Managing the Professional Services Firm

How do we break free from the ratings entanglement?

2012-01-28T09:50:00.001+11:00

A number of people have asked to see my Australian Business Solutions January column. It's not on-line, so is repeated below.

In December, Treasury Secretary Dr Martin Parkinson took a swipe at the global ratings agencies.

They were, he is reported to have said, “becoming mechanistic and excessively simplistic, running the risk of moving from excessive optimism to excessive pessimism every time they look at a country or firm.”

It’s worse than that. The global credit rating agencies have become a cancer eating away at the global economy, one that affects every business.

In the lead-up to the global financial crisis, they gave triple A credit ratings to institutions and securities that were clearly not. That helped fuel a global financial bubble.

As the crisis unfolded, the variations the agencies made to country and institutional rankings added to market instability.

We saw the same thing in the unfolding crisis with the Euro.

The credit rating agencies provide no new information to the market. The standard of their economic and financial analysis is clearly suspect. Yet despite all this, a shift or threat of a shift in a county’s credit rating can have damaging or even catastrophic market effects even though it tells us nothing that we didn’t already know.

It’s actually our own fault, yours and mine. Let me explain.

Our problem, and it is our problem because it affects us all, lies in the way that we awarded the ratings agencies authority without responsibility. We created the cancerous monster.

Back in a now dim and distant past when I was working in the Commonwealth Treasury, I remember discussions on the possibility that Australia might get a triple a credit rating for the first time. We did, lost it in 1986, then finally got it back in 2003.

Australia’s original concern with its credit rating at state and Federal level made a lot of sense.

In those days, both State and Federal Governments borrowed to fund infrastructure. We needed access to global capital for both private and public purposes. A high credit rating made it easier for a small relatively remote country like Australia to access funds and at a lower cost.

Sadly, from being a means to an end, the maintenance of a triple A credit rating became an end in itself. All Australian Governments preached this as a badge of honour.

Those in the business community nodded their heads and made approving noises, even though it was obvious even to Blind Freddy that much of the ratings shifts actually didn’t matter very much.

Governments throughout the world then did something worse. They built the ratings into policy, procedures and regulation. Business and especially the finance sector followed.

This institutionalisation of agency ratings, their incorporation into so many regulations and arrangements, meant that variations in credit ratings had direct flow on market effects in ways that no-one had foreseen. The ratings system itself had become a direct cause of market instability and on a large scale.

You would think that we would learn, but no! Even as Treasury Secretary Parkinson is complaining about the agencies, we see Federal Treasurer Swan, NSW Treasurer Baird, quoting rating changes approvingly as evidence of their good economic management.

Politicians respond to their electorates, that’s part of their job. But surely it’s time for the Australian business community as a whole to say enough is enough, that Australia and the world must break free from the ratings entanglement that we have created?

Why Chinese over-investment is important

2011-12-07T10:59:00.001+11:00

For some time now, Michael Pettis has been arguing that China has been over-investing and that this over-investment is unsustainable. His most recent piece, How do we know that China is overinvesting?, provides a useful introduction to his arguments. In essence, there is a growing gap between real borrowing costs and the real economic returns on the investment.

Along with exports, heavy Chinese domestic investment has been a key driver in that country's growth. To the degree that Michael Pettis is right, and I think that he is, then the investment and industrial demand that has underpinned Australian mineral exports is likely to slacken.

I must say that's been my feeling all along, but its interesting to see another perspective.

The importance of simple questions in assessing technology

2011-10-18T12:04:00.001+11:00

A week or so back I watched You've Got Mail with eldest daughter. Released in 1998, the film centres on a couple who meet via email unaware that they are clashing in real life.

Kathleen Kelly (Meg Ryan) runs a small independent bookstore, while Joe Fox (Tom Hanks) is a member of the Fox family that runs a chain of mega book stores and is planning to open a store near Kathleen's. It's quite fun, but what struck me re-watching was just how quickly business models date under the impact of technology.

In 1998, the big issue was the survival of the independent book stores in the face of the mega chains. Thirteen years later Borders collapsed under the impact of the internet. The online challenge is especially pronounced in publishing and book selling, but it is affecting all aspects of retailing.

Here in Australia, the Sydney Morning Herald reported today on a new survey suggesting that internet spending in this country would exceed $A37 billion by 2013. A week back in the continuing patent wars between Samsung and Apple, a Federal Court preliminary injunction that prohibited the sale of Samsung's Galaxy Tab 10.1 in Australia saw a surge of Galaxy sales as Australian customers used the internet to buy in other jurisdictions.

In quite a bit of my writing I have tried to warn about the excessive hype attached to new technology. For every business that has succeeded in a big way, there are many more that have failed.

Further, many firms outside the new technology areas themselves have done considerable damage to their businesses through the misapplication of new technology. Costs may have been cut, but at the expense of customers and customer loyalty. The Australian banks that cut their branch networks to save money had then to invest heavily in rebuilding those same branch networks.

One of the key points in considering the application of new technology is that initial impacts are generally less than expected, the longer term effects greater than expected. Computing and communications technologies do create businesses on the supply side, but it is the enabling effects of those technologies that have the greatest long term impacts.

Borders collapsed in part because its customers were enabled to buy books in new ways independent of bricks and mortar and specific store visits. In Australia, Borders survives as a pale online shadow of its former glory.

I am not sure that analysis of new technology needs to be all that complex in a general sense, although specific applications may be very complex. The single most important questions are actually quite simple:

who will benefit from the new technology and how?
who might lose from the new technology and how?

Take the Australian bank case.

The banks were expected to benefit from bank closures because it would reduce costs. The losers were customers who lost access to the closed branches. In certain cases, transactions and transfers, customers did benefit from greater personal flexibility. In other cases, customers simply drifted away from the bank. The banks ended by losing because they weakened their single greatest asset, direct contact with a previously loyal customer base.

The business cases put forward within the major banks to justify their actions centred on the expected gains to the banks. "Hard" number could be attached to the proposals. The "softer" questions about customer reaction in the longer term were not addressed.

Postscript

On the Samsung/Apple issue, see Asher Moses' $30m tablet black hole: Harvey Norman hits out at Samsung ban. Apple blocks Samsung, consumers but elsewhere, Australian retailers suffer!

Postscript 2

Just recording two things:

Group buying at consumer level
Belshaw's World - caught between a tweet and a print place, a post of mine on newspapers & online. Recording this because I want use in in context of discussion of business models in an online world.
Peter Dinham on cloud computing

Research in a total connect world?

2011-10-13T21:01:00.001+11:00

I really wanted to record this one for later use.

I have now been involved at one way or another in the application of new technology for many decades. Now Orange has released a new research paper, What's left to Know, dealing with the impact of very large data sets. The report is subtitled research in a total connect world.

In writing the last sentence I almost made a major error. I wrote a total disconnect world instead of a total connect world. That was arguably a Freudian slip because it captured my reservations about some of the new approaches.

As I write, the Vice Chancellor of the University of New England (Professor James Barber) is continuing his campaign in favour of online learning. I quote:

ONLINE education is revolutionising the way information is accessed to the point of redefining the roles of academic staff and casualising their employment - a trend of significant consequence to Armidale.

