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).
VeraSage Founder, Ron Baker has often used Snow White and Seven Dwarfs to illustrate the problem of applying efficiency to knowledge work.
“A LEAN six sigma guru would have advised Walt Disney to make Snow White and the Three Dwarfs as it would have improved efficiency by over 50 percent,” he intones.
Recently I was reminded of a scene from the Academy Award winning film Amadeus where the Holy Roman Emperor Jozef Franz (or was it Franz Jozef) criticizes Mozart’s opera for having, “Too many notes.”
Unfortunately, the clip cuts off before Mozart’s brilliant response, “Which few did you have in mind, Majesty?”
Knowledge work cannot be LEAN six sigma-ed. Once again, effectiveness trumps efficiency!
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.
At a recent Firm of the Future Symposium with the THRIVEal Network in Greenville, SC, Ron Baker and I were asked about some of our word preferences. On the spur of the moment we developed this quick list of words we believe should be avoided by professional knowledge firms.
Staff - This makes us think of a type of infection. We prefer team member, colleague, associate, or people as alternatives.
Client - In ancient Rome, the lawyers of the day functioned as public servants and were not paid for their work. Instead, they were appointed to their duties in working with their clients. The relationship was not one of equal status and implied a sense of duty and obligation to serve the great unwashed. The word still has this connotation in the context of social workers and their clients. We prefer the term customer which is an Anglo-Saxon word derived from the fact that it was the custom of certain people to frequent a particular place of business.
Value billing - Nothing will set a VeraSagi (our made up and officially adopted name for someone from VeraSage) off into a tirade faster than calling the pricing practices we espouse value billing. A bill is produced in arrears whereas a price is agreed to upfront. This term is linked with professionals when the do write-ups to a time calculated bill. We believe this practice to be more akin to mail fraud. The preferred terms are value pricing, pricing on purpose, or pricing with purpose. When discussing price with a customer we suggest the term fixed price or open (meaning transparent) price.
Fee - This word has a negative connotation as it is associated with governmental and penalty type incursions. We suggest the use of the more neutral word price.
Hours - We believe the only place time spent should matter is in prison. We would ban all use of the word hour and suggest a $5 fine whenever it is used. There is no acceptable substitute.
Training - Horses and dogs are trained, humans are educated. Training implies a bullwhip lashing sounds in the background. Also, do you want your 16-year-old daughter to get sex training or sex education.
Service - We believe most professional firms do not provide services. They provide access to and/or transfer of knowledge, results, objectives, and occasionally goals.
Did we miss any of you favorites? If so, please leave a comment with the term to be avoided and your suggested alternatives.
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!
Yesterday, I delivered a four-hour session on the Firm of the Future for IT industry media and analysts at the behest of Melody Chalaban on Sage North America’s media relations team. I want first to thank her for the opportunity and organization of the event.
Second, I want to thank Sage Partners and Firms of the Future, John Shaver from Aries Technology Group, creators of Bob’s Barbecue, Keith Greeno of Asyma Systems, and Peter Wolf from Azamba Consulting. (As you can see I am through the A’s with regard to flipping firms.) These three gentleman did an outstanding job of explaining how they have implemented the ideas that I only speak (some might say blather on) about.
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.
We’ve been talking a lot about Simon Sinek’s TED talk on the importance of a company figuring out its “Why"—its purpose. The idea that customers buy not what you do, or how you do it, but why you do it.
One man who understood both was Charles Revson. At the age of 25, Revson tweaked his last name to make it sound less harsh and launched the Revlon cosmetics empire in 1933, introducing color-coordinated nail polish and lipstick during the Great Depression. Talk about lousy timing for launching a vanity business.
Many commentators hailed the bright colors as “trashy,” but Revson instinctively understood women needed color to feel pretty. And during the Great Depression women were wearing drab colors, recycling rather than buying new fashions, so there was a ready market for relatively inexpensive glamour.
Revson’s competitors acted as if the product was a commodity, but he knew better. Nail enamel was not just a concoction of chemicals, or a beauty aid, but a fashion accessory, and he believed women should use different shades to suit different outfits, moods, and occasions.
This, of course, greatly expanded the market, as women now purchased multiple nail colors, and matching lipstick expanded the market again. Indeed, he understood better than his competitors what his customers were really buying, how to differentiate it, and price it.
His famous saying, “In the factory, we make cosmetics; in the store, we sell hope,” reflects the wisdom of a man in touch with his customers’ expectations.
