Season's Greetings to All

Christmas Eve

I am now signing off until after the Christmas break.

This has been a troubled year in many parts of the world. May you and yours have a very happy festive season and a peaceful and prosperous new year.

The Balance of Payments, Australia and the sub-prime crisis

One of the things that has been puzzling me about the US sub-prime crisis is just why it should have such effects on Australia. Our direct US exposure is minimal, while there is no evidence at this point that the local low-docs loan equivalents suffer from the same problems, yet the effects continue to reverberate.

I could understand it when local home lender RAMS struck trouble because this otherwise solvent firm depended directly on shorter term US borrowings. But why was the US crisis creating domestic liquidity problems, forcing Australia's Reserve Bank to pump funds into the economy?

Thanks to an article by Brian Toohey in the Australian Financial Review (17 December) quoting HSBC Chief Economist John Edwards, I now understand. The answer proved simple but, I think, very serious.

Australia has long had a substantial deficit on the balance of payments current account, a deficit funded by capital flows, mainly through international borrowings by Australian financial institutions. The sub-prime crisis has largely stopped those borrowings.

This created a ricochet effect.

Borrowers such as RAMS dependent on offshore borrowings tried to borrow locally, increasing local demands for funds. More broadly, reduced capital inflows meant that cash stopped coming in to fund the current account deficit, draining cash from the Australian economy. Then, too, there was a reduction in lending between local financial institutions, further reducing the supply of loanable funds.

In normal circumstances, this would have been accommodated in part by a rise in interest rates rationing credit, in part by a fall in the value of the Australian dollar thus choking of imports. However, because of the scale of impacts, the Reserve Bank chose to push liquidity into the Australian economy. This meant, among other things, that we were funding the deficit on the current by reducing the RBA's holdings of foreign currencies. As a consequence, the RBA's official reserve assets fell from $A79.7 billion at the end of June to $A32.7 billion at the end of November.

This is unsustainable in the longer term. If it continues, the RBA will have to borrow internationally to fund the current account deficit, let the currency fall to a new equilibrium level, or some combination of the two. Whichever way it goes, Australia is in a degree of trouble.

When Trust Fails 1 - Introduction

Corruption problems with the NSW Government owned RailCorp have been highlighted during a four week public hearing by the NSW Independent Commission Against Corruption.

Corruption examples included a contracts relationship manager who manipulated the electronic procurement system to steal more than $A500,000; a second contracts scam is alleged to have cost the organisation more than $A4 million; while a third involved secret payments for work of more than $A1 million.

The current inquiry is one a series since 1992 that together suggest major systemic problems within the State owned corporation.

According to the barrister assisting the Commission, Chris Ronalds SC quoted in the Sydney Morning Herald, the core problem lies in the organisation's culture:

The prevailing culture is one of indifference or possibly intimidation, with minimal attempt to investigate.

Where serious breaches of conduct have been exposed....the disciplinary tone has been a slap on the wrist. This approach breeds an entrenched culture of condonation of unethical behaviour, with various scams being able to be run by different people in silos, and a failure of internal system robustness, the culture of cover up is entrenched.

I do not pretend to be expert on RailCorp. However, I do find the case interesting as an example of what appears to be systemic failure. I also find it interesting because I had formed the view that that the approach to the control of corruption in NSW is fundamentally flawed and indeed creates its own problems.

Given this, I thought that it might be interesting to explore some of these issues in a series of irregular posts.

A pause because of travel

Because of travel I am going to be away from my desk for a period. I will continue my demographic series upon my return.

Global Demographic Trends - Asia

Continuing our series on global demographic trends, in 2007 the top ten Asian countries by population excluding South Asia were:

1. China - 1.32 billion
2. Indonesia - 235 million
3. Japan - 127 million
4. Philippines - 91 million
5. Vietnam - 85 million
6. Thailand - 65 million
7. South Korea - 49 million
8. Burma - 47 million
9. Malaysia - 25 million
10. North Korea - 23 million

Jumping forward, the 2050 projections are:

1. China - 1.42 billion
2. Indonesia - 313 million
3. Philippines - 148 million
4. Vietnam - 108 million
5. Japan - 94 million
6. Thailand - 69 million
7. Burma - 54 million
8. South Korea - 45 million
9. Malaysia - 43 million
10. North Korea - 26 million

In the Asian case, we can clearly see the way in which population trends are diverging.

Japan and South Korea face population declines, while the populations of China and Thailand have begun to plateau. The size of the projected Malaysian increase came as a surprise. We would have expected it to be lower, given the country's level of economic development.

Indonesia, the Philippines and Vietnam all reflect current levels of economic development.

In the next post we will look at the Americas.

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Last post. Next post.

Global Demographic Trends - the rise of Africa

In 2007, the top ten African countries were:

1. Nigeria - 127 million
2. Egypt - 80 million
3. Ethiopia - 77 million
4. Congo (Kinshasa) - 66 million
5. South Africa - 44 million
6. Tanzania - 39 million
7. Sudan - 39 million
8. Kenya - 39 million
9. Morocco - 34 million
10. Algeria - 33 million.

In 2007, the top ten African countries are projected to be:

1. Nigeria - 357 million
2. Congo (Kinshasa) - 203 million
3. Ethiopia - 145 million
4. Uganda - 128 million
5. Egypt - 128 million
6. Sudan - 88 million
7. Tanzania - 67 million
8. Kenya - 65 million
9. Madagascar - 56 million
10. Morocco - 51 million

These are very large increases indeed. They could well be larger if African life expectancies increase significantly.

Note that South Africa has vanished from the list, with a projected decline in population from 44 to just 33 million.

The size of the African increases has significant implications for economic development and political stability. How will these extra people be employed, fed and housed? What are the implications for Africa of projected climate change, given the projected population increases?

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Last post. Next post.

Global Demographic Trends - the decline of Europe

In 2007, the top ten European countries by population were:

1. Russia - 141 million
2. Germany - 82 million
3. France - 64 million
4. UK - 61 million
5. Italy - 58 million
6. Ukraine - 46 million
7. Spain - 40 million
8. Poland - 39 million
9. Romania - 22 million
10. Netherlands - 17 million

In 2050, the projected top ten European countries are:

1. Russia - 109 million
2. Germany - 74 million
3. France - 70 million
4. United Kingdom - 64 million
5. Italy - 50 million
6. Spain - 36 million
7. Ukraine - 34 million
8. Poland - 32 million
9. Romania - 19 million
10. Netherlands - 16 million

With the exception of France and the UK, these numbers show a pattern of population decline across Europe. There is nothing necessarily wrong with this at a time when global populations are pressing against resources. However, it has implications for relative economic performance and for public policy.

In the next post, we will look at Africa.

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Last post. Next post.

Global Demographic Trends - A few macro numbers

In 2007, the world's ten largest largest countries in population terms were:

1. China - 1.32 billion
2. India - 1.13 billion
3. US - 301 million
4. Indonesia - 235 million
5. Brazil - 190 million
6. Pakistan - 165 million
7. Bangladesh - 150 million
8. Russia - 141 million
9. Nigeria - 135 million
10. Japan - 127 million.