With the University of New England seeking to source internationally-based staff to direct its students over the internet, concerns of employment security in a casualised academic work environment have arisen on the Armidale campus.

UNE Vice-Chancellor, James Barber, would not rule out an increased casualisation of academic staff in Armidale, but wished to challenge the notion that permanent, full-time tenure was the only good mode of employment.

As I have argued in other posts, I have major reservations about the hype now attached to social media and the new communications technologies. I just don't believe the arguments. So far I have only scanned the Orange report, but it appears to contain some interesting material. I am interested as to how it might affect my present thinking.

Australia's continued economic disconnection

2011-10-08T18:22:00.000+11:00

Note to readers: While short, this post took a little while to complete. I am bringing it up at the original scheduled publication date.

Interesting piece from Lorenzo, A misbegotten Union – Guest post by Lorenzo, on some current problems in the EU with a specific focus on the Euro.

From a purely management perspective, it illustrates the difficulties created for all of us when Governments' stuff up.

I don't think that any of us would argue that the creation of the EU and even the Euro has not made some aspects of doing business in Europe easier. It is easier to operate in a more harmonised environment. Yet, and this is something Australian business groups pushing for national uniformity should consider, common rules can come at a price.

I intend to do an update post on the latest developments in the Australian economy. The headline point is that Australia remains to some degree disconnected from developments expressed in terms of global or large regional unit data.

Today's Sydney Morning Herald story Indian coal rush heads Australia's way illustrates part of the reason, Australia's resource base. Demand will continue. The only issue really is price. However, there is a little more to it than that.

One of the wisest Australian Government decisions in recent decades was that taken in December 1983 to float the currency, allowing market demand to determine its value. As I have discussed here before, the highly traded nature of the Australian currency creates its own problems since, as happened recently, the value of the currency can move in ways not directly connected to local economic conditions. However, the floating currency actually provides a very useful buffer, one that Greece would now find valuable.

In the lead up to the global financial crisis, the US dollar value of the Aussie declined sharply, providing one measure of protection to local demand. If, and on worst case scenarios, demand would continue if at a lower price for Australia's agricultural and resource exports. In this event, the currency would be likely to decline in value. However, this would of itself have some domestic stimulating effects.

A floating exchange rate combines with a good budgetary position and low Government debt.

To my mind, Government debt is too low. It is actually quite hard to deny that Australia has been under investing in public infrastructure. Further, the obsession with public-private partnerships has actually skewed public investment in a way that doesn't make a great deal of sense. Yet all this said, I cannot deny that Australia's budget and public debt position gives the country a great degree of flexibility in current circumstances.

How do we manage on-line technology?

2011-09-28T16:37:00.001+10:00

Today I just wanted to look briefly at some changes in the internet and communications world.

Quite a bit of my time this year has been spent on ways of making on-line more effective from a work process and training perspective. I summarised some of my conclusions in one of my weekly columns in the Armidale Express, Belshaw's World - the online myth.

I mention this because Australia's IT Wire has reported on a study commissioned by Ericsson across 33 OECD economies, including Australia, that found that a doubling of broadband speed produced a 0.3 percent increase in the GDP of that economy - $A3.9b in the case of Australia. I don't actually doubt the results, they are what I would have expected, but they did remind me of the difference between the general and the particular.

There is no doubt that the new communications technologies and most recently the internet have been a tremendous aid to productivity improvement. They have also created entire new business sectors. And yet there have been real downsides.

To my mind, the most important ones fall into three classes:

business activities have been damaged or even destroyed that are still of value to many
business processes that should have been changed have survived because automation allows them to be carried out at a lower cost. Worse, the investment in the automation then makes them hard to change
the new technology has facilitated a variety of controls and regulation at organisation and government level that greatly adds to overhead costs.

The message that I am trying to get across in a lot of my current writing is that we have yet to develop the best model for operating in the new environment. I have also tried to argue that if we don't do this, the incremental costs and problems associated with the new communications and computing technologies may ultimately impose risks and costs that will bring the whole system down.

This is quite hard to argue because it actually requires the adoption of a new and questioning mind set.

Take as a simple example, the way in which many firms are now trying to control or even limit email. Email is just so easy, is now so deeply embedded, that effective management is quite hard.

In some ways, on-line is like a drug, a quick hit with later problems.

I am not arguing that the technology should not be used. I am arguing that it should be managed.

Using part time & contract staff effectively

2011-09-25T16:37:00.001+10:00

Over the last decade, organisations have increasingly looked to the use of part time and contract staff to fill gaps. The reasons vary.

In some cases the move is designed to meet the needs of particular people who for personal reasons do not want to work on a full time basis. In other cases, the appointments may be intended to fill a short term need or to give the organisation greater flexibility in managing head count.

Given that over half the Australian workforce is now part time, contract or casual you would think that organisations would have learned how to manage part time and contract staff effectively. The reality is rather different. Most organisations don't manage part time or contract staff especially well.

To my mind, the core reason for this lies the continuing tendency to treat part time and contract staff as though they were long term full time employees. The organisation knows that they are not, but it and managers behave as though they were. I thought that the best way of illustrating this was by example.

The Case of the Part Time Employee

Let's start with someone working say three days per week. We can consider two cases, the first a stand-alone employee, the second a job share arrangement.

The distinguishing feature about a part time employee is just that, they are part time. Their time is limited. If you treat them like a full time employee and expect them to be involved in all work group activities, then the proportion of their available time involved in such activities is likely to be significantly higher than the full time workers. Conversely, the amount of time available for their main job is reduced.

The next problem is more subtle. Work flows on regardless of the attendance of the part time employee. Decisions are made that affect the work of that employee in their absence. Supervisors and indeed work colleagues do not adjust for their colleague's part time work. The end result can be wasted time and great frustration on the part of the part time employee.

In theory, this problem is overcome where work sharing is involved, because one of the work share partners is always there. In practice, however, problems can arise where their is ineffective hand-over of tasks between the work sharers.

To manage this properly, a proportion of time must be explicitly devoted to first defining hand-over procedures and then ensuring that they actually work.

The Contractor

It may seem self-evident to say this, but contractors are not full time employees. They are there for a limited time and have to judge their performance against the results they achieve while there. However, serious problems can arise where this simple fact is forgotten.

To consider this further, consider the case of someone employed on a three month contact to complete a specific assignment.

In normal circumstances, the contractor should come into a defined assignment. Then the first part of the assignment is spent on task refinement and on acquisition of the necessary specific in-house knowledge required for the work, while the last part of the three months is devoted to finalisation and hand-over.

Too often, the task or tasks have not been properly defined. Too often as well, the contractor is expected to participate in work related activities actually designed for a long term employee.

The worst results come where the manager effectively forgets that the contractor is there for a defined time. Many managers are busy, making it difficult for them to allocate effective time for consultation. Long term staff are used to this and can adjust, but for contractors it can mean periods sitting waiting for decisions or guidance that simply chews up available time.

