Charging by the hour

“The salesman knows nothing of what he is selling save that he is charging a great deal too much for it.” – Oscar Wilde

There is a fascinating article on the New York Times website about whether accountants should charge for time spent or in some other, sadly unspecified, way that would better reflect the value they add. This issue of course applies to all professionals and knowledge workers and the article goes on to discuss the related issue about measuring such individuals’ productivity for calculation of GDP statistics and the like. However, it’s the original point about charging that I would like to take up.

The article’s author, Adam Davidson, places the start of the practice back to US lawyers realising in the 1950s that they didn’t earn as much as they would like by charging fixed-rate fees and the influential American Bar Association recommending switching to charging by the hour. As he points out, the net result is a perverse incentive for professionals to perform time consuming, often boring, work rather than the interesting stuff that maybe doesn’t take as long, but which actually draws on their specialist skills, knowledge and experience. If hours worked are billable then it is hours worked that get prioritised (1).

There is an interesting case study on exactly this subject in ‘The Psychology of Price’ by Leigh Caldwell. (It’s in Chapter 5 although the whole book is well worth reading; it has a recurring example of how to properly price a chocolate teapot which rather appealed to me). The proposed solution is ingenious, but requires a client who is either sophisticated (in which case what’s all the fuss about?) or asleep. Such clients are rare (the sophisticated ones being like hen’s teeth and the others can usually be relied upon to be dormant on every issue except the price), so what is to be done?

Personally, I suspect the answer is nothing. The article doesn’t actually explain how the ‘radical’ – their term – switch away from time-on-line billing is achieved beyond a vague hint that one should seek out customers who don’t know anything about finance and/or are actually scared of the subject. It doesn’t explore whether there are enough of these holy fools to go around. If I were a betting man I would predict that we will have to stick with hourly, or in my case daily, billing for the same reason that Churchill reputedly embraced democracy; essentially it’s the worst way of doing it except for all the others that have ever been tried.

Perhaps the only real way for interim managers and other professionals to push up prices is to change the name of the service we offer. One can charge a lot more per session for ‘aerobics’ than for ‘jumping up and down’, but it’s still based on the time spent doing it.

(1) In contrast, as anyone who has ever had the management of a project based business employing salaried staff will tell you, it is impossible to get such people to book unpaid overtime to projects even though the information thus collected would be invaluable in terms of project management and bidding on future jobs.

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Y2K

Whenever computer users (i.e. everyone) are encouraged to spend a lot of time and money reviewing and then protecting their systems against some apparent weakness or vulnerability, someone will, with good reason, raise the Y2K or Millennium bug.  Jonathan Guthrie did it in the FT’s Lombard column last Thursday (subscription required) in respect of the MI5 endorsed cyber governance health check that companies are being urged to undertake to protect themselves from the threat of hacking. Now I could write several postings on the subject of my dealings with the UK’s Security Services over the years, and maybe I will in due course, but being a man with his finger on the pulse of the news I feel it is about time that I wrote about Y2K itself.

In truth I have mixed feelings. In the lead up to the end of the 1990s I was a director in an aerospace prime contractor. We spent a lot of time and money reviewing our products both current and those still in service around the world. Despite being the CFO I have to say that I have no idea whether it was money well spent. From a personal perspective I’m glad that we did it and think it was the right thing to do. If I had been the pilot of an aircraft carrying one of our products then I think I’d have been even more certain on that point. But there was an alternative approach which, in the event, didn’t seem to result in any worse outcome.

During the relevant period I was part of a team negotiating a merger of various group businesses with their Italian state owned equivalents. One morning in 1998 we met up at Heathrow for an early flight to Rome where we were joined by a newcomer, who introduced himself as the parent company’s Y2K expert. He had apparently been asked by senior management to check out worrying reports that the Italians had neither done anything about the dreaded millennium bug nor intended to; given that, amongst other things, they were a significant player in air traffic control systems this was understandably disturbing. Our new colleague’s attendance was unexpected by our hosts as well as us and, having somehow eventually got him through the exceptionally tight security on the door despite his name not being on the guest list as it were, there was some confusion as to who on their side would be an appropriate interlocutor. Having asked several times in English who he was and what he wanted, to which he replied “2000, 2000”, they had an animated discussion in Italian, reached some sort of consensus and announced that the right man was on his way over and would shortly join us.