In 2050, the world's ten largest countries in population terms are projected to be:

1. India - 1.81 billion
2. China - 1.42 billion
3. US - 420 million
4. Nigeria - 357 million
5. Indonesia - 313 million
6. Bangladesh - 280 million
7. Pakistan - 278 million
8. Brazil - 228 million
9. Congo (Kinshasa) - 203 million
10. Mexico - 148 million

Even at this most macro level, we can see some interesting features.

In both 2007 and 2050, three of the top ten belong to the old Indian Empire of the British Raj. However, India and China have reversed positions as the world's most populous countries. Further, by 2050 India in absolute terms will dwarf the populations of Pakistan and Bangladesh. This has interesting implications for the power dynamics on the subcontinent.

Both China and India have been growing fast in economic terms, China somewhat faster. The size of India's population means that increases in per capita incomes are likely to be less than China's. However, aggregate Indian GDP could well pass that of China.

Factor in climate change. If the projections are to be believed, by 2050 Bangladesh's projected 280 million people are likely to face very serious problems from rising sea levels. How will they respond?

At present, Russia is the only European country in the top ten. In 205o there are projected to be none. As will be discussed in a later post, Europe as a whole presently faces population decline.

In 2007, Nigeria at 135 million is the only country in the top ten. On the 2050 projections, There will be two: Nigeria at 357 million, Congo (Kinshasa) at 203 million.

The African population is still growing rapidly. The continent as a whole has been experiencing economic troubles. Will this change, or will Africa become a powder keg? What does all this mean for powder structures within Africa?

In the next post, we will look at the European dilemma.

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Next post.

Global Demographic Trends - Introduction

Demography and demographic trends are critical to longer term management, yet still poorly understood.

Take, as an example, the projected growth in the world population from 6.6 billion in 2007 to 9.4 billion in 2050. 2.8 billion is a large absolute increase at any time, larger still when we take into account the forecast effects of climate change on food production as well as resource usage. Among other things, this has implications for the profitability of food production.

While world populations continue to grow, the world population is also aging. This effect varies from country to country. Some countries will continue to grow in population terms, others are projected to contract. While this is well known, the actual implications are less well understood.

Take, as one simple example, the youth focus still built into much marketing. In many countries the dollar value of the younger marketplace is stagnant. It is the older age cohorts that are growing in absolute numbers and in dollar value terms. There have been some subtle market shifts that reflect this, an example is the increasing presence of older people on TV, but there is still an overall youth focus.

Take, as a second example, changes in relative power associated with population shifts.

Today Japan has 127 million people and is the tenth most populous country in the world. By 2050, the Japanese population is projected to fall to 88 million, its ranking to seventeenth. What does this mean for the structure of the Japanese economy, for Japan's place in the world?

In coming posts we plan to explore some of these issues. The posts will not be rigorous in an academic sense. Our aim is to stimulate issues, to point to things that need to be considered.

Note on Sources

Data in this series is drawn from a variety of sources including:

• The International Data Base of the US Bureau of Census

Source information will be updated as the series develops.

Posts in the Series

• Introduction - this post
• Global Demographic Trends - a few macro numbers
• Global Demographic Trends - the decline of Europe
• Global Demographic Trends - the rise of Africa

Problems with Freedom of Information

One of the side-elements in the current Australian election campaign has been a focus on Freedom of Information. These are sets of laws at Federal and State level that give the citizen, and the media, the right to access Government information.

I have always been a strong supporter of Freedom of Information (FOI), but now am having some doubts as to scope.

As a senior Commonwealth Public Servant, I used to give my Minister the best advice I could. I gave arguments for and against, along with recommendations. Sometimes I wrote thought pieces, trying to tease arguments out without setting positions. Often, the advice was very frank.

At the time I wrote, the thought that my advice might be revealed was not relevant. Had it been, I would not have written that way.

I have recently had cause to look at advice now provided by a Department to a Minister. There is no real equivalent to the type of advice I used to provide.

Part of this is due to changes in style. But part is also due to the fact that advice may be revealed through an FOI request.

Teenage Work in Australia

A little while ago there was an interesting story in The Sydney Morning Herald (weekend edition 25-26 August 2007) by Andrew West on teenage work in Australia. He cites figures from a US Department of Labour report suggesting that Australia has more teens in the workforce than any other developed country.

Over the period 1995-2005, no less than 60.6 per cent of Australian aged 15-19 were working. This compares to 43.7 per cent in the US, 30 per cent in Germany, 13 per cent in Italy and just 9.1 per cent in South Korea.

Like all statistics, these have to be treated with care. For example, it has always been the case that kids help out in family businesses often without being paid or appearing in workforce numbers. Nevertheless, the figures are interesting.

There are clear cultural differences between countries that affect working patterns. In some countries kids are expected to study; school or post school is seen as a full time occupation in its own right.

This used to be much more the case in Australia. Now kids work because they want to buy things or because they need the income to help pay for study.

High teenage work participation is a two edged sword.

From an employer's viewpoint, it means that kids acquire work discipline. That's good. But it can also mean that the time devoted to study, to the acquisition of knowledge and skills and the capacity to think, is reduced. Here there have been recurrent complaints in Australia from employers about a decline in the standard of, for example, recent graduates.

There is another issue as well.

Australia, along with many other countries, has been suffering from skills shortages. High teenage work participation can lead to lower participation in formal education whether at university or vocational level. There is some evidence that this has been happening in Australia.

Avoiding contract woes - defining the need

Photo: Gordon Smith, Apsley Lower Falls, near Walcha, New England Tablelands, Eastern Australia

Great gorges cut their way through the eastern edge of Australia's New England Tablelands. Peaceful countryside suddenly gives way to jagged cliffs.

This is very like contracts. Conceived in peaceful country, disputes suddenly move the parties over the edge of the cliff into the rugged gorges below.

It may sound dumb, but in our experience the biggest problem with contracts comes from failure to define the purpose the contract is to meet.

Too often in the desire to complete the deal, parties rush to complete the contract. Far too often, also, contractual matters are left to lawyers.

A contract is first and foremost the legal wrapping that goes around a business deal. If you haven't defined the deal properly, then the legal wrapping will be imperfect.

As professionals, the core role of lawyers is to provide advice on legal issues. They cannot be expected to compensate for your failure to define what you want or are prepared to offer. The clearer your advice to them, the better they will be able advise you and at a lower cost.

Telstra - the shareholders are revolting

For the benefit of international readers, Telstra is Australia's major telco and one of Australia's largest public companies. It has also just suffered the major embarrassment of having shareholders reject the remuneration package for its CEO.

The vote is not binding, but is still places the board in a difficult position. Could the board have avoided the problem? Probably, but only if it had been far more open than appears to have been the case.

Management Perspectives - Country Traffic

We have just been reviewing to country of origin of our visitors. To our surprise, by far the largest group (34%) comes from the US, followed by Australia (23%) and then the UK (9%).

The US dominance was a bit of a surprise because this blog presently has an Australian bias. Now that we are changing directions to better reflect our title, it will be interesting to see how the country pattern changes.

Management Perspectives Changes Direction

When this blog was set up twelve months ago, we had two objectives.

First, we wanted to use the blog to communicate among Ndarala members. This objective has simply not worked. We have multiple other communications devices.