Many managers are also inconsistent, changing priorities or directions without thought in response to immediate needs. That's fine if the contractor is actually doing a defined staff role for a short period. However, problems arise if the contractor is meant to be on a specific defined task. In worst case, this may simply not get done, or not get done to the required standard because of the interruptions.

The Need for Thought

Contractors and part time staff can be an effective way of fillings gaps or of meeting specific needs. However, and this is my key point, this requires a degree of thought and indeed discipline that is sometimes simply not there.

National planning for global downturn

2011-09-23T16:35:00.001+10:00

I concluded my last post, Global economic gloom, with the comment:

Like many, I have been mulling over what all this means (for Australia). I thought that it might be helpful, at least to me, if I did some of the same type of very basic economic analysis that I did during the GFC. You know, the simple stuff based on first principles. That's a better guide than the more complex analysis at a time of change.

As I write, the stock exchange and financial markets have been all over the place, with some of the type of breathless reporting that I have commented on before. One minute we are all ruined, the second everybody seems to breath a sigh of relief!

From a practical business perspective, what is important first is changes in the marketplace in which the business operates, rather than overall trends. I make this point simply because the two are not the same, but may diverge quite widely. Then there are the effects on funding of changing conditions in financial markets. This raises a different set of issues independent of individual market conditions. I make these points because there is a tendency to focus on general trends when some businesses may in fact be doing very well.

There is no doubt in my mind that the Australia economy has weakened, although the pattern is variable across the country. The latest Westpac-ACCI survey of Australian industry shows this quite clearly.

We have a number of effects working in combination here. One is the rise in the value of the Australian dollar relative to some other currencies. This has affected certain trade exposed industries in particular. Then, and as has happened before, anecdotal evidence suggests that business is cutting back on discretionary spend, creating flow on effects in related areas including legal services. Then, too, housing has been weak, as has retail spending,

Australia operates in a global marketplace and is affected by changes in that market. These flow through to Australia along four dimensions:

Direct changes in demand for exports
Financial affects associated with exchange rate movements and in the availability of funds to the banking system
Psychological affects as people respond to global changes
The impact on superannuation funds of global changes in an environment where a significant proportion of funds are invested in equity and off-shore. This one is insufficiently discussed for with compulsory superannuation it actually has major impacts on domestic behaviour.

Australia may be exposed to international conditions, but that exposure is more limited I think than most realise:

Our main exports, minerals and primary products, have something of a natural buffer in that there is a stable base demand. Prices may fall - I have argued that present commodity prices are unsustainable - but demand will continue
Our floating exchange rate means that falling export income would (should) translate to a lower Australian dollar, with domestic stimulus effects. Quite a bit of Australian industry wouldn't mind in the slightest if all the hype about the mining boom #2 proved false!
We are exposed to international financial markets, but the proportion of bank borrowings funded domestically has increased as local savings have increased
We have strong institutional structures and relatively low Government debts, giving plenty of capacity to expand spending.

In the aftermath of the global financial crisis, one of the problems that I pointed too was the way in which many countries had lost their public infrastructure investment pipelines. This linked to changing approaches to public administration in many countries. I suggested that one practical result was that Government plans to expand infrastructure spending could not be realised in the proposed time limits.

Putting aside special pleading, there appears to be general agreement in this country that Australia has been under investing in public infrastructure for many years. We have also been under investing in housing, given population growth. Managed properly, there is scope for considerable expansion of public or even public private investment that is likely to yield considerable paybacks in economic terms.

The problem with the previous Rudd Government stimulus measures in this area is that, in the absence of a real investment pipeline and with a need for urgency, we arguably didn't get a long term return for our dollars.

This need not be the case if proper planning is put in place now.

If you accept conventional wisdom about mining boom mark two, then the place for such spend is limited. But who, now, would argue with certainty that that boom will occur? We really do need to have a fall-back position in the event that it doesn't.

Global economic gloom

2011-09-21T07:31:00.001+10:00

The release of the latest IMF global economic projections makes for gloomy reading.

In Australia, the latest minutes of the Reserve Bank's Monetary Policy Committee provides a useful summary of the overall domestic and global economic position as seen by the Bank.

It seems pretty clear that the IMF and others face considerable forecasting difficulties. That should not come as a surprise, for all the econometric models they use actually rely on a degree of stability that is presently lacking.

As it was during the GFC, Australia continues to be a lucky country. This is reflected in the Euromoney nomination of Treasurer Wayne Swan as the world's best finance minister. However, the country is still vulnerable at two levels.

The first is simply its reliance on certain markets and especially China and Japan. If they sneeze, Australia may catch a cold. The second is the high level of domestic household debt. This is manageable in a growing economy, but will become an increasing drag should economic conditions worse.

Like many, I have been mulling over what all this means. I thought that it might be helpful, at least to me, if I did some of the same type of very basic economic analysis that I did during the GFC. You know, the simple stuff based on first principles. That's a better guide than the more complex analysis at a time of change.

Why multi-tasking is impossible

2011-08-19T18:09:00.001+10:00

There is a fair bit of debate in Australia at the moment about multi-tasking. It's usually phrased in terms of kids who do their homework, watch TV, SMS and play a game. it's sometimes expressed in terms of women having greater skills than men in doing multiple things at once.

My view is that multi-tasking, at least as normally expressed, is impossible.

To start with a simple example.

Say that I am cooking and listening to the radio. Normally, cooking is a routine task involving physical activity. The mind is not totally engaged, so that I can listen and work. Say, however, that I need to consult a recipe and actually make a decision. The mind is now engaged; the radio drops out.

Alternatively, say that the radio becomes very interesting. The mind is now engaged with it. Cooking will normally slow and even stop.

Another example still involving cooking. Normally in cooking, there are time breaks during which you can watch TV, hang out washing, sort something. At one level, you seem to be multi-tasking in the sense that you seem to be doing two activities or more at once. In practice, you are sequential tasking,

It may seem that those in very busy management roles are multi-tasking. In fact, they become skilled at task shifting and chunking, moving quickly from one task to another.

Leaving aside the tension involved in this, there is a cost where the move from one task to another reduces efficiency. That is why so much management advice centres on ways to increase time available for specific tasks - shut the door, turn off the emails, etc. If we could all multi-task in terms of doing two tasks at once, then this would not be necessary.

One of the difficulties with the discussion on multi-tasking is that is misleads. Not only does it imply that we should somehow be super human, it also confuses thinking about the organisation of work.

Sustainability vs short term managerialism

2011-08-17T12:00:00.000+10:00

As a professional adviser, I try to help firms improve business performance and to resolve problems. More and more, I have found a conflict between reality and aspirations. Reconciliation of that conflict comes back to one word, sustainability.

At a macro level, if the total business objectives set by all firms exceeds the possible growth rate in the economy, then some firms must fail to achieve objectives. If the gap between total firm targets and what is possible becomes large, then the shortfall between objectives and performance for most firms will also be large.

Since remuneration often depends upon achievement of immediate financial objectives, the incentive for managers to do whatever is required to get to immediate target is great. This leads to short termism. Cut now, with the costs coming later. In aggregate, this results in increasing economic instability.