Revson refused to believe what he sold was a commodity, and reportedly spend forty-five minutes in front of a seminar of his international marketing executives having a dialogue with a glass of water, attempting to illustrate the meaning of product differentiation. As explained by his unauthorized biographer Andrew Tobias in Fire and Ice:
...the water glass caught his eye. He picked it up, held it out in front of him, and said, in his friendliest way, “Hello, glass. What makes you different? You’re not crystal. You’re a plain glass. You’re not empty, you’re not full...” and then he began telling the glass how it could be made special...by changing the design, changing the color of the water, giving it a stem, and so on.
Revson didn’t compete on price, since he understood Revlon was selling the chance of turning the right head or lend a touch of class. While other polish sold for a dime, Revlon’s sold for .50¢, and its lipstick for $1.00 compared to .49¢, all during the Great Depression.
The most famous—and effective—shade promotion was launched, Fire and Ice, in the fall of 1952. There’s a little bit of bad in every good woman, Revlon marketers felt, what Kay Daly (a Revlon executive who was probably the highest paid female executive in the country) called “a little immoral support.”
Along with a picture of model Dorian Leigh, the ad copy ran the headline “ARE YOU MADE FOR ‘FIRE AND ICE?’” You were, the ad stated, if you answered eight of the fifteen questions in the affirmative.
The ad caught the country by storm, with nine thousand window displays devoted to it, every newspaper and magazine wrote about it, and every radio announcer made reference to it.
Norman B. Norman, head of Revlon’s advertising agency, Norman, Craig & Kummel, said:
All Revlon marketing had to do with emotions: how women thought, how they lived, how they loved. That’s quite different from what most companies do, where they describe their products, the benefits of them. Revlon never did that, which was a brilliance of its own.
One of the things that frustrates me about the distinction between B2B and B2C is it doesn’t take into account that humans purchase everything. And emotions are an enormously important factor in all decisions.
So here"s my question. What would a Fire and Ice campaign look like for a Professional Knowledge Firm? What questions would you ask?
Maybe we should have a contest for the best questions, with the winner given a bottle of one of Dan’s best wines?
[N.B. Fire and Ice is in my top 100 all-time favorite business books. Just an excellent read of an incredibly shrewd and driven man who changed the country’s culture. Many would argue he was a misogynist. He might have been, but he sure understood what women were really buying. Visit my Shelfari.com bookshelf, and click on the tag “bbb” for the Top 100 best business books. You have to register for an account. Shelfari is owned by Amazon.]
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.
The following is from VeraSage Senior Fellow John Chisholm in Australia:
Slater & Gordon announced last week that they were rolling out fixed fees in their Family Law practice.
Slater is not, of course, the first law firm to offer fixed fees in Family Law and will not be the last. Many smaller firms have been offering fixed fees for years, both in Australia and in US, but Slater is the first high profile national Australian firm to publicly announce a move away from time-based billing—albeit at this stage at least in one area of their practice.
In some respects it is not surprising a firm that first gave Australia “No Win—No Fees” and the world the first publicly listed law firm would take yet another radical step into moving away from time based billing.
Just as Slater & Gordon proved to all the sceptics who said “you cannot successfully float a law firm because...” totally wrong, they, together with a growing number of other law firms, will again show the conservative members of our profession who still say “you cannot fix legal fees because...” totally wrong as well.
Agreeing prices up front at least provides some certainty to clients in the often uncertain and foreboding world of law. It not only benefits their clients but as Slater will find out just like all the other firms who have made the move to non time-based pricing have discovered, it is a much better and more satisfying way of practicing law.
John and I have had the opportunity to discuss this transition with Ian Shann, Slater’s Family Law National Practice Group Leader. He is responsible for the pricing initiative, is an advocate for getting rid of timesheets, and implementing a ROWE.
Congratulations to Slater & Gordon on being a Trailblazer Down Under.
Here is more information on Slater & Gordon bold move.
Chris Merritt speaks with Slater and Gordon’s Ian Shann about a breakthrough in family law—fixed fees.
From the September 9-15, 2011 Pittsburgh Business Times comes this article quoting Stephan Liozu on the idea of appointing a Chief Value Officer.
I met Stephan at the Professional Pricing Society conference in Chicago last April. We are collaborating on a book chapter, dealing with the C-level position of CVO.
Mike Bezos was 15 years old when he escaped from Cuba and fled to the USA, working his way through the Univ of Albuquerque.
He gave his stepson, Jeff, a 1988 Chevy Blazer, and while Jeff’s wife Mackenzie drove across the country to Seattle, Jeff typed up the business plan for Amazon.
Not bad for a first generation immigrant. Thank Fidel for Amazon!
I remember George Gilder writing that Fidel wanted to create the world’s greatest city in Cuba, so he expropriated all of the physical capital, suffering from the “physical fallacy"—the idea that wealth resides in tangible things.
Fidel did create a great city—in Miami—since the most important capital fled.
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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