Secondly, we saw the blog as a device for exposing some of our thinking to a wider audience. This one has worked, but not to the degree we hoped.

Part of the problem is that our people have just been so busy. A second problem is that some of the material that we have published has been too complex to work properly in a blog format.

As our perspective changed, we changed the blog name to Management Perspectives to better reflect our changing scope. Now we want to go the next step.

While there is a lot of business commentary and financial analysis, there is a lot less writing about business and management issues from a management perspective. This gap also gives us an opportunity to talk about some of the things that we do.

Corporate games and brand destruction - the end of Coles

G J Coles is one of Australia's iconic brands. The company grew to dominate the Australian retail scene. Woolworths, its main rival, was in disarray.

Woolworths came back. As it did, Coles declined. Now Coles is vanishing as a public company, taken over by the WA based Wesfarmers.

Frankly, Coles deserved to go. To the outside observer, its arteries had become clogged. This applied all the way from its recruitment system, cumbersome and unresponsive, to its management of specific store activities.

Coles always tried to run as a centralised entity. This can provide economic gains, but it can also make the whole operation slow and unresponsive. And in Coles' case it did.

Welcome to Visitor 4,000

Well, it took a little while, but visitor 4,000 arrived today. Someone from Fresh Meadows in the United States who searched on common management issues.

Welcome.

The Dangers of Google's Market Dominance

Interesting article by Paul McIntyre in the SMH, October 18, 2007.

Paul notes that Australians have been warned that their unwavering loyalty to Google as their default search engine risks triggering huge price rises for paid search advertising, a trend that has forced some advertisers in Britain out this advertising mode.

According to Paul, an estimated 40 per cent of the $1 billion Australian internet advertising sector is spent on paid search. He quotes the warning of John Tawadros, the worldwide chief operating officer of the search engine marketing group iProspect, that Google's market dominance meant prices could only escalate in Australia.

In the US, Google North America controls 62 per cent of all search requests, followed by Yahoo! with 25 per cent and MSN on 4 per cent. In Australia, google.com.au has 72 per cent, google.com has another 17 per cent, 89 per cent in all. Yahoo and MSN in Australia account for 4 per cent each of Australian search requests.

The increasing cost trend to paid listings has encouraged many companies to focus on organic search, a form of search familiar to all bloggers. After all, we do monitor where our traffic comes from!

I cannot see paid listings disappearing. The market place corrects. In this context, I have noticed a downward trend in the Ad Sense per click values across a number a number of sites that I monitor.

Being an un-person - with thanks to Legal Eagle

A very interesting post from Legal Eagle on 11 October. The post begins:

I really hate being a sessional lecturer. Most of the time, I feel like I’m an un-person as far as this university is concerned. I do not have a proper office; I have to squat in the office of whichever person happens to be on leave at the time. I do not have a proper phone number; I have the phone of the person in whose office I am presently “squatting”, so there’s no point writing it down as a contact number, because it will change in a few months. I am not on the official website as a staff member. I’m not on the staff e-mail list. I do not get a business card. I do not get a parking space. I have to pay an exorbitant yearly fee in order to be able to park in the staff parking lot. Ironically, if I had a proper ongoing position, I would not have to pay this fee, even though my income would be higher. I don’t get sick days, I don’t get holiday pay and I don’t get maternity leave.

I won't repeat Legal Eagle's whole post. It is a good post and I encourage you to read it. However, the post drives to a broader issue, the way temporary and contract staff are treated by modern organisations.

It is, I think, a fact that many organisations today rely on contract and temporary staff. Such staff used to be used just to fill gaps, to meet special needs. Today, they are used as an alternative to permanent staff.

The difficulty in this is that most organisations do not know how to use these resources effectively. There appear to be two models.

The first is the example given by Legal Eagle. Here the temporary or contract staff are used as cannon fodder, as a way of cutting costs. In the second, they are treated in the same way as permanent staff right down to compliance with policies and procedures designed to manage those staff. Neither approach is very sensible.

In the first case, organisations lose because of reduced loyalty and enthusiasm. In the second, organisations lose because they waste staff time. They can also reduce reduce staff enthusiasm, because temporary staff feel (often correctly) that some of the things they are required to do a just plain silly.

The bottom line in all this is that if you are going to use temporary staff and contractors on a regular basis and want to get best results, you need to define a specific approach to their management.

Constant Reinvention - the challenge for the independent professional

One of the key challenges facing all independent professionals is the need for constant reinvention.

I think that it was David Maister who said a long time ago that we all mine our experience. This provides the stock-in-trade, the knowledge and skills, that we use to gain clients and to meet their needs.

The problem we all face is that needs change. As they do, a gap opens between our existing knowledge and skills and market requirements. Sometimes this translates to a slow erosion in market position. At other times, sudden market shifts can lead to a sudden collapse in work, leaving the independent floundering around.

This problem is common across all professions and for all professionals. But it is most acute for the independent, because independents generally lack the back-up and professional interaction that comes from belonging to a firm.

Ian Dean, one of my Ndarala colleagues, argues that the solution to this lies in regular reviews of what we do, how we do it, what we have learned. At the end of every six or twelve months you should be able to point to specific advances that you hope will provide the basis for future work.

Ian is right, of course, but dear it can be hard to do in the midst of the pressures of daily life, harder still if your work is dropping and you are worried about getting the next job.

Problems here can compound through loss of confidence and consequent decline in self-image. This affects the way we think and present, in turn affecting the way clients see us.

I do not have a magic solution to this problem. I do know two things, however.

The first is that we have to try to build some development activity into our daily life, no matter what the pressures. Second, we have to stop letting external problems including the reactions of others dictate how we think about ourselves.

I know that the last is more easily said than done, but it is still critical. We cannot control the external world. We can, at least to a degree, manage the way we respond to that changing world.

Economics of Professional Services 7 - sensitivity issues in time based charging

Having established basic parameters for normal time based charging in previous posts, we can now look at some of the variables likely to affect outcomes and the way they should be handled for planning purposes.

The first variable is treatment of write-offs/write-ups.

A write-off arises when time spent cannot be recovered, whereas write-ups involve billings beyond the direct time involved. The first reduces average fees, the second increases average fees.

Both write-offs and write-ups are of particular importance in fixed price jobs.The higher the proportion of work derived from fixed price contracts, the greater the attention that must be paid to unders and overs.

Sensible business development therefore requires a conscious approach to the measurement and management of both write-offs and write-ups.

The second variable is the size and management of workload fluctuations.

Calculation of time and charge targets is based on time available in a period. Fluctuating workloads can play havoc with such calculations in creating alternative periods of under and over capacity. To the degree that extra resources have to be bought in during peak periods or jobs foregone, then either costs are increased or revenue reduced.

The degree of problem will vary from business to business. In all cases, a conscious management policy should be adopted to minimise the impact of workload fluctuations.