Obviously, the position varies between firms.

If I am advising a start-up or a firm in a rapidly growing market place, then I provide one set of advice. If I am advising a firm that wants to increase market share and is prepared to pay the price, I provide a second type of advice. If the business is unprofitable, then that's another set of advice.

But what do I do if I am providing advice to an existing profitable business in a mature market that wants to improve performance to achieve new growth targets dictated by what is really managerial hubris? How do I say that you are doing the wrong thing? How do I say keep on going as you are, just improve at the margin?

If the reality is as it is that most businesses cannot achieve their targets, then shouldn't we be adopting a new approach? Isn't sustainability combined with incremental growth better?

Say you are a reasonably profitable law firm. What do your partners, your owners, really want?

They want to be able to get on with their professional work. They want a stable income with prospects of reasonable increase. Most don't want the prospect of big increases that risk the business.

Think how nice it would be as an adviser if your client said we want to improve what we do over time. Our focus is on business sustainability, not big targets. We want you to help make things better for clients, for partners and for our staff. We want you to give us practical suggestions to achieve this.

It would be nice, wouldn't it!

Why do we underestimate the value of broad based skills?

2011-08-05T12:15:00.001+10:00

I followed up China's foreign reserves - what they mean, what might happen with a post on my personal blog, Australia's economic fragmentation. Since then we have had the ending of the US debt crisis, new troubles in Europe, bad US economic data and something of a stock market crash. In the first minutes of trading this morning, falls slashed $A56 billion of the value of Australian stocks. There is a smell of panic in the air.

All this took my thoughts in a different direction, one that may seem a bit odd. One problem now is that many of those involved whether as commentators or traders, those trying to decide how to respond, actually lack the broad based experience required to respond sensibly. Further, they live in a wired twenty four hour world where initial responses feed on each other, where reporting heightens nervous excitement.

My original qualifications were in history and economics. Then I worked for twenty years as a professional economist and economic adviser before moving into the private sector as a strategic consultant and manager of professional services firms. I no longer claim to be a professional economist - the profession has moved on. In a way, the economics of finance has replaced the economics of economics, financial modelling has replaced a focus on economic principles.

I was in Shanghai when the Global Financial crisis struck. I watched it unfold on the television screens. Upon my return to Australia, I was struck by the fevered nature of reporting. Australian reactions just did not seem to match what I understood of the fundamentals affecting the Australian economic performance. I was actually drawn back into my past world as an economist.

The analysis that I did then suggested that, so far as Australia was concerned, the GFC was highly unlikely to have the type of catastrophic results forecast. It just wasn't going to happen. I said so, and I was right.

One thing that I have learned from my experience is the importance of time. There is a fundamental disconnect between most current analysis on the economy and the actual lengths of time involved in economic processes. For example, just as it takes time for economic imbalances to emerge, so it takes time for them to unwind. In similar vein, it takes time for new policy initiatives to work, especially where capital investment is involved.

In 1929, the effective closure of the London capital markets to Australian borrowings plunged Australian Governments into effective depression. In similar vein, the GFC had very real world affects. Yet it pays to stand back and look. You do not need complicated models to understand what is happening, nor do ideological positions help.

Economics is about relationships. If you are going to understand what is happening, you have to look at the relationships in general and as they affect your sector. One of the reasons why I have such a high opinion of Australia's Reserve Bank lies in the standard of their analysis of relationships. I may not agree with their analysis, but I can understand it and therefore respond to it. That is not true for a lot of the other analysis I have seen.

I am not sure why we have come to so distrust general skills and broad based experience, why we now place so much weight on narrow specialisation and very task specific requirements. You see, the problem is that narrow specialisations with task specific requirements are very good at getting things done within defined parameters, but hopeless at coping if those parameters change. Then everybody is at sea, lost without a paddle or, sometimes, even the boat.

I know that I sound jaundiced, but today we have managers who have never managed, economists who know a lot about a little but very little about a lot, lawyers whose knowledge is largely limited to a narrow specialisation, policy advisers who see their key roles in terms of narrowly defined statistical outputs. It's all very odd.

While I have been writing this post, share prices have continued to decline. Time, I think, to stand back and look at what is really going on.

China's foreign reserves - what they mean, what might happen

2011-08-02T17:52:00.001+10:00

A post on my personal blog, Saturday Morning Musings - fall of the US dollar, pointed to the growing mismatch between the pattern of currencies traded and the evolving structures of the world economy. There I said in part

All I am saying is that I feel that, in the longer term, traded currencies are likely to better reflect real patterns of economic activity. In the past, the reserve currencies (gold, sterling, the US dollar) facilitated global transactions by providing a measurable store of value in circumstances where other currencies were either not traded or were of uncertain value. The position today is different. Who can really say that the US dollar is a secure currency?

The types of changes that I am talking about will take time. However, that time may be less than we all expect.

This led a colleague (Denis Wright, an historian) to ask if I could write a simple non-technical explanation of the significance of China's foreign exchange reserves. It's actually quite an important topic, so here goes.

Important identities

In the comments that follow, there are just two economic identities that you need to bear in mind.

The first is that if one country has a surplus on its balance of payments, another country or countries must be running an equivalent deficit or deficits. The reason for this is that one country's exports are other countries' imports. Globally, imports and exports must balance. If one country is selling more than it is buying, it acquires foreign exchange reserves. However, since imports and exports must balance in total, that means that other countries are buying more than they are selling. They must be running deficits that exactly match others' surpluses.

The second is that if you are going to buy more than you sell, then you have to fund the gap through borrowings or capital flows of some type. Otherwise, you can't buy.

Growth in China's foreign reserves

Initially China's foreign exchange reserves were relatively small, then they started to accelerate. The following gives an indication of scale:

Year	Reserves $US billion
1980	2.5
1990	29.6
2000	165.6
2010	2,847.3
today	c3,200

The increase has obviously been quite dramatic, an increase of over $US 3 trillion in 20 years. To put this in perspective, Australia's total GDP is something over $US1,200 billion!

Why did China's foreign reserves increase?

There is a lot of argument on this one, but I think that we can simplify.

On the Chinese side:

The country had a high domestic savings rate meaning that local cash was available for investment.
The country had a large industrious underemployed workforce, meaning that low cost labour was available for new activities.
The Chinese currency, the yuan or renminbi, was largely non-traded. The Government was able to keep the value of the currency low, facilitating export growth.

It takes two to tango. Elsewhere:

Reducing trade barriers facilitated China's export growth.
Savings rates in many developed countries dropped. With rising asset prices, consumers felt able to increase consumption by more than income, thus providing a growing base for Chinese exports. This was aided by tax cuts, placing more income in individual hands.

Increasing Chinese reserves necessarily flowed back into into developed countries. In a very real way, the Chinese themselves were funding their own exports.

China's reserve conundrum

The accumulation of large quantities of investable funds by a country is not unique. The British Empire, the economic superpower of the nineteenth century, accumulated such investment wealth that it took the rise of the US, a great depression and two world wars to wipe it out. However, China is in a different position.