Eventually a large chap appeared who, and this has no relevance to the story, looked like a music hall northern Italian, complete with large moustaches, but sadly lacking a Tyrolean hat with a feather in it. He was basically a much stouter version of Gepetto – the Disney rather than the Mazzanti version. There followed a brief, confused conversation which left everyone puzzled until one of our side had an epiphany. The man they had sent for ran their part in the Eurofighter 2000 programme, the pan-European development of the aircraft which is now in service with the RAF as the Typhoon.

“No,” we all shouted “he doesn’t want to talk about Eurofighter, he wants to talk about the year 2000.” They all looked at each other and then, for those of my readers old enough to understand the simile, it was like finding oneself in the middle of a Smash advert. They were all rolling about laughing, holding their sides and stomachs until the tears ran down their cheeks, especially the last to join who, as I said before, had the build and looks for a serious bit of chortling. Somewhat sheepishly we asked what was so funny. “He is two years early.” they replied and collectively cracked up again. And that was that. There were no more discussions on the technical aspects of the millennium bug as it applied to their products and nor, as far as I am aware, did they ever do anything at all regarding the subject. We asked for, and received, financial warranties in the event of anything untoward happening in January 2000, but nothing did.

So, two approaches to the same problem with the same result, but very different costs of implementation. Even at this distance, and despite speaking as a confirmed cynic, I’m glad that we took the route we did. But the alternative is certainly worth considering next time such a choice is faced.

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OFSTED

There was an interesting opinion piece by Estelle Morris in the Guardian on Tuesday 23rd July in which she advanced more or less the same argument that I did in this blog about a month ago; namely that a lot of OFSTED inspectors aren’t up to the job. As a successful politician she is naturally more diplomatic than me in the way that she describes it, or less charitably perhaps as a former Education Secretary she has been captured by the establishment and doesn’t want to rock the boat too much. ‘Lack of consistency’ is how she terms it. Amateurs playing with peoples’ careers to fill their time is how I would describe it. One head of the inspection team at a school of which I was a governor said to me, in so many words, that she was only doing it to tide her over until her son produced a grandchild for her.

My expertise (no, seriously) is in finance rather than education per se and it was that part of the inspection that I used to deal with. It was obvious from the very first that the inspectors had no understanding of the subject beyond rudimentary checklists and that their main tool was to play a sort of bingo where if one spouted enough of the right buzz words to make a metaphorical line up, down or diagonally on their report card then one was deemed to be in control, and if one didn’t then one was marked as unsatisfactory. The real issue facing the school was that it had a single form entry in a newly built school with classrooms designed for a maximum class size of thirty and with no land available for the school ever to be expanded. That may sound wonderful from the point of view of the teachers and pupils, but under the ludicrous system of per capita funding introduced under the Thatcher government (aka ‘the money follows the pupil’) the school could never, repeat never, be financially viable. It was not possible for either the school or the local authority to have this discussion with the inspectors. They didn’t want to know and performed the bureaucrats equivalent of putting their fingers in their ears and saying ‘la, la, la’.

So, as Baroness Morris says in more considered language: ‘we need to be reassured by OFSTED that it is […] dealing with its own underperformance. […] our children deserve no less.’

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‘There are such a lot of good ways to be bad’

‘Happy families are all alike; every unhappy family is unhappy in its own way.’ – Tolstoy

Whenever a stranger asks me what I am reading on my kindle I always reply “Proust”. No-one so far has known what to say next and I am thus spared having to strike up a conversation. It is a technique that has wider applications than simply satisfying my misanthropy; I regularly use something similar on assignments.

This blog takes its name from a quote in the novel with probably the most famous opening sentence in literature. However, the line above (the one from Leo Tolstoy rather than the one from Steve Marriott) must come close behind. My very arrival within a company is of itself conclusive evidence of ‘unhappiness’ if we interpret that word widely. Something needs to be sorted out and they can’t sort it out themselves. But, as philosophers from Aristotle to the front man of , in this case, Humble Pie have pointed out there are lots of different ways to get things wrong and, usually, in any given circumstance there is only one way to get things right.

So while one can certainly draw on previous experience regarding particular aspects of a client’s problems, one can never boilerplate an entire solution from one case to another. In an earlier post I made the same point as to why people who have only known success can, by and large, not repeat it a second time. Those of us who deal repeatedly with failure have a much better track record.