The options here include:

• expanding working hours to cope. This approach is more feasible where planning has been based on eight hour days and reasonable billings targets, since this creates short term overflow capacity.
• reducing revenue and profit targets to match internal resources more closely to peak workloads. This approach can make a lot of sense if combined with a policy of concentrating on higher yield work, deliberately weeding out lower yield work.
• carefully scheduling both charge and non-charge activities to maximise the value of available time: developmental activities can be defined in advance to be carried out in low charge periods; work on jobs can be started in advance of formal start dates; alternatively, work on specific assignments can be slowed down.
• deliberately outsourcing work, using rises and falls in use of external resources to protect internal resources from the impact of workload fluctuations. Under this approach, targets are set in such a way as to fully utilise core resources, with work beyond this point outsourced.
• The critical question here is the likely scale of workload fluctuations. To illustrate by example, the full utilisation of internal resources at all times may be associated with workload peaks of up to 160 per cent of capacity, with an average of 30 per cent. In this case, marketing targets would be set at 130 per cent of internal capacity, while resource planning and costing would include allowance for maximum use of external resources of 60 per cent of internal capacity for defined periods.
• deliberately managing marketing activities to try to generate a more even work flow. One of the features of workload fluctuations is the way they can be entrenched by the production/marketing cycle. In high work load periods marketing declines, leading to a fall in new work. As work falls, marketing increases, leading to a subsequent new work peak, again marked by low marketing. Thus workload fluctuations lead to marketing fluctuations which in turn lead to workload fluctuations.

The third variable is the composition of work.

All jobs contain a mixture of activities. Because market rates vary with type of work, so the real return from the job will vary with the mix of activities contained within it.

Large consulting practices mix and match varying levels of charge staff to take this mix into account. Among other things, this allows partners and other high level staff to achieve high personal charge rates since they can concentrate their time on high billable activities.

The independent does not normally have this luxury, personally completing all the different mix of activities relating to the job. This factor alone is sufficient to explain the normal difference in personal billings between independents and equivalent capability partners in major firms.

As the composition of work changes, so returns will vary. It is therefore very important to be aware of both the activity composition of particular jobs and changing types of activity over time.

Most independents handle this problem on one of three ways.

• they ignore it entirely, simply quoting whatever price they consider necessary to get the job regardless of daily or hourly charge rates. In this context, many independents do not have in fact have standard charge rates. This approach nearly always leads to below average returns
• they apply a standard charge rate to the time involved in all jobs regardless of activity mix. This approach gives better results in that the return on specific jobs is more certain. However, it is likely to lead to over and under bidding. The first means loss of work, the second loss of profits
• they concentrate on relatively uniform work types related to their capabilities, thus effectively minimising the problem.

In practice, the best way of managing the problem depends upon the particular business but is likely to involve:

• analysis of the changing patterns of work to determine the mix involved. Without this, the practice is flying blind.
• a measure of concentration on particular types of work.
• a deliberate policy of subcontracting work, concentrating internal resources on higher level activities.

Most independents feel that they are too close to the line to follow the third option, subcontracting. This may be true, but comes at a price. Using another consultant, a casual or a shared resource allows the independent to concentrate not just on higher level production, but also on business development and marketing, thus growing the business. It also builds longer term capabilities. The alternative approach can lock the independent into a vicious, low yield, cycle.

The composition of work also affects the ability to vary charge rates.

Calculation of charge rates allows for down, business development and marketing time. Because larger long term jobs reduce the need for marketing time, rates can be reduced without affecting the bottom line.

To illustrate by example, postulate a $1000 daily charge rate with a 60 per cent charge target. This combination means an average daily yield across the whole year of $600 per day. The same consultant working full time on an assignment for an extended period can charge out at around $600 per day instead of $1000 and still generate the same fees.

Introductory post. Previous post. Next post.

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

Economics of Professional Services 6 - use of associates

Most small firms use associates or other subcontractors to fill capability gaps and to leverage performance.

The costs associated with subcontractors represent a disbursement, the costs directly involved in doing a job. From the perspective of the individual business, the critical questions are:

• the impact of subcontractors on net fees, fees remaining after disbursements.
• the way subcontractors are to be treated for business planning purposes.

Answers to both questions depend upon the role subcontractors are to play in the business and the precise financial relationship between the subcontractor and the business.

Traditionally, small consultants use subcontractors as an add-on to gain specific jobs. Because the focus is on net fees to the practice from their own time, subcontractor issues are generally ignored. The sub-contractor is paid their standard rate, the client is charged that rate.

The Ndarala model is different in that it is specifically based, among other things. on cross-selling and work sharing. If the model is to work, marketing targets have to be increased to cover not just direct net fees but also a specific minimum allowance for work to be placed with other Genesis members.

The exact impact of this upon the business plan and firm economics depends upon the nature of subcontractor relationships. Note here:

• the firm gaining the work has to receive a return from its marketing efforts. This has to come either from cost recovery or from cross selling
• time, costs and risks are involved in managing other people in a job. As a simple example, if sixty per cent of work is subcontracted, then the prime firm bears 100 per cent of the risk for 40 per cent of the work. A reward has to be received for these risks and costs.

In the Ndarala case we have tried to accommodate these issues through an internal system of fee discounts - generally twenty per cent - combined with marketing commissions on work brought in of up to twenty per cent.

In theory, this should allow a practice to build a solid business based around the conscious use of fellow Ndarala professionals. While this has encouraged cooperation, it has not delivered the results we originally hoped for for two main reasons:

• First, management of associates is a business and management skill in itself, one that has to be consciously acquired. From experience, while most independent professionals do have project management skills, they lack management skills. Mind you, that is not unique to them!
• Secondly, building a business around the conscious use of associates or other subcontractors requires a shift in business thinking. Without this, associates will always remain an add-on.

I make this point based on our own experience because I find that many professionals are still interested in leveraging their returns from the use of others. So they do need to think through the issues.

The contracting firms themselves that have extended their reach in recent years are themselves an example of leverage. Generally they take a far higher proportion of the fee charged to the client - up to two thirds - but they also find the work and take care of the paper work, something that can be very attractive.

So associates can work in increasing your yield, but you need to think the issues through.

Introductory post. Previous post. Next post.

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

Why Lightbulb Works - a case study in business blogging

Photo: Noric Dilanchian.

Ndarala member practice, Dilanchian Lawyers & Consultants of Sydney, has used it general web site and especially its blog to great effect. Noric Dilanchian supplied Des Walsh with a brief statement on the role of the Dilanchian blog. I am repeating it here because it is an interesting case study.

The Post

The Lightbulb blog on our http://www.dilanchian.com.au/ website is 12 months old. That makes it a new born. Our website is five years old, which makes it ready for primary school. As for some of the writing in the Library section of our blog, it's about 18 years old, which means it is now adult content.

Making the baby blog a success among its siblings has required passionate stories, research notes, investigative reports and other types of writing. In shorthand, we call them posts, like everyone else. The rare post which works to generate client enquiries is heart-felt, has a logical structure, has an edge or smarts or even humour, provides practical advice and keeps it real for the specific audience we have in mind when we select the post's topic, title, style and positioning.

Being topical, controversial and prolific are not necessarily virtues when it comes to generating client enquiries from our Lightbulb blog. The effect of the rare post that works is to both capture and communicate our insights and capability as lawyers and consultants with decades of experience. Those posts engage prospects to explore our blog further. They make them go beyond one page. They make them check out the blog's siblings and read or scan between say 5 to 30 pages of our extensive website.

