measure outputs, not hours.
by jody padar
from success to significance: the radical cpa guide
i know you must be tired of me saying this.
more on radicalism: quick tip: 7 ways to add value and charge for it | profits: new firms, new measures | when staffers meet clients | selling product, not hours | maximizing social media: the importance of people | what are ai and bots? | true diversity means creating equity | creating more diversity in accounting firm leadership
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but the real reason why i’m able to take on more and focus my energy on expansion is because utilization isn’t relevant to my firm.
utilization needs to go. scale and capacity make utilization obsolete.
think about it: a typical cpa firm employee is available from 2,100 to 2,200 hours per year. a well-regarded utilization of 80 percent is roughly 1,700 billable hours in a year (42 weeks), and you haven’t
- done any training,
- taken vacation,
- worked on a pursuit,
- researched anything or
- attended a single internal meeting yet.
if you utilize technology, your rate will drop exponentially. that’s why billing by the hour doesn’t work in a technology-driven firm. everything takes less time because technology can do much of the work humans would typically do.
besides that, measuring utilization operates from a scarcity mindset.
the new firm is all about abundance – and believes that there are more than enough opportunities and time available to get everything done. and do you know why? technology! opportunities are not constrained by location. hello, small local global firm!
utilization has been around as long as the billable hour, and worked well when most engagements were a function of maximizing the profit from available human capital. measuring utilization and inputs is aligned with the thinking that there are scarce resources and opportunities available (hours, full-time equivalents, customers, projects), and it’s in maximizing the utility of these scarce elements that profit is maximized.
if you live in an abundant world where technology is easy to add then it makes more sense to measure value and outputs. profits are maximized. we are in an age of abundance. globalization is here.
want innovation? get rid of your timesheets!
to have space to innovate and celebrate, i would argue that you need to get rid of your timesheets. for a long time, i’ve taken the position that i don’t keep time but if you choose to keep time that is your prerogative. now i believe that the longer we stay attached to the timesheet, the further away we are from innovation in our firms. it is the inherent nature of the timesheet that stops innovation and new ideas from happening in a firm.
cpas want to measure something. time is not the right thing to measure.
when people are required to have timesheets, i’ve noticed a few things happen:
- an inherent lack of collaboration
- no incentive to look for a more efficient way
- treating team like an input and not as creative professionals
- sticking to a “can i bill for this?” mentality instead of a customer service mentality
- a lack of engagement re: pricing, and a lack of understanding the firm’s actions in relation to firm’s ability to earn revenue
our firm has been without timesheets for 10 years. we have grown and remained profitable and worked significantly less during busy season than other firms. we can manage a successful five-person team (including one remote member) without timesheets. not having timesheets allows us to work together toward delighting our customers and delivering on our productized services.
some new firms argue that the timesheet is still needed to see if jobs are profitable. to me, that’s a shortsighted approach to working in today’s new world. if we want consistent innovation, we’re going to need to adapt to new technologies, processes and business models. we’re going to need to finally ditch the timesheet. many businesses today are run without timesheets – why cpas feel they cannot be run without them is beyond me.
a modernized firm is faster and better.
technology has allowed my firm to grow. we have developed customized products for our customers. we aim to deliver our services faster, with more efficiency, while bringing more value to the customer. we are focused on their experience, which includes a healthy profit. we do this by automating some of our most basic functions
all of this is oriented to
- delivering faster services with less consumption of resources,
- adding greater value to the customer and
- giving talent a better work experience.
a firm measuring utilization will disregard these investments, as they are counter to the firm and their personal objective of keeping staff doing billable work, and rewarding self-interest and inefficiency. this is why ron baker would say that the timesheet is cancer in a firm.
product solution-based firms leverage their product/solution across multiple industries or regions. they measure the success of their work in terms of their suite of offerings.
small firms can choose customer intimacy as a differentiator and price accordingly.
organizationally, they will be categorized by product verticals, and profitability will roll up accordingly. these firms go to market with a message relating to the functional or specific problem they solve, and how their solution differentiates against other competing products or solutions. it’s the whole idea of a niche and service lines.
firms will educate the market on the problem and match their solution to the problem and the persona. as profitability is baked into the price of the product, these firms are oriented around sales metrics, units sold, revenue and attachment to complimentary products. the customer experience is consistent and reliable. as there is relatively little investment in customers, profitability at the customer level is not as important as sales and marketing targets by region and by product category.