I’ve previously blogged about why I think tracking and billing for time is a bad idea and even openly mocked it with a satirical example. I would like to cotinue along that line by revealing the <gasp> dirty little secret of many professional service firms.
Here it is: many firms compensate their professionals by the amount of billable hours they generate in a given period.
It can vary slightly – chargeable hours vs billable hours, utilization rate % (chargeable hours vs total hours worked) over a baseline amount, whatever.
What it boils down to is the individual consultants profit from charging clients more time.
Don’t get me wrong here.
I realize that this model was created with the best of intentions – to compensate workers for doing a great job by helping more clients out.
After all, the guy or girl that is busting ass and working really hard on client jobs should be rewarded. That makes sense, right? After all, they are helping the firm bring in money. And the deadbeats that aren’t charging hours shouldn’t be rewarded, right? [please re-read that last sentence and think that one through]
The problems with this model are manyfold. The biggest are:
- It encourages heroic efforts. I see this all the time in traditional consulting firms. Consultants faced with a problem will keep chipping away and chipping away and chipping away until they resolve it. Sometimes this requires long hours and late nights and dereliction of other responsibliities but, hey, the problem got resolved! To me, these situations are timebombs waiting to blow up in everyone’s faces.
- It encourages inflation of hours on timesheets. Now, I’m not questioning any one of you in particular but the point stands. When you compensate individuals for work tracked, billed or charged to a client, you will encourage that tracking, billing and charging behavior. It might be a small bump of time here, a little over there, whatever. I’m sure it doesn’t happen in your firms but it happens in other firms.
- It discourages team efforts. Related to point one, an individual in these firms gains nothing from bringing in their peers to resolve problems quickly. This is a serious problem for the firm, for the clients and for the entire team at the firm. Projects take longer than necessary, knowledge transfer among team members is not happening and the client relationship is at the individual level – not the firm as a whole.
- It discourages shared goals with clients. The firm and the individuals at firms that practice this compensation model are focused on maximizing hours while clients are focused on minimizing hours. The fox is guarding the hen house – the situation has been primed from the start to have winners and losers. With long-term value creation, everyone wins.
These points don’t even cover all of the problems with the practice but hopefully it drives home the underlying message: a true client advocacy position results from a shared goal system.
You can’t have truly shared goals when you are billing by time – particularly if your organization is incented to drive up billable hours at the individual level.
Look: I completely understand how these models come to be.
It’s an attempt by the firm to align everyone in the firm towards a common, shared goal and to compensate the individuals that are on board with the goal.
That’s wonderful … truly. I’m a huge fan of goal-setting and aligning purposes to maximize end results. But this practice isn’t good for anyone – the firms, the individuals and particularly not the clients.
The good news is the solution is simple.
Change the goal.
Instead of maximizing revenue through billable hours, consider team based revenue goals based on meeting client expectations?
Instead of individuals aiming to have the most billable hours shift focus on where do we stand as a firm?
Are we providing team-based solutions? Does the client feel that we operate effectively and efficiently to meet their goals? Is the relationship with the firm or the super-hero consultant?
How are the clients doing? Are we meeting client goals? Are we getting repeat work?
Will the client refer us to others? Will the client act as a reference?
Hopefully the suggestions above will give you something to consider the next time you evaluate your firm compensation policies.