At a certain point, typically after browsing between 5 to 30 pages, some of our visitors turn into prospective clients when they are moved to call or email us with an enquiry. How we then respond to serve some as new clients, or refer them to others, is an important part of how we benefit from our blog.

Our broader web site content clearly helps our blog greatly. There are many lessons here.

Also essential is our consistent use of all the usual search engine optimisation habits and our regular monthly enewsletter. While digital media has made publishing and communication faster, easier and cheaper, to get to the best form of communication (which I believe to be theatre and conversation, that's particularly because both are interactive) you have to have something worth saying and a voice, ie an ability to communicate in an engaging way.

You have to add to all this your dedicated time, commitment, devotion to maintaining first rate publishing standards, energy and good karma. It's not something you can do on your own. Like all authors, it helps to have colleagues and friends who can help you in research, check your assumptions, and give you regular leads, feedback, technology ideas and editing suggestions.

Despite the huge effort it involves, I have found having a blog a very special experience. As intellectual property and business law specialists, we consider it a vital service to our clients to regularly scan or go over the horizon and report back to our clients to give them advanced guidance, all in language they can understand and media that engages them. A blog has added to the ways we achieve this.

The Economics of Professional Services 5 - normal time based charging

Most professional services businesses derive the majority of their revenue from time based charging. Revenue therefore depends upon the combination of billable hours times the charge out rate achieved per billable hour.

CALCULATING MAXIMUM BILLABLE HOURS

In theory, there are 365 days in a year. In practice, time needs to be taken out for weekends, holidays and illness. This holds, or should hold, even for the sole practitioner.

Deducting this down time, there are around 220 available working days in an ordinary year. With eight working hours per day, this gives a maximum of 1760 working hours in a full year.

Note that the eight hours per day should hold even for the sole practitioner. We work to live, not live to work.

I know that the reality is that many of the big shops work on more hours than this. Yet the real core economics of the practice do revolve around this lower figure.

Not all the 1760 hours is available for charge. Time has to be spent on business development, marketing and administration. The next step, therefore, is to calculate the charge target, the real time available for client specific work.

There is no absolutely correct figure here. However, as a guide:

• within the constraints set by an eight hour day, the sole practitioner is unlikely to be able to achieve more than sixty per cent charge time
• charge targets for junior staff members are generally higher, round eighty per cent
• with partners or team leaders, charge time will be lower because of greater marketing, business development and administrative responsibilities.

Once charge targets have been set for each staff member, total available charge time can be calculated by simply adding the staff totals together.

CALCULATING TARGET AVERAGE CHARGE RATES

Available charge time can now be used to calculate target charge rates.

Each business has to cover its costs plus the desired profit. Proprietor’s income can be counted as either a cost or included in profits.

Both approaches are followed in practice. However, it is generally desirable to make a distinction between:

• the target return for the proprietor’s labour which should be counted as a cost
• the target return on capital which should be profit.

Once costs and target profits have been calculated, target average charge rates can be calculated by dividing available charge hours into target revenue.This gives the average billings per hour that must be achieved if the practice is to achieve its financial targets.

Note that this calculation provides a basic reality check. If the average charge target cannot be achieved, then the whole business plan must be revisited.

CALCULATING INDIVIDUAL CHARGE RATES AND CHARGE TARGETS

Once the average charge target rate has been calculated, it should be broken up by staff member or staff category.

There are no absolute rules governing charge rates. Charge rates vary for different professional categories, for different types of work and by industry and market position.

Once the average charge rate target has been broken up into charge rates for individuals or staff categories, individual billings targets can be calculated by multiplying charge rates by target billable hours.

Once this task is done, we will have calculated:

• available billable hours in total and by staff member and staff category
• revenue targets covering both costs and desired profits
• the average charge rate necessary to achieve target revenues
• the average individual/staff category charge rate necessary to achieve the average
• individual charge targets required to achieve total revenues.

Introductory post. Previous post. Next post.

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

The Economics of Professional Services 4 - sources of income

This next series of posts reviews the normal sources of income open to a consulting practice.and discusses the variables likely to affect those sources of income. It aims to improve business performance by improving understanding of and therefore the capacity to manage the various variables involved.

Our discussion begins with an analysis of normal time based charging since this is the way most practices earn their income.

The chapter then reviews a number of ways of increasing returns on particular jobs:

• multiple charging
• the role of cost recovery in ensuring proper returns
• the use of special levies
• and the way in which structured approaches to intellectual property and productisation can be used to improve returns

Introductory post. Previous post. Next post.

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

The Economics of Professional Services 3 - structure of the guide

This guide provides a basic introduction to the economics of professional services with the aim of providing information for use in business planning and practice development.

The guide draws from a big consulting background. However, the core lessons are just as relevant if not more so for a single person operation since single operators are generally much closer to the margin.

This post itself is meant to provide an overview of the guide. Because of the way that we are presenting this material as a series of blog posts, we will add to this post as we go along.

Introductory post. Previous post. Next post.

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

The Economics of Professional Services 2 - Definitions

This second post simply provides some definitions. We will add to these as we proceed.

Billings

The term billings simply describes the value of work actually billed to the client. These billings will include disbursements if these are to be recovered from the client.

Disbursements

Disbursements are simply the cash-out costs directly involved in doing the job.These may be very small, bus or taxi fares, phone costs. However, in some consulting work they can be very substantial, especially where subcontractors are used.

Financial Flows

These simply definitions provide the basic financial structure for the standard professional services firm.

As we do the work we create WIP. As our future billings, WIP is a key asset of the firm.WIP minus any write downs plus any write ups then translates into billings as we bill the client. So in balance sheet terms the WIP asset has been replaced by accounts receivable. Then as the client pays, accounts receivable become cash.

Gross Fees

Gross fees simply describes the total value of work we have or will bill the client.

Net Fees

Net fees, the amount we actually get for the job, equals gross fees minus disbursements. This is our real income.

Prepayments

Clients may pay us in advance for part of the work.In some cases, law is an example, these may be placed in a trust account and excluded from firm accounts until the funds are drawn down upon billing. In consulting, advance payments may be made upon contract start or on meeting certain milestones to help fund the job. In these cases, the prepayment is formally a liability in an accounting sense, diminishing as work is done and WIP created.

Work in Progress

Work in progress or WIP represents work done but not yet billed. It includes disbursements where these are to be charged to the client.

Write Ups, Write Downs

Actual billings need not equal WIP. When we come to bill, we may find that we cannot bill the client for all the time involved. In this case, we have to write WIP down. In other cases, we may be able to bill more than the time directly involved. In these cases WIP is written up.

As an aside, write downs are not necessarily bad, write ups not necessarily good. A firm without WIP write downs may be undercharging, a firm with write ups over charging. It depends upon the circumstances.

Previous post. Next post.

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

The Economics of Professional Services 1 - preface

It is now eleven years since Ndarala first emerged as a network, while some Ndarala professionals have in fact been in professional practice for more than thirty years. During that time, we have generated a very wide range of material for both clients and ordinary operational purposes.

Understandably, the economics of professional services has been an enduring concern. In this context, some ten years ago I began the preparation of a book on the economics of professional services to draw some of this material together.

