Thoughts on ways to improve the management of professional services firms

Friday, July 29, 2011

Australian Reserve Bank views on the economy

I really wanted to record this one for later use.

Measured by the official statistics, the Australian economy has been all over the place. We still have a looming boom, yet many aspects of the local economy are soft. Australia may not be in as bad a position as some other countries, but it's still confusing!

The Australian Reserve Bank has released two relevant papers that set out its views.

The first is the Minutes of the July 2011 Monetary Policy Meeting of the Reserve Bank Board released on 19 July. The second is The Cautious Consumer, a speech given by the Reserve Bank Governor.

I mention them now because I thought that it might be of interest to do a review of the bank's official thinking.  

Tuesday, July 26, 2011

People management dominates blog traffic

While I have been very slow in posting for some time, search engines have continued to draw some traffic to this blog.

It's interesting that eight in the top ten posts in the last month have been concerned with people managements issues. A similar pattern holds if I extend the time horizon to six months.

This has not always been the case. There was a time when business management issues dominated.

  What I don't get much traffic on, something that I find a bit disappointing, are my discipline of professional practice posts. This is an area I really care about as something that we all share across fields.

It may just be that search engine algorithms have changed. Still, it is disappointing.  

Saturday, July 23, 2011

Problems with technologists

The Internet is important to all of because of the way if affects our profession and business. For that reason, I have written a fair bit about it over time.

On Friday 22 July I wrote Academic journals, the shuttle & the internet on my personal blog. It's there because it was triggered by my personal reactions. I said in part:

I am a very heavy internet use. Further, the way I use the net extends well beyond transactions or the discovery of immediate current information. To the ordinary user, the problems that I experience may be of limited relevance. Yet I think that they are quite important.

My thinking to this point has really focused on my own responses, essentially taking the net as a given. I am now wondering just how the net has to change if it is really to meet the needs of that minority group, Belshaw and his ilk.

A lot of the technologists and net enthusiasts I know are not much help. I have been meaning to write on this one for a while. The difficulty from my perspective is that I am expected to fit into their solutions and enthusiasms, whereas I want them to fit into mine! I am, after all, the user!

In Australia, the main law publishing firms are all in the process of releasing their publications as e-books. However, they are also trying to maintain their current charge structures. It's not going to work - the simple addition of a search facility is not enough to justify the cash cost.

When I said in my post that I wanted the technologists to fit into my solutions and enthusiasms I wasn't joking. The problem with technologists is that they won't do this and it's frustrating.

Technology is a means to an end, not an end in itself.

Recently I have been working on some internet based projects designed to streamline aspects of professional practice. I think that the thing that stands out most clearly in my mind is just how hard it is to get the interface right between the technology and the business or professional process.

One of the kickers is the hidden cost that lies in simple things like support and training.

I think that there are solutions, but they are going to come from the business, not technology side.     

Thursday, July 21, 2011

Ships, knowledge & management short term ism

Back in February in Problems with maintenance I reported briefly on the problems that the Australian Defence Force was having with maintenance. Maintenance on its main transport ships was so neglected that it was now too expensive to fix them, so that they had to be taken out of service.

The report of the Rizzo review into support ship repair and maintenance has now been released. It recommends, among other things, that Navy rebuilds its engineering capability from the ground up. Now Australian Defence Minister Smith has announced a review into the availability of the Collins class submarines, another major problem area.

One of the big problems with the constant obsession with productivity improvement through cost cutting, one that I referred to in my February post, lies in the trade-off between the short and long term. It's usually possible to get apparent immediate gains by, for example, deferring maintenance or by outsourcing particular activities. However, this can then lead to later problems of the type that Defence has been experiencing.

Over recent years I have noticed what I have come to call the demise of experience, the loss of in-house knowledge and skills that can, as in the Defence case, mean that the organisation actually lacks the capability to carry out key elements of its core mission.

The problem is quite pervasive. Let me give a small and apparently trivial example.

A few years ago, I was asked to develop a training course for an organisation. Because of the nature of the training (objectives, content, timing, audience) the course was not suitable for on-line delivery. It required face to face delivery through a workshop format.  