One difference lies in the then power of the City of London. This marshaled surplus funds and channeled them round the world from mining companies to railroad investments, from the Russian Empire to Argentina. China has no domestic equivalent.

A second and critical difference is simply time. China's accumulation has happened very quickly. China has looked for ways of redeploying reserves via things such as a $US 300 billion sovereign wealth fund and direct overseas investment, but all these take time to build up. In the meantime, China has to put its money in deposits or some form of financial investment. Here it faces a problem

To illustrate this, have a look at the attached graph. This was included in my original posts and comes from one of my favourite bloggers, Stubborn Mule.

The graph simply shows the most important currencies in the world in trading terms. The Chinese authorities simply cannot invest their reserves willy nilly, but have to put them where they can be realised as required. This means they have very few short term choices.

To illustrate their problem further, consider the Australian dollar, the world's fifth largest traded currency.

According to newspaper reports (I don't have the links), China has decide to place 1.6% of its foreign reserves in Ozzie dollars or Ozzie dollar denominated securities. That sounds a tiny proportion, but it actually amounts to over $US51 billion. That's quite a large amount relative to the size of the Australian economy. You see their problem?

The immediate practical effect is that China is locked into holding US and especially US Treasury securities, something like $US2,000 billion. This makes what happens in the US kind of important to China in financial terms.

The longer term

In both the short and longer term, economic changes in China and its trading partners will affect the equation. I will discuss these in another post. For the moment, I just want to focus on what might happen to the Chinese reserves on the assumption that they continue to be significant. This links to the point that I made in my original post, about likely changes so that traded currencies better reflects the pattern of trade.

Here I want to point to just three things:

As China globalises, its capacity to invest effectively in other countries will increase , thus shifting Chinese assets from financial to real investments.
As more trade and investment is written in Chinese currency, the Chinese will be able to invest more in assets denominated in their own currency.
The number of significant traded currencies will rise, making it easier for China to invest in a bundle of currencies, not just the US dollar.

If I'm right, these changes will have quite profound influences on the distribution of economic power and activity.

Professional services management - reader interests July 11

2011-08-01T21:14:00.001+10:00

At the end of each month I look at the most popular posts on this blog to get a feel for reader interests. The most popular posts on this blog and for Management Perspectives (I merged that blog into this one in February) in July were:

Designing a simple performance appraisal system - sample policy statement - 81 page views
The Importance of Demography and Demographic Change - update - 40 page views
Problems with Performance Pay - 31 page views
Allen & Overy's profit conundrum - 28 page views
On financial metrics - professional services - 24 page views
Ships, knowledge & management short term ism - 23 page views
Common Management Problems Series 1 - managing up - 21 page views
Changes in Public Administration and their Impact on the Development of Public Policy 1 - Introduction - 18 page views
People Management in Professional Services - Effective Delegation - 14 page views
Guidelines for Effective Negotiation - 13 page views
Performance Measurement - Profit Per Equity Partner (PEP) - 12 page views
Recession and the importance of fixed costs - 11 page views
Corporatisation, Corporate Structures and the Law - The Case For - 10 page views

Australian Reserve Bank views on the economy

2011-07-29T16:18:00.001+10:00

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.

People management dominates blog traffic

2011-07-26T16:00:00.000+10:00

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.

Problems with technologists

2011-07-23T15:39:00.000+10:00

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.

Ships, knowledge & management short term ism

2011-07-21T07:24:00.001+10:00

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!

Allen & Overy's profit conundrum

2011-07-09T22:14:00.001+10:00

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.

If you have a hammer, everything looks like a nail

2011-06-28T11:10:00.000+10:00

Back in May in Clients are their own worst enemies, I returned to one of my recurrent themes on this blog, the need for professionals to educate clients. In the period since, there has been an interesting discussion in other fora on issues associated with cognitive dissonance and the law.

The latest post in this discussion is Legal Eagle's The Art of Law. The post includes links to earlier posts, including two I wrote. In the comments Jacques Chester made a very interesting comment @4. It begins: Here in software-land we often quote the old saying that “if all you have is a hammer, everything looks like a nail”.

Jacques' comment drives to the heart of the point that own professional backgrounds dictate the way we see and respond to client problems even if that way is not in fact appropriate. I mention this now because I want to come back to Jacques' points in the context of improving professional practice in a general sense.

Asia-Pacific IT services growth projections

2011-06-16T21:05:00.000+10:00

I see from IT Wire that IT service revenue in the Asia-Pacific region have finally rebounded from the global economic downturn and are expected to hit $US205 billion over the next four years. Ovum forecasts an annual compound growth rate of 6.6 per cent over the period to 2015.

Fujitsu retained the number one slot in IT services revenue in 2010, with a market share of 13.9 percent.

I was actually a little surprised at the projected growth rate. It seems a little low.

Australian March 11 capex figures surprise

2011-05-26T15:20:00.001+10:00

The Australian Bureau of Statistics capital expenditure figures for March were higher than some expected. You can clearly see the upwards trend.

The expectations data on future capital expenditure also continues strong.

The multiple speed nature of the Australian economy continues, with some data very soft indeed.

Postscript

In this morning's Australian (27 May), Sarah-Jane Tasker reports that the Australian Bureau of Agricultural & Resource Economics & Sciences planned investment in Australia's resources sector has hit a record $173.5 billion.

Some care must be exercised in interpreting these major project figures. I know from my own experience, my then area was responsible for similar monitoring back in the early 1980s, that the numbers can bounce around. If prices fall, projects can be deferred or re-scheduled.

Australian annual CPI increase reaches 3.3%

2011-04-27T21:33:00.001+10:00

The Australian dollar has soured through the US 108 cents mark, while the Australian CPI figures are up. The two have been connected in some commentary, as though the markets have interpreted the CPI increase as a reason for buying the Ozzie. I must say that this strikes me as a bit odd.

I will comment on the currency in a later post. Looking at the trade figures, I am cautious about the sustainability of the increase, accepting that the market does as the market does. In this post, I want to look at the CPI numbers. Those who are interested can find the Australian Bureau of Statistics release here.

The headline number was a CPI increase in the March quarter of 1.6% bringing the annual inflation rate to 3.3%. The largest group increases for the quarter were education (5.7%), health (3.9%), food (2.9%) and transportation (2.7%). Food was influenced by the floods, transportation by global oil price increases.

The rising Australian dollar is keeping downward price pressure on imports of fuel and final goods. However, because Australia imports so many intermediate goods, the high dollar is also increasing producer prices, increases that feed through into final goods prices.

At the moment, the concept of a patchwork economy is popular in this country, reflecting the fact that the combination of mining boom and consequent high dollar is having differential effects across the country. Some parts of the economy are effectively in recession, others booming. The on-ground impacts vary greatly depending on the locale economic mix.

Proposed NSW data centres strike trouble

2011-04-21T11:50:00.001+10:00

I see from IT Wire that the NSW Government's proposal to build two mega data centres in Sydney and Wollongong to replace existing centres has struck yet more trouble. IT Wire uses the word "farce"; that's not unreasonable.

Just at the moment I'm working on an assignment that has a connection with cloud computing. The NSW problems do raise the question as to whether thus type of mega centralised solution is still appropriate.