While I still hope to complete this at some stage, the daily pressures of life have kept intervening. For that reason, we have decided to run excerpts of some of this material both to make it more broadly accessible and to encourage further work.

As with most of these series, we will use this post as an entry point, adding details of subsequent posts at the bottom.

Comments and questions are very welcome.

Posts in the series

1. Preface - this post
2. Definitions
3. Structure of the guide
4. Sources of income
5. Normal time based charging
6. Use of associates
7. Sensitivity issues in time based charging

Note on copyright

This material is copyright Jim Belshaw. It may be reproduced or quoted with due acknowledgement.

Management Perspectives - Blog perfomance review August 07

Another month, another performance review.

In my July perfomance review I mentioned that blog traffic had been well down because of irregular posting. This has continued to be something of a problem. Still, August traffic was well up from July, September traffic will pass August, so things are heading in the right direction.

Again, the pattern of top entry pages has changed.

After the front page, by far the most popular entry page was the Importance of Demography and Demographic Change - update. This stocktake post drew together various demographic posts as at 10 February 2007.

This was followed with a reasonable lag by Changes in Public Administration and their Impact on Public Policy 1 - Introduction. As the name says, this is the first post in a series and was in fact the lead entry post after the front page in July.

Then further back came five equal posts.

The first was a case study, RANZCO Setting the Standard - Developing Ophthalmic Competencies, looking (as the name said) at the development of ophthalmic competencies.

Then came A New Way of Ranking Universities by Student Experience, a post dealing with the development of a new measure of university rankings. The following post also dealt with higher education - Changes in Higher education - UNSW's Singapore Problems.

The last two equal entry points were both management related, Common Management Problems Series 1 - Dealing with poor performers 2 and the management techniques label.

One interesting feature of the month was the ratio between visitors and page views. Each visitor looked at an average of 1.9 pages. This is quite good.

Finally, and as an afterthought, the following graphic sets out traffic by country.

Personal Networking Strategy in an On-line World

There was an interesting post by Dennis D. McDonald addressing this question: would you benefit from having a personal online networking strategy?

In Dennis's view, a "personal online networking strategy" is a coherent view of how you use various media for communicating and managing relationships with other individuals and groups.

Now I actually wish that I had read this before I gaily sailed forth. Then, a Google search on Belshaw generated less than a thousand hits. Today, there are more than 492,000. Of these, as best I can work out, something over 10,000 link in some way to me.

Now I am not complaining. It's just that when I ventured forth into the on-line world I had no idea so that so many aspects of what I do or think about in both personal and professional life would become so visible. It becomes very hard to hide!

Maybe if I had thought about it, I would have gone a different route. But then, perhaps not. Still, I would have done things in a more conscious way.

I commend Dennis's post to you as a short, simple, introduction to the things that need to be considered.

The Use and Abuse of Standardisation - Introduction

Standardisation - the adoption of uniform standards or ways of doing things - has become very popular. We can see this across all parts of modern economic life and beyond. But has this delivered the economic grail that we all expected? Increasingly, we have our doubts.

Take, as an example, the application of project management techniques. Now we support these, and indeed have written an introduction to project management in a series of posts on this blog. But real problems can arise where the techniques are enforced mechanistically in isolation of the purpose to be served.

Take, as a simple example, the time involved in preparing and administering project plans. Pretty obviously, this has to be related to the size, complexity and importance of the project.

Application of full blown project management techniques to a small project is a bit like using a sledge hammer to crack a nut. Yet we have recently seen a case where in time terms, project management itself absorbed more then 40 per cent of the staff time devoted to a project. This was not the fault of the project managers themselves, but of the environment in which they were forced to operate.

Take as a second example the concept of skunk works, the topic of a post on another Group blog. Skunk works work because they break a project out of the standardised command and control processes that are such a feature of modern organisations. Whatever the advantages of these processes, they can act to stifle innovation and rapid response.

In all this, we are not saying that standardisation itself is a bad thing, simply that it has to be applied in a common sense way.

The independent professional - getting paid

All independent professionals worry about getting paid. A big firm can carry a slow payer, even write off a debt. Independent professionals do not have this luxury.

In this context, Dennis Howlett carried a useful post on his AccMan blog on the problem that is worth reading by all independent professionals.

Social Networking - A Group Is Its Own Worst Enemy

Interesting article from Clay Shirky on the sociology of on-line groups. It's a little old now, 2003, but still good for all that.

As a collective, we have long been interested in this topic for two reasons. Some of us consult in the area and hence are interested for professional reasons. Then, too, we have tried to us the technology to keep our own distributed network in contact.

The second has been less successful than the first. The reasons are simple. While a fair bit of the new social networking technology aims to facilitate and support the creation of groups, we are already one. So the technology has to fit into existing structures, group dynamics and processes. And here it does not work as well.

A core reason for this is that our people judge the technology in terms of its immediate contribution to their personal and professional objectives in a Group context. Here they judge the time taken to learn to use the technology plus the time taken then to use it against the returns. And too much technology fails this very basic test.

Community Creativity and Development - Introduction

Community development has been a long standing interest of a number of Ndarala professionals both as community activists and in terms of the processes involved. Why do some communities develop, others stagnate? Are there specific things that can be done to enhance community creativity.

This series of posts consolidates an earlier discussion thread on these questions. Again, we are presenting them as an integrated series with this as the first post.

The thread was triggered in part by a discussion on the role that history plays in both impeding and assisting organisational change. In summary, organisational history is often ignored or seen as an impediment, especially by new broom CEO's. Change is required, we must get rid of the past. Yet the reality, at least as we see it, is that cultural change depends upon understanding existing history and culture, is most effective when related to that history. The challenge is to find the right way to understand and respond to both history and culture.

A second linked discussion thread was the difference between individual and organisational creativity. This one was triggered by a post by Jeffrey Baumgartner on Nava Shalev's Global Relocation Portal blog - http://www.globalrelocation.ca/blog/. In this post Jeffrey makes a clear distinction between the two and argues that organisations must consciously manage organisational creativity if they are to maximise individual creativity.

Now that's fair enough. But like the earlier and related concept of the "learning" organisation, management of organisational creativity is actually a slippery topic.

Organisations can, as Jeffrey suggests, adopt policies that will encourage creativity at individual level, they can consciously bring in new people from different areas (I am always astonished at the way organisations want to just recruit people from narrowly defined experience slices), they can use multi-function teams. But is this the management of organisational creativity or simply the creation of conditions that will encourage creativity? Is is possible to go further than this? Does it in fact matter?

As consultants and managers, our experience has been that there are in fact creative organisations, that the whole can be greater than the sum of the parts, that it does therefore matter. However, getting this across properly to clients is hard because so much of it is "soft" stuff, things that cannot be directly measured. And we live in a measurement age.

How does this link to community creativity and development?

Two of my colleagues - Tom Schwarz (Kinnogene Australia) and David Jago (Smart Meetings http://www.smartmeetings.com.au/) - have been working on the development of new facilitation approaches at community level intended to help communities resolve problems and take greater responsibility for their own development.

This work links to the broader question. Why do some communities develop despite the odds while others in apparently similar positions stagnate or decline?