The organisation had a variety of rules about public documents. The first thing I therefore did was to look for other course examples within the organisation that might provide a template. There were none.

Needing to design from scratch, I went in search of help on some issues with Microsoft Word. There were some things I wanted to do that I had forgotten because of the length of time since I had last done them. I found that there were no Word manuals, nor were there any people within the organisation who had the skills required to help me. In the end, I solved the problem by borrowing and then modifying a template used in another organisation. The whole process added about three days to course preparation time.

I said that this was a small and apparently trivial example, yet it is one that I have seen replicated time after time.

In thinking through this problem, the loss of experience, I ended by breaking it into two parts.

The first is the loss of what we might call background experience, the knowledge of how to do things in a general sense. As organisations have slimmed down, as people have become more narrowly focused,  organisations have lost the broader knowledge base that once could be drawn on for problem solving. At the simplest level, this leads to costs and inefficiencies in handling new challenges. More broadly, it increases the organisation's general vulnerability; more mistakes occur.

The second is the loss of mission specific experience of the Defence engineering type. In slimming down, in out sourcing, organisations reduce the number of people with the direct knowledge and skills required to carry out tasks.

The two problems interlink. When I was working in the aerospace and defence environment, the key delivery people were the commercial and project managers who combined broad based knowledge and skills with engineering and technical know how. They knew what to do because they had done it many times before. As new problems arose, they would automatically draw from experience to develop at least first pass solutions for further test.

Many of these people have gone. Initially their loss was not seen. But once things get to the point that they seem to have done in the Australian Navy, suddenly disaster occurs. When you have to scrap ships because of poor maintenance, when you cannot deliver on key tasks, then you are in trouble.

The Rizzo report recommends that Navy rebuild its engineering capability, adding some twenty positions. But where are these people to come from? How many years will it take for them to acquire the experience that Navy once had? And what happens if another emergency occurs in the meantime?

The focus on current problems in the Australian Defence Materiel Organisation ignores, it seems to me, the fact that the genesis of the problems lies in changing management approaches that began to come into effect two decades ago.

I find that as a manager and consultant I have become less tolerant of what I see as short term ism. This is not a good thing because in a professional sense I have to deal with what is now. Yet so often I can see problems coming, I can see steps that might fix or at least improve things, but it requires management to change what they do now. And that can be hard to get across!    

Saturday, July 09, 2011

Allen & Overy's profit conundrum

Back in February 2010 I recorded UK law firm Allen & Overy's Australian opening. Then in February this year Clifford Chance entered the Australian marketplace. Both moves were part of a shift east towards new growth markets.

Wednesday 6 July Allen & Overy announced their results for the year ending 30 April 2011, effectively the end of the firm's first full year in Australia. The results were headlined "Robust growth and investment" with the key features summarised as:

  • Turnover up 7% to GBP1.12bn (USD1.87bn; EUR1.26bn)
  • Profit per equity partner stable at GBP1.1m (USD1.8m; EUR1.2m)
  • Distributable profit up 6% to GBP455.8m (USD759.8m; EUR512.6m)

On the surface, not bad. However, I was curious to know more, so downloaded the accounts. These showed a considerable increase in the number of partners and an actual decline in operating profit, as well as a small decline in the firm's net assets. How, then, did A&O achieve an increase in distributable profit so that profit per equity partner remained stable?

The answer lies in the treatment of Canary Wharf costs. I quote:

The Board decided that as the cost of exiting the Canary Wharf office is only payable in the future and benefits the partners in the future, for the purpose of determining the distributable profit for the current year, the charge would not be taken into account.

This may be fair enough, but it does suggest that the quoted key figures on firm performance may be a little misleading when it comes to assessing the firm's actual results.

So far as Australia is concerned, an article by Samantha Bowers in Friday's Australian Financial Review noted that A&O in Australia has grown from 17 to 21 partners with about 100 lawyers. She quotes Finance Director Jason Haines as saying that Australia had produced high revenue growth but not much profit growth since A&O in Australia were still in an investment phase.