, he will at the least challenge it, always a healthy exercise for the mind.
I suppose all sons, at one time or another, come to appreciate the wisdom of Mark Twain: “When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned.” Thanks, Dad.
Auditor’s reports are redundant and the same. Consumers would benefit from customized and differentiated reports.
At a recent industry event, during one of the session, one of the facilitators used an interesting approach to getting infomation from the group. She asked questions and had particpants move from one side of the room to the other depending upon our answers to the questions she posed. In short, the room was transformed into its own sliding scale.
One of the questions asked was, “How many hours a year do you work?” After thinking about it I moved to the extreme postion for most hours — against the wall to one side.
“Do you work over 3000 hours a year?” I was asked.
“Yes," was my reply. “I work over 6,000 hours a year.” The room was stunned.
I said, “Hey, I think for a living, so if I am not sleeping, I am working.” I did a little calculation to come up with the 6,205.
If only I could bill someone for those hours.
Once again, I was leading a dialogue about hiring people. And once again, it was a group of baby boomers in management roles. And once again, the position of most of the room was the same.
“These generation Y people (30 and under) are lousy hires.”
“They expect the world to be just given to them.”
“They don’t get that they need to earn their way.”
Then, the question suddenly appeared to me. Why is it that the generation who said, “Don’t trust anyone over 30,” now refuses to hire anyone under 30?
Thoughts?
In a recent article by Lowell Bryan, a director in McKinsey & Company’s New York office, the author postulates that the “new metric of corporate performance” is profit per employee. He begins “Let’s get right to the point: companies focus far too much on measuring returns on invested capital (ROIC) than on measuring the contributions made by their talented employees.”
True enough, but while I believe he has seen the tree, he has still missed the forest. Profit per employee is based on the assumption that profit is an accurate measure of return on intellectual capital. In a dialogue with Ron Baker via Skype he noted, “I’m dubious. They seem to take GAAP at face value, and the problem is GAAP! GAAP doesn’t deal with intellectual capital. Intellectual capital is a theory, GAAP isn’t. So dividing profit by employees doesn’t tell much. [It would be] like using a ruler to measure the temperature of your oven.” Classic Bakerian wisdom that.
I, however, humbly posit the following:
Revenue (not profit) per employee (RPE) is meaningful especially when the change in RPE is measured over a consistent time period and when compared to other companies in the same industry.
Here is my argument. Revenue, per Peter Drucker, is the captured value that an organization provides to its customers. Number of employees is the number of human brains (usually) at the company. So, dividing captured value by number of brains is a measure to at least some degree of the usage of intellectual capital. It is not predictive, nor does the customer care about it, so it has two strikes against it from a Measure What Matters point of view.
It does, however, have meaning to the employees of the company. I believe it could be used to gauge how smart we are as a group, especially when compared to others. The two ways of affecting it would be to either a) capture more value while not increasing braincount or b) capturing similar value while decreasing braincount. Either way a Professional Knowledge Firm would have to see value pricing as a way to deliver on this.
This is not to say that we should ignore profitability. Doing so would be foolish. But looking at Profit per employee does not make much sense to me.
Fellows, readers, your comments please.
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