Staff at failing companies know that there is a problem (even if management often doesn’t) and will seek reassurance that the interim has seen the same thing before; in the same way that we’re all much more comfortable with a doctor who has previous experience of dealing with our illness. That is fine with me and I’m always happy to discuss parallels from my career. What does irritate me however is the perverse pride that people can take in assuming that their situation is substantially worse than anyone else’s has ever been. I guarantee that at least once on every assignment I shall be asked “Is this the worst company that you have ever worked for?”.  To save time and avoid fruitless contention I have therefore adapted my kindle fob-off and now simply reply “No, I used to work for Robert Maxwell”. That shuts them up.

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Product recalls

I attended an interesting seminar on, among other things, product recalls by Matthew Breakell of Gordons solicitors. I have been involved in a number of product recalls over the years: food contaminated by packaging, inserts deemed unsafe (without any evidence that I ever saw) by trading standards, exploding cans (1), and, by far the most worrying, insulators on high-voltage equipment installed on oil rigs that turned out actually to be rather good conductors.

All of these of course fade into inconsequence compared with what would happen if Boeing had to recall the Dreamliner for a second time. Now I want all my readers – especially Boeing’s lawyers – to understand that I’m not suggesting that any such thing will happen. Surely no-one (possibly with the exception of the two Williams: the one from Occam and Edwards Deming) could imagine that the problems being experienced with the new ‘planes are anything other than unfortunate coincidence. What I will stretch my neck out and predict is that the launch of the 787 will become a business school case study in due course.

The main case study on quality when I was doing my MBA concerned Morton Thiokol and the failure of the ‘O’ rings on the shuttle launcher. I say that the case study was about quality and it certainly formed a key part of the TQM module, but it could also have easily have formed part of a course on ethical decision making. It wasn’t the absence of adequate engineering analysis that caused the Challenger disaster, it was the flawed decision making by management. As it happens I once carried out a short assignment for Morton Thiokol at a plant in the UK. While I was there the fire alarm went off and there was an immediate response from the finance staff, a number of whom rushed straight out of the nearest fire door. I was quite impressed at first; the normal reaction to a fire alarm in my experience is a grudging acceptance that it isn’t a test followed by a slow amble out of the main entrance. However, my opinion was revised when I discovered that the primary role of the fire wardens at this particular plant was to close the car park gates before the residents of nearby houses could rush in to demonstrate against yet another potentially dangerous incident (the location in question was a chemical production facility). So, the management response in the face of repeated fire alarms in the factory was not to do something about whatever caused them, it was to try to minimise the scope for negative publicity.

I would contrast this with one of the product recalls that I mentioned above. A free toy given away with boxes of food for children was deemed, without anything having actually occurred, by a lone local authority trading standards department to be a choking hazard. The company involved immediately and at great cost withdrew the product. Despite the short term hit to the bottom line they made the right decision and did the right thing. Twenty years later both the company and the product are still going strong (albeit that they have parted company one with another), whereas Morton Thiokol are, unsurprisingly, defunct.

‘In any moment of decision, the best thing that you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.’ – Theodore Roosevelt

(1) Whilst cans exploding en masse in warehouses is a somewhat worrying phenomenon, I always found the instances of isolated cans exploding in the home rather amusing. I used to sign off the compensation cheques and it always struck me as astonishing that no-one ever opened a can of petfood that then exploded unless they were sitting in their freshly decorated living room, on their recently delivered three-piece suite while they and their entire family were wearing their newly purchased best clothes. Spooky.

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IIM Survey

The Institute for Interim Management (disclosure note – I am a member) has taken a brief period away from its usual obsession with its members’ right to pay less tax than anyone else (1) and has organised its annual survey on the standing of interim providers. The results were published last week and the winner was Interim Partners. I nearly didn’t write about this because I mentioned Interim Partners last week. However, I’m not surprised they won and they thoroughly deserve it. Congratulations to them.