Clients are their own worst enemies

2011-02-25T08:32:00.001+11:00

In December in The importance of a discipline of professional practice I said:

Bluntly, we professionals are letting down our clients. Worse, we are sometimes doing it through our narrow definition of what constitutes professionalism.

I have no truck with approaches that guarantee clients higher costs and worse results, even accepting that clients are their own worst enemy!

While I did not follow up on that remark in the way I said would because of other pressures, the same pressures that forced me to merge my two professional blogs, the issues have been much on my mind.

At the moment I am working on a web based project for Sydney law firm Dilanchian Lawyers & Consultants. I normally don't mention specific clients, but in this case I know that Noric won't mind because we share common concerns.

I won't go into the details of the project. However, it does focus on ways of assisting lawyers and others concerned with law to improve performance. Not performance measured by billable hours, but performance in the actual delivery of, or management of, legal services.

As part of the project I have returned to the mapping of the service delivery process. I am focusing on legal services. However, the processes involved are common across all professional services. By service delivery processes I am not talking matter management, although I recently saw some rather good workflow software here that makes matter management much easier. My focus is broader.

I have written before about the importance of the diagnostic (Role of the Diagnostic in Professional Services - medicine vs law, Professional services - the importance of the diagnostic). My focus here was on the professional. However, we also need to focus on the client.

Simply put, my argument is that we need to educate clients in the approach that they should follow in seeking professional advice.

Let me illustrate with an example that all lawyers and many other professionals will understand. A client needs a contract or agreement to do x. The client comes to the lawyer and says draw up a contract. This is where the diagnostic comes in because it helps the lawyer better define client needs. Often, the lawyer will find or feel that there are some underlying problems.

Before going on, remember that a contract is no more than the legal wrapping around something that the client wants to do.

Now what the gun slingers do, they used to be called cowboys in the computer industry, is to give the client just what they asked for regardless of any underlying issues and then move on to the next billing. Others ask questions and try to identify problems.

A difficulty now arises.

Say the case involves an intellectual property matter. Definition of the IP involved is usually central to such matters. This may seem self-evident, but you would be surprised at just how often the IP is ill or even wrongly defined. Then there are the questions of the relationships between the parties - these involve multiple flows (money, management, IP creation) - as well as the various protection and reporting clauses. Again, you would be surprised at just how often these are ill-defined.

The lawyer faces a choice. How much effort should be put into assisting the client to identify and solve what are, after all, commercial or business issues?

We live in a just in time world, a world of see problem, fix problem in which scrappy emails or even SMS instructions have come to replace proper instructions. This adds to costs. We also live in a world where the thinning out of management, something that I have written about, means that in-house knowledge is less than it used to be. This means that people have become more reliant on external sources of advice.

To the gun slinger lawyer, all this is an opportunity.

If the client has cash and is prepared to pay, then you follow through. Give the client the contract, but ask passive information questions. This process can be strung out. If the client has no money, just give them what they ask and move on. After all, you know that further legal fees will come should things fall over. The more conscientious lawyer will try to help, but also knows that the time costs involved may never be recovered.

All this is not an academic argument. Real money is involved. I have seen cases where large legal sums were paid that were not only unnecessary, but could actually have been seen to be unnecessary early on.

This is not an attack on lawyers as a profession. Rather, it is an argument that says that performance improvement in the delivery of legal services is a two way street.

Lawyers can improve their performance through things such as better diagnostics. But we also need to educate clients as well.

Boeing, outsourcing & Ayn Rand

2011-02-23T09:43:00.001+11:00

A brief follow up to Problems with outsourcing. There I mentioned Ben Sandiland's blog as a good source on Boeing's outsourcing problems. The 787 runs out of time and lies extends Ben's reporting.

In an apparently unconnected post on my personal blog, Ayn Rand, selfishness and reciprocity, I looked at one element of the philosophy of Ayn Rand. The link is the way in which disconnects between a short term focus on both personal rewards and key performance indicators can distort behaviour.

We management consultants are meant to be practical people. Yet the biggest problem and I have found, and the cause of some of my biggest professional failures, lie in the disconnect between apparently practical solutions and underlying values, processes and assumptions.

In general, it's pretty easy as an outsider to identify ways in which a firm can improve performance. Sometimes its impossible to get that across when the client's world view is diametrically opposed to what has to be done.

I still haven't worked out how to solve that one!

Sir Roger Douglas to leave politics

2011-02-21T14:11:00.000+11:00

My thanks to Catallaxy Files for drawing my attention to this post by Eric Crampton, Farewell Sir Roger, on the decision by New Zealand's Sir Roger Douglas to leave politics.

Sir Roger was a key figure in major changes that took place in public administration that extended well beyond New Zealand. I wrote two earlier posts that first set a context and then talk specifically about some of his work:

Changes in Public Administration - Notes sets a broader context

Changes in Public Administration - the New Zealand Model looks at some of the specifics

Problems with outsourcing

2011-02-19T15:02:00.001+11:00

A post on Management Perspectives, Problems with maintenance, I spoke of the problems that could arise through through deferral of maintenance in order to meet immediate targets. I suggested that this had become something of a pattern.

The post was triggered by problems experienced by the Australian Navy. Now an article in the Australian, 'Cancerous' morale risks our navy fleet, fleshes out a related element. Reading this and related material, the argument goes that in out sourcing key maintenance functions, the Navy has lost in-house engineering capability to the point that it now threatens the very capacity to properly manage the maintenance function.

The problems Boeing faces with the 787 Dreamliner have been well documented and especially on Ben Sandiland's blog Plane Talking. Something of the same issues seem to have arisen here. Boeing outsourced to the point that it lost effective control of the whole project.

New airliners are always a complex, bet your business, project. Success depends upon strong internal management and engineering competence. Boeing appears to have got the balance wrong.

UK's Clifford Chance to open in Australia

2011-02-18T09:16:00.001+11:00

In February 2010 I reported on plans by Allen & Overy to open in Australia - Allen & Overy to open in Australia, More on Allen & Overy in Australia.

The British law firm Clifford Chance has 3,200 lawyers working across 20 countries. According to a story in yesterday's Australian Financial Review - it's behind the pay wall - Clifford Chance will merge with Sydney's Chang, Pistill & Simmons and and Perth's Cochrane Lisherman Carson Luscombe from 1 May.

The official press release states:

"The importance of Asia to the global economy and to our major clients has already resulted in substantial growth for our market-leading Asia operations," said Peter Charlton, Clifford Chance's Head of Asia. "Any credible growth strategy for the Asian legal market can no longer ignore the importance of the Australian market to the region, both as a destination for, and a source of, investment. I'm pleased that in CP&S and CLCL we have found such a good solution for our clients, and I'm looking forward to welcoming the partners and staff of both firms to Clifford Chance."

In December, Lawyer's Weekly carried an interview with Ian Cochrane. This has nothing directly to do with the merger. I just found it interesting.

Management Perspectives merges with Managing the Professional Services Firm

2011-02-17T18:10:00.000+11:00

After a far bit of thought and soul-searching, I have decided to merge Management Perspectives with this blog.

