what kind of partner is more valuable?
by august j. aquila
a pure production orientation can have negative consequences for an accounting firm.
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these consequences include a focus on internal measures, billable hours and technical aspect of tasks, and inhibit the development of a marketing orientation.
a discussion of these four consequences follows:
1. a production orientation gives the firm an internal focus rather than an external focus. by emphasizing volume, accounting firms are using internal measures to price and evaluate their services and the contributions of their accountants rather than letting the market determine the true value of the services they are offering.
i would like to suggest that firms need to change their focus from emphasizing top-line revenue to emphasizing bottom-line profitability.
to do this firms will need to take more of a value-based approach to their services.
2. a production orientation causes the firm to focus on billable hours. the use of billable hours to price services and to evaluate performance creates at least four marketing-related problems in most firms.
first, billable hours are truly the antithesis of client service. the natural incentive for accountants is to bill more hours, which results in higher fees, rather than to perform the service in the most economical fashion. the accountant may not even be aware that he or she is giving a silent – or not-so-silent – message to the client that the time spent is more important than the value provided. since the focus is on time, we may not even think about the client as much as we should. for example, it is not uncommon in many firms to have several professionals spend time in the preparation and review of a tax return. does each person really add value to the process? in most cases the answer is no. in short, there are often too many accountants assigned to an engagement.
second, billable hours focus on individual performance. now there is nothing wrong with individual performance. we all need to keep score and know where we stand throughout the year. but, as any sports team manager knows, teamwork and cooperation are just as important if they want to win the championship. for an accounting firm to win the championship – that is, to have a very successful year – both teamwork and cooperation are crucial. in addition, they are also needed for a successful accounting firm marketing program.
lack of teamwork, cooperation and interdependent goals also inhibits cross-selling. even worse, it may push someone who is not the best qualified in the firm to perform a service for a client. the results of such a scenario include a dissatisfied client, a potential write-off and possibly a lost client or lawsuit.
finally, emphasis on billable hours also encourages accountants to drift into areas where they can bill more time. these areas may not fit with the strategic direction of the firm and they may not be consistent with the strategic, growth or profitability goals of the firm. for example, joe has certain interest and skill in nonprofit accounting. the firm has decided that it does not want to take any engagements unless the realization is at least 80 percent. but since there is so much emphasis on billable production, joe continues to go after work in this area. he does reach his billable hour goal, but the overall realization is less than 60 percent. the firm feels joe has wasted his time and ultimately reduces his draw. thus, he becomes further discouraged and the firm’s profitability suffers. both joe and the firm lose in this situation.
3. a production orientation emphasizes the technical aspect of tasks, thus likely producing technicians instead of client service professionals. production-oriented firms create and encourage technicians – that is, accountants who have excellent technical abilities, but lack key competencies in building client relationships, business development, communication and listening. these accountants often develop an employee mentality rather than an entrepreneurial spirit. they either work on business that was passed on to them upon the retirement of a partner or they become more comfortable working for other accountants’ clients than going out and getting clients of their own. if this is happening in your firm, you might want to see what you are measuring and where you are placing your emphasis.
4. a production orientation keeps a firm from developing a true marketing orientation. this is perhaps the most significant and most harmful consequence of using billable production to determine compensation. emphasis on production has also resulted in professionals who do not understand the marketing orientation or its importance to the firm. such professionals equate marketing with marketing tools, such as newsletters, public relations, advertising, seminars and webinars, while failing to acknowledge the strategic value of decisions on pricing, client service and product, and delivery.
the following example is a clarification. we have two partners in two firms, firms a and b. both partners have the same talents and skills. firm a is a production-oriented firm and firm b places equal importance on marketing and production. in firm a, the partner’s compensation is based on billable hours. what do you think this partner will do and where do you think he or she will spend his or her time? in firm b, both marketing and production factor into the compensation formula. at the end of the year, each partner reports on his results. this is how they may look:
in this simplified example it is quite simple to determine which partner is worth more.