I have worked for IP more times than any other provider and was placed by Doug Baird in his previous existence as well. I’ve always found them straightforward and reliable and on the one occasion that we fell out – very much the fault of the world’s worst client rather than either of us – it was sorted amicably and quickly. All of that might seem like faint praise, but, firstly, some providers don’t behave like that and, secondly, what else does one really want?  Given that they can’t manufacture assignments out of mid air and that their customer is actually the person who pays them, then as a candidate, being dealt with in professional and courteous manner is really what one should look for. Like many growing businesses, I think that IP have become somewhat more impersonal along with the increase in size, but I have no real suggestions as to how to compensate for that. Not grow perhaps? And anyway, because a number of their alumni have moved on to other firms or, even better, started their own Interim Partners have been, in my opinion, an overall positive force for good in the industry since Doug set it up ten years ago. Don’t talk to him about politics though.

So, what could other firms do to get me consider voting for them next year? It’s simple: stay in touch. You don’t have to find me a job – although that would be nice – but at least bother to pick up the phone occasionally and discuss how things are. I can’t speak for other interim managers, but I rather like that.

And what to avoid if you don’t want me to mark you down (the survey allows one to be negative as well as positive)? Well, don’t suddenly contact me immediately before the vote having ignored me for a year; and certainly don’t do that with a generic email. And also do not do what one prominent figure in the sector did last year and pontificate that there was no shortage of assignments; it was rather that if one was a good interim one was in work and if one wasn’t in work then one wasn’t a good interim. Shrewd PR.

(1) Apparently there is an ‘important point of principle’ involved and the fact that the only concrete manifestation of this ‘principle’ is for interim managers to pay less tax than they otherwise would is merely a happy coincidence.

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The first few assignments

“Life can only be understood backwards; but it must be lived forwards.” – Søren Kierkegaard

I have been reflecting on a recent blog post by Paul Phillips, head of Business & Support Services for Interim Partners which considers the new interim manager’s search for good quality assignments by comparing it to a musician’s ‘difficult second album’. Now, while I know what he means, I am in no position to add any value by pursuing a musical analogy. My own career in a band lasted for just one gig after which the local newspaper said that we gave the word amateur a bad name. Fortunately my interim career has been more successful and it based on this that I shall comment.

In my view it is hard enough to find those early assignments (indeed if we’re going to have similes from the entertainment industry then joining the club of interim managers is a bit like getting into Equity, the actors’ trade union; one can’t appear on the stage until one has joined Equity, but one can’t join Equity until one has appeared on the stage) without handicapping oneself by rejecting assignments because they don’t meet some ill-defined quality threshold. This is, hopefully, where the relevance of the quote from the esteemed Danish philosopher becomes apparent. As the assignments build up one will be able to retrospectively tease out the narrative threads that identify how one’s experience and skills have been developed and what value they can add to prospective clients. But, I would suggest, while it is impossible to know in advance what exactly any role will bring, the one thing that is certain is that it will bring something of use and value. As the possibly even more distinguished Galileo Galilei said “I have never met a man so ignorant that I couldn’t learn something from him”.

That’s not to say that one shouldn’t reject roles that aren’t right in terms of location, remuneration or a fit with one’s own ethical position (for example I personally would never work in the tobacco industry), but rather that would should absolutely never self-censor based on how one believes (fears) it will all look  in years to come. Actually having re-read that last sentence I would suggest that in the early days of ones career one should indeed be prepared to offer a bit of flexibility on location and rate, but of course, none at all on your personal integrity. My point is rather that while some opportunities have been denied to me because of things I have not done – insufficient sector experience, unfamiliarity with a particular software package, etc – no-one has ever rejected me on the basis of a role that I have previously performed. It’s possible that at some point a client or an intermediary might say “I’m sorry, but we won’t look at anyone who has boiled sweets on their c.v.”, but it hasn’t happened yet.

I certainly took a few assignments early on that I wasn’t that excited about, but, with hindsight, they provided things (e.g. overseas working experience, PE exposure, etc) that have not only proved very useful since, but flow straight into my current offering; which, funnily enough, often involves overseas-based Private Equity portfolio companies. It all makes perfect sense now, but I could never have foreseen it at the time.

As it happens I also met, in one of those early assignments, a complete crook. That experience cost me some money, but the individual concerned has been subsequently involved in the provision of interim management in the North of England. I have been able to watch the string of bankruptcies unfold behind him with equanimity because having had that experience I have avoided him like the plague ever since. However bad an assignment is, one can always learn something of value.

“If we wait for the moment when everything, absolutely everything is ready, we shall never begin.”  – Ivan Turgenev

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