The answer appears to lie in the presence of key champions. However, when we dig down we find that it is normally the combination of those champions with community history, structure and culture that creates the positive outcome. Champions on their own do not appear to be enough. This equates to the difference between organisational and individual creativity referred to by Jeffrey Baumgartner.

Next post

Community Creativity and Development - a town like Alice

In my last post I posed the question why do some communities develop despite the odds while others in apparently similar positions stagnate or decline?

I suggested that it was the normally the combination of key champions with community history, structure and culture that creates the positive outcome. Champions on their own did not appear to be enough. I suggested that this equated to the difference between organisational and individual creativity referred to by Jeffrey Baumgartner. As an aside, Jeffrey's web site - http://www.jpb.com/index.php - is worth a visit for all those interested in creativity.

One of my favourite books when I was a kid was Neville Schute's A Town like Alice. I was not so much interested in the first part set in Malaya during the Second World War, but in the second half. There the English girl comes to a small Northern Australian cattle town in search of the Australian bloke she met in Malaya. Deciding that the place must change if she is to stay there, she sets it on a development path through business creation, with each business feeding into and reinforcing the next.

I have no doubt that this can work in particular times at particular places. A modern example is the impact on the old gold mining settlement of Nundle (http://www.nundle.info/) of the establishment of Nundle Woollen Mills. However, in most cases more is required.

Take the case of the New England (Australia) cities of Armidale and Tamworth as an example.These cities are traditional rivals. Tamworth has seen Armidale as academic, snobbish and effete. Armidale has seen Tamworth as crassly commercial and narrow. I have stereotyped these views, but it gives the picture.

Some time ago I returned to the University of New England to do some postgraduate work in history. Part of this focused on differences between towns, the way this affected history and development. This led me to wonder why it was that Tamworth and Armidale had such different development patterns, why in the thirty years after 1930 Tamworth had seen business start after business start, while Armidale's business community remained static and largely unchanging.

The usual explanation given at the time for Tamworth's growth as compared to Armidale lay in the economic difference between farming and grazing. The farms around Tamworth created a much larger market place than the more sparsely inhabited grazing properties around Armidale. This was true, but I did not feel that it was a sufficient condition.

When I looked in more detail at business creation in Tamworth, I found a pattern of business creation chains in which one business led to another. I also found that Tamworth business people demonstrated a willingness to put money into new starts, making it easier to get things of the ground. There was no such pattern in Armidale. Tamworth simply had a more entrepreneurial and outward looking culture than Armidale, making it easier to get new things of the ground.

Later, when I was trying to run a national consulting business out of Armidale while also trying to play an active role in community development, I found that many of the same traditional cultural patterns still remained, making it hard to get new things of the ground.

Returning to my starting point, the Armidale/Tamworth example illustrates the difference between individual and organisational creativity.

Armidale has many creative people, generating far more academics, writers, playwrights than Tamworth. It is a hugely attractive city in life style terms. But when it comes to business or doing new things - Country Music is an example - requiring cooperation, Tamworth beats Armidale hands down simply because it has greater community creativity.

Introductory post. Next post

Alan Sarkissian - Audience of One

I been meaning for a little while to mention again that Alan Sarkissian - the Grand Poo-Baa of Audience of One - has finally established his own web site.

Audience of One has been an Ndarala members for several years. Alan himself is a practical marketer with a special focus on the marketing challenges faced by small and medium businesses especially in the professional services area.

The site includes some useful marketing resources.

Community Creativity and Development - understanding existing community structures

In the second post in this series, I looked among other things at Armidale and Tamworth as a case study of the way in which different local history and culture affected development, arguing that Tamworth's faster business development was directly related to its culture.

Anybody who has dealt with cultural issues at organisational or community level knows that culture is hard and slow to change. So if the culture is opposed to something, that thing will be slow to happen. Given all this, is it in fact possible to improve creativity at community level?

In our view, the answer is clearly yes if the approach is linked to and set within a frame determined by the existing culture. We also think that the answer can be yes - although outcomes are less certain - where approaches require cultural change so long as the cultural change issue is approached indirectly. So how might we do this?

As a strategic consultant, my starting point in dealing with change in organisations is to get to understand the organisation's existing structure and culture since these will strongly influence what can be done, more strongly how it might be done. In conventional consulting terms we often call this a diagnostic.

Exactly the same applies at community level. We need a community diagnostic.

Now when we look at the way this is often done we find a focus on economic factors if the core concern is economic development, social symptoms if the driver is a community problem such as violence in indigenous communities. While both are important, our focus is different.

To begin with, the objective of the community diagnostic as I see it is not to prescribe - any solutions or actions come later - but to understand just where the community currently stands. So it is descriptive and analytical.

All communities have their own economic and population structures, their own embedded attitudes, individual power structures and contact networks, their own social infrastructure. These need to be understood.

In saying this, I am not suggesting that the community diagnostic needs to become a detailed sociological study of the type made famous in Australia by Wild's Bradstow, a pioneering study of Bowral. My focus is strictly practical, acquisition of the information required for community development purposes.

Now there is an obvious problem here in that this type of analysis can be very sensitive indeed. There are several ways of handling this, depending on who is doing the analysis and for what purpose.

Where a professional facilitator or economic development professional is being used, then that professional - while needing to understand - may need to make judgements as to how much to say and how to say it. If your client is the local council, how do you tell the council that it is part of the problem?

Things can in fact be a little easier if the diagnostic is being done by a community activist or group of activists for their own purposes, since they will already have some understanding of the dynamics of the local scene. However, they are likely to suffer from bias induced by closeness. Here the challenge is to follow a sufficiently objective process so that biases are exposed and tested. In all cases, the best initial approach is to focus strongly on factual description, avoiding value judgements.

In my next posts in this series I will try to tease all this a little more by focusing on some of the impediments to development, change and improved community creativity.

Previous post. Next post. Introductory post.

Management Perspectives - Blog performance review July 07

As you might expect, blog traffic was well down because of the way the short pause in posting I mentioned on 10 June stretched out and out. Only now am I starting to catch up. That said, there have been some interesting changes in the pattern of the top posts since my last performance review.

As before, the front page scored the highest number of visits. By far the next most popular post was Changes in Public Administration and their Impact on Public Policy 1 - Introduction. I was pleased about this, because this post is an entry point for a whole series.

The next most popular post was Demography and Demographic Change - an update. Again, this post is an entry point to a series of demographic posts.

Then came three posts with equal ranking.

The first was one of the posts in the Changes in Public Administration series: Changes in Public Administration and their Impact on Public Policy 6- A view from the Past. The second was my last blog performance review. Then came a label search on ageism. So far there are just two posts here.

The interesting thing about this list is that, apart from the front page, there is not a single post from the last list again registering in the top list.

Common Management Problems Series 1 - Introduction

Over recent months we have run a series of posts on the Managing the Professional Services Firm blog on common management problems. Our aim was to provide simple, practical, advice.

We are now grouping the posts together on this blog in a single series to make the material more accessible. As we post, the material will back-fill from this post. Each post will have a link to the next and previous post.

As always, we welcome comments.

Next post

Common Management Problems Series 1 - the isolation of being boss

I thought that it might be of interest if I shared with you from time to time some of the problems I have experienced as a manager.

Australia has what the Australian historian John Hirst has called a democracy of manners. Differences of wealth, authority and power do exist in the country and have widened in recent years. But our language and attitude are egalitarian, democratic and somewhat cynical. This flows through into the nature of relationships within organisations.

I grew up in this world. It influenced my attitudes and approaches when I first became a manager in the Commonwealth Public Service. Among other things, it meant that I identified with and was close to my staff, an approach that got very good management results. Then suddenly I was promoted again and met a problem that took me a while to even recognise.

The Australian Public Service was then broken into four divisions:

• the first division made up of the heads of Departments and senior statutory office holders - a small group - was at the top
• then came the second division, a smallish (several hundred) group of senior managers across the Service from branch head to deputy secretary level.
• followed by the third division, the main administrative/clerical division
• and then the fourth division, all the support staff.

To put all this in terms that may be more familiar, the first division was equivalent to managing partners, the second division to partners in general, the third division covers all professional staff, the fourth division paras and support staff.

At the time of the promotion I referred to I was a Chief Finance Officer (Director) in the Commonwealth Treasury in charge of a section with nine staff. I had acted as branch head for extended periods, but I was still seen in terms of my third division role. In addition, Treasury was a relatively open non-hierarchical Department in part because of the number of well educated, ambitious and highly intelligent junior staff.

I was then promoted to the Department of Industry and Commerce as its senior economist in charge of the Economic Analysis Branch. I was now a senior officer in a much more hierarchical department with three sections and seventeen staff. I had also also inherited a branch under pressure with serious internal problems that needed to be fixed.

I had made special transition arrangements and had been receiving copies of the pinks, all branch correspondence, for a month before I formally took over. I had also met all the staff at lunch and had spoken on a regular basis to the acting branch head. So I had a fair understanding of the nature of the work and indeed was already carrying out some of the duties at the time I moved across.

Then I hit a wall on arrival. I knew that there were problems, but I wanted to make my own mind up about them. And indeed I am very glad I did because the problems were not quite as they had been presented to me. But initially I found it impossible to get the information I needed to make judgments. There seemed to be some form of barrier.

I had not changed. I was still applying the management approaches that had worked so well in Treasury. So was was the difficulty? It may sound dumb, but it took a little while to work out that I was now being treated as a senior boss, that I had moved from being one of us to one of them. As a consequence, people were now filtering what they told me.

I know that this problem is not unique. I also know that most managers are aware of it, although my experience has also been that a surprising number do not recognise its full extent. I have seen too many CEOs in particular who think that they know what is going on, that they do get good information, when the opposite is clearly the case.

The first thing that I had to accept in my new role was that the problem was real and was not going to go away. It made perfect sense for my staff to treat me with a degree of caution because I was simply too important to them to do otherwise. Importantly, I was now wearing a wider range of hats so had direct responsibility for enforcing policy in a way that had not applied in the past.

I also had to accept that it was going to take time to build trust. Trust did not mean, to use an old Australian phase, being one of the boys, boys in this case including both sexes. Rather, it meant treating people consistently and fairly, protecting confidences, recognising achievement and providing top cover. We used the term top cover to recognise my continuing role in protecting my people, in ensuring that they had the operational freedom they needed to do their job.

I will write on the top cover issue in more detail later because I believe that this is an absolutely critical condition for the creation of high performing teams.

Given that the communications problem was real and that it was going to take time to build trust, I still had an immediate need to find out what was wrong in the branch, what to do about it. Here I did two things:

1. I focused on understanding work flows. What was being done, who was doing it, how was it being done, at what standard? I must emphasis that this did not mean micro-management, itself a major problem in professional services. I saw my role in setting quality standards and then letting people get on with it. As I gained understanding I was able to identify a few immediate problems that I could act on that would help people, thus building trust.
2. I also got out of my office a fair bit, just talking to people, while also encouraging a range of branch activities. Some of this was informal and social, just stopping by people's desks to ask them something, follow up something. I also tried to find ways of working with as many people as possible, trying to help them on particular tasks.

In combination, this started to give me a feel for the the real scope of branch activities, of the strengths and weaknesses of individuals, of the real problem areas. I was also able to triangulate, to look at a person or an issue using several different information sources.

People's perceptions are always imperfect.

Two of my people were perceived by the Department as non-performers. I formed a different view.

One in a fast response, high pressure area was being so badly crippled by tension induced migraine headaches as to render him a non-performer. Yet when I talked to him I found his deep knowledge of the Australian economy and of economic statistics invaluable. He also had a female staff member who I felt was being under-rated, who had considerable potential.

In this case, and with his full agreement, we restructured section operations so that the female staff member and I worked on the fast response stuff, mainly daily economic briefings to the minister, while he focused on longer term issues. His migraines eased, the standard of our economic advice improved, while the female staff member seized the opportunity, in so doing moving onto a faster promotion path.

The second case involved a deputy section head who was perceived as non-performing in large part because he could not work the required hours. When I looked at this case I found that he had a non-performing section head who spent a lot of time on a private business interests and that he was in fact trying to carry the section. I also found that he was a single father with four children, creating enormous problems for him in trying to balance work and family. There was simply no way he could be on call in the way the Department was trying to demand.

In this case I facilitated the exit of the section head. I say facilitated because the section head and I agreed that he should go on immediate leave without without pay to do other things. A little later he resigned.

In doing so I found that the Department was well aware of the performance problem. I spoke to the section head in the morning and then prepared the necessary request. The required Departmental and Public Service Board approvals came through in just two hours, with the section head on leave that afternoon. When I commented on this, I was told that it had been just too difficult to handle previously!

I now restructured the section, making the deputy section head acting section head. With his cooperation I also restructured the work to give him greater time flexibility to meet family needs with other staff providing back-up when he was not there. He was later confirmed in the section head position.

None of this would have been possible if I had not spent the time required to overcome the communication barrier created by my role as boss.

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Common Management Problems Series 1 - the over-enthusiastic boss

This post continues the Common Management Problems series, sharing with you from time to time some of the problems I have experienced as a manager. This one focuses on the dangers of the over-enthusiastic boss, a danger that I am personally prone too.

I suspect that we all know the type of person I am referring too. Brimming with enthusiasm and new ideas, he/she cannot restrain himself/herself, but immediately wants to share the new idea with those working for him/her. Staff may roll their eyes, but really have no choice but to listen.

Often, the over-enthusiastic boss has another feature as well, failure to indicate the purpose of the discussion so that staff do not know what they are meant to be doing with the discussion. Is this a new task, am I meant to be doing something with all this?

This can make over-enthusiastic bosses very poor delegators. They give new tasks before previous tasks have been completed. They also think in their enthusiasm that they are being clear when in fact staff may be completely confused but too polite to say so.

If you are an over-enthusiastic boss my advice is to pause, to take a deep breath before rushing out with the latest idea. Remember that a core part of your job is to help your people do their jobs better, and you do not do this by overloading or confusing them.

If you work for an over-enthusiastic boss your position is more difficult. However, there are a few things that you can do.

If you are not clear just what is intended by the discussion, ask. If you are being asked to do something, but it is not clear to you just what, again ask. If you are working on a priority task, then say that. Finally, if you are finding the whole approach creating really serious problems for you, then have a private chat with the boss.

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