Originally, the two blogs were intended to serve very different purposes. However, I found that limits on my professional time meant that neither blog was getting proper attention. You can see that from the posts or lack thereof.

The merger means that this blog will carry a broader range of material without, hopefully, losing its original focus.

24/7 and the professional

2011-02-02T10:06:00.001+11:00

Just because I haven't been posting here because of other pressures doesn't mean that I have forgotten this blog, nor the connected interests. I think about them all the time.

The title of We need a management revolution is pretty self-explanatory. In part of the post I talk about the problems a 24/7 world creates for we professionals.

I don't have a proper answer, just frustrations. I have dealt with elements in my discussions on the need for a discipline of professional practice, one that crosses the professional silos. Yet it's hard.

How do you deal with a just in time clients who asks for an instant response when they haven't thought the issues out?

The importance of a discipline of professional practice

2010-12-08T11:44:00.001+11:00

Back in September 2006 in Towards a Discipline of Practice I began a discussion on the importance of the development of a discipline of practice that spanned disciplines. Here I said in part:

On the surface, the application of each profession in practice may not seem connected. What do, say, law and medicine have in common? At least this:

Common techniques can be used to analyse the processes followed by professionals in their work.

A least some of the elements in those processes are common. For example, both lawyers and doctors have to begin each engagement (matter in the case of the lawyer, consultation in the case of the doctor) with a diagnostic. Comparison of the different application of common process elements between professions can yield fruitful insights.

The commonalities between management of practices across professions are better understood. However, there is in fact a gap here.

If you look at the literature you will find a range of general advice and principles drawn from management. You will also find a volume of nitty gritty material classified under the general head of practice management. This is often encapsulated in specific practice management courses and qualifications.

The gap as I see it between the two, and I think that this holds even though David Maister among others has written on the topic, is the gap that Prem points to, the absence of a fully articulated philosophy of practice that takes into account the unique features of professional practice.

The link to Prem's comment is included in the original post.

Back in June in Reflections on professional experience, I said:

I have been off-line for a little while simply because I have been thinking! Part of those thoughts relate to my own directions, part relate to the core focus of this blog.

Over the last few years, I have changed my mind on some issues. For example, I am a stronger supporter of partnership models than I was so long as the partners accept the limitations involved.

On some other issues such as the the profit per equity partnership concept, I think that they are just as dangerous as before unless very carefully defined.

Then, on some issues such as time based charging, I have formed the view that a lot of the discussion simply misses the point. Time based charging has its problems, but it still is the best approach in some circumstances.

I have also become frustrated about my inability to get advice across about the need for change.

Part of this relates to a purely professional question that I have discussed before. What do you do when your client wants advice that you know won't work or must be just plain wrong? Part of this relates to my own professional skills, my inability to get a story across. However, part also relates to current management structures and attitudes within professional services. Some of this is just plain wrong.

Over the next week or so I thought that I might record my conclusions from all my thought. It's hard for a professional to accept his/her failures. Yet if we don't, how can we improve?

As so often happens, events intervened. However, experiences over recent weeks have reinforced the need to write something. Bluntly, we professionals are letting down our clients. Worse, we are sometimes doing it through our narrow definition of what constitutes professionalism.

I have no truck with approaches that guarantee clients higher costs and worse results, even accepting that clients are their own worst enemy!

So, given this, over the next few posts I want to continue my discussion on a discipline of professional practice.

Blog performance November 2010

2010-12-01T17:08:00.000+11:00

End of month stats.

The graphic shows visits (yellow) and page views (yellow plus red) for the year to end November.

The most visited posts over the last month have been:

Problems with Performance Pay 96 page views
Designing a simple performance appraisal system - sample policy statement 82 page views
Break in posting 59 page views
Wednesday Forum - Delegation Issues 57 page views
Wednesday Forum - Performance Appraisal 50 page views
Wednesday Forum Resumes 45 page views
On financial metrics - professional services 35 page views
People Management in Professional Services - Effective Delegation 27 page views
Keddies, Slater & Gordon & the law 16 page views
Good to Great - The Conclusions 14 page views

Keddies, Slater & Gordon & the law

2010-11-26T09:45:00.001+11:00

This cartoon is taken from the Sydney Morning Herald.

In Corporatisation, Keddies and professional ethics, a post written back in July 2008, I reported on the problems faced by Australian law firm Keddies as a consequence of its billing practices. I gave a brief update in October 2008 in Keddies case threatens legal billing practices.

Although I really didn't say so at the time, I did wonder whether or not Keddies could survive. In fact, they did and have been purchased by listed Australian law firm Slater & Gordon for a reported $A35 million.

Russell Keddie, Keddie's founder, has admitted to the NSW Legal Services Commissioner that he was responsible for the gross overcharging of a client and plans to retire from practice.

All this has led to some scathing criticisms from regular legal commentator, the SMH's Richard Ackland.

I did wonder and still wonder about the wisdom of the Keddies' purchase. Time will tell.

Canadian material on professionalism

2010-11-06T09:25:00.001+11:00

In Lawyers like history, Christopher Moore reports on The Chief Justice of Ontario's Advisory Committee on Professionalism's 13th Colloquium on the Profession. The theme of this year's colloquium was History of the Profession: Lawyers, Legends, Legacies and Lessons from Ontario Legal History.

Chris's post led me to the Law Society of Upper Canada's page on the Advisory Committee. I mention this because the page contains links to material on professionalism, including papers from various colloquiums. I haven't had time to read the material yet.

Blog Performance October 2010

2010-11-03T20:20:00.001+11:00

It has been five months since I last posted here. You might think that traffic would collapse, but search engines have continued bringing people to this blog.

The graphic shows visits (yellow) and page views (yellow plus red) for the year to end October.

The most visited posts over the last month have been:

Problems with Performance Pay 95 page views
Designing a simple performance appraisal system - sample policy statement 76 page views
Break in posting 60 page views
Law, Life Style and Legal Salaries in Australia 34 page views
On financial metrics - professional services 28 page views
People Management in Professional Services - Effective Delegation 22 page views
Wednesday Forum - Delegation Issues 22 page views
Designing a Good Performance Appraisal System 16 page views
Performance Measurement - Profit Per Equity Partner (PEP) 12 page views
Good to Great - The Conclusions 10 page views

Interesting that people issues continue to be so important after all this time.

Reflections on professional experience

2010-06-10T16:16:00.001+10:00

I have been off-line for a little while simply because I have been thinking! Part of those thoughts relate to my own directions, part relate to the core focus of this blog.

Over the last few years, I have changed my mind on some issues. For example, I am a stronger supporter of partnership models than I was so long as the partners accept the limitations involved.

On some other issues such as the the profit per equity partnership concept, I think that they are just as dangerous as before unless very carefully defined.

Then, on some issues such as time based charging, I have formed the view that a lot of the discussion simply misses the point. Time based charging has its problems, but it still is the best approach in some circumstances.

I have also become frustrated about my inability to get advice across about the need for change.

