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.