Part of this relates to a purely professional question that I have discussed before. What do you do when your client wants advice that you know won't work or must be just plain wrong? Part of this relates to my own professional skills, my inability to get a story across. However, part also relates to current management structures and attitudes within professional services. Some of this is just plain wrong.

Over the next week or so I thought that I might record my conclusions from all my thought. It's hard for a professional to accept his/her failures. Yet if we don't, how can we improve?

Concept of sustainable profit

2010-05-26T11:10:00.001+10:00

Only five posts this year. Talk about a useless blog!

Over on my personal blog, I have had two posts looking at profits (here and here). In the second post, I talked a little about professional services.

My problems with profits in professional services is two fold.

First, I Have come to feel that the overwhelming focus on profits is simply taking all the fun out of life, as well as creating clashes with our professional roles. Here I was talking to a former senior partner of a major law firm the other day who had decided to exit stage left.

Many things came into that decision. One was his feeling that his share of the profit pool, the attempts to increase the size of that pool and hence the size of his share, simply wasn't worth it. The extra dollars at the margin held little value.

Don't get me wrong, profit remains important. Without it, you can't do things. However, this brings me to my second point.

In thinking about profit, we tend to look to the immediate future. More and more, I think that we need to think about the concept of sustainable profit.

If the aim of the firm is to achieve maximum growth in profits per partner that's fine. However, it also carries costs in terms of life style and also risk. In many cases, a better question is how do we sustain our profit level, perhaps building in some growth, over extended periods?

This involves different strategic choices, as well as different staff management and investment patterns. It is both easier and harder to achieve. Easier in that the pressures are less, harder in that it requires action to insulate the firm to some degree from market changes. Survivability is increased, but at the cost of reduced maximum returns per partner.

History of Canadian law firms

2010-04-28T14:17:00.001+10:00

Christopher Moore pointed me to an interesting article by Christopher Guly in The Lawyers Weekly on the history of Canadian law firms, tracing the rise of larger firms.

Gully notes that the process has been slower than in the US. Its partly a matter of relative size of the two markets, but is probably also linked to institutional factors. My impression is that the sizing process has been faster in Australia, a significantly smaller country.

Time based billing goes round and round

2010-02-15T21:00:00.001+11:00

Interesting article by John Chisholm in Lawyers Weekly, A billing discussion worth its time, on billing principles.

Reading John's remark's reminded me how little had really changed over recent years where time based charging is concerned. The discussion on alternatives to time based billing in law seems to go round and round and round.

The real problem as I see it is a simple one. Time based charging is easy, whereas alternative methods are much harder, requiring very different approaches.

When I first started as a consultant, my firm actually used four different pricing models:

time based billing usually associated with a cost estimate up front
fixed price contracts, especially where Government contracts were concerned
retainer style arrangements where clients paid a standard monthly amount in return for exclusivity and an agreed package of services
and fixed prices for certain types of work such as training or information products.

Running four different pricing systems posed its own problems.

To begin with, we needed a practice management system that would allow us to measure time inputs and various types of disbursements. This had to mesh with the general accounting system. We still attached value to time via hourly rates not just because of the continued presence of time based charging but, more importantly, because of the need to monitor costs on fixed price jobs and to compare relative profitability between areas.

Generally in time based charging, things such as marketing time get allocated to firm time. We could not afford this approach because of, among other things, the presence of significant size fixed price bids. Marketing costs need to be measurable because they were a major cost component; in some smaller open tenders, the total cost to bidders of tender preparation can in fact exceed the value of the tender, creating a an effective zero sum game.

In order to get a better measure on marketing costs and to to aid recover, we created a special time code called work in anticipation. This covered all bid costs plus time investments in looking after specific clients.

General marketing was measured by another time code. The attachment of job and client codes to WIA allowed us to measure direct marketing costs, both time and disbursements. With client support, the aim was to recover WIA over time through new work from that client. With fixed price jobs, the aim was to recover the WIA through the tender price. This type of measurement has some salutary effects because it quickly throws up potentially unprofitable activities.

While the system did generate the type of information used in conventional billing and performance management systems, there were no charge targets as such. Instead, we used the concept of effective time. This varied from person to person and might include not just billable hours, but also WIA, other marketing and business development time and product and personal development time.

A person studying, for example, might have study time included in effective time, removing the conflict that can arise between approved study and billings. Similarly, the inclusion of marketing time in effective hours removed the conflict that arises in so many firms between getting the cash in now and laying the basis for later cash.

We used manual rather than computer based time recording systems. Our people travelled all the time and were usually working on multiple tasks. It was just easier to scribble on a time sheet once the necessary discipline had been installed. This also allowed for multiple time recording. For example, in travelling on a client job, travel time would be charged to the client. However, dead time might also be used on and recorded to another task.

Each Friday, all staff transferred their time data to summary sheets that went to admin staff for data entry. This was obligatory, no matter where staff were so that full weekly firm performance data was available for review by Monday lunchtime by management, client officers and project managers. Weekly data was essential because of the presence of relatively large contracts that needed to be closely monitored.

I am providing this personal example simply because it illustrates the type of complexities that can arise when you move from conventional time based charging to other models. Other models may be better, I believe that they are, but they also require changes in systems and culture that are not, of themselves, easy.

More on Allen & Overy in Australia

2010-02-10T10:47:00.001+11:00

Since yesterday's post, Allen & Overy to open in Australia, I have been mulling over just what the implications might be.

When i wrote yesterday I did not have the names of the people who had left Clutz - Australians like shortening things, so Clayton Utz is commonly called Clutz. Since then I have seen a list provided by ALex Boxsell in the Australian Financial Review. I can't give you a proper link because it's behind the fire wall.

This was quite some people raid. The fourteen who left Clutz included:

Geoff Simpson, partner in charge, Perth office
Michael Reed, national managing partner corporate
David Wilkie, national head of real estate
Michael Parshall, joint head of mergers and acquisition.

I must say that I was quite fascinated by the machinations that must have gone on to organise this coup.

There has been something breathless about the reporting on this issue. "British bombshell a shock for local firms" read one headline, "UK raider sparks legal talent war" another. Obviously this type of raid will force all major firms to review their strategies. However, I also think that we need to keep a bit of perspective.

Allen & Overy is a big firm, with annual gross revenues in 2008-2009 reportedly at $A1.96 billion. However, the current strategy is essentially high end niche, with A&O planning to grow its partners from 17 to a possible 30 in the immediate future.

Depending on the average charge rate achieved and the leverage adopted (A&O is reportedly looking at 50-60 associates for the its starting partners), we are looking at a projected fee base of perhaps $A55-$A60 million in the first instance. Substantial, but still not large in a total legal services marketplace of around a reported $A12 billion, of which the top eight firms control perhaps $A3 billion.

Allen & Overy to open in Australia

2010-02-09T08:44:00.001+11:00

Interesting article in The Australian by Legal affairs editor Chris Merritt on the plans by Allen & Overy to open in Australia next month. The firm will open with seventeen staff, fourteen lured from national firm Clayton Utz.

While Australia is the world's 14th largest economy, its relatively small size together with its remoteness from Europe and North America has kept it a little below the global horizon. This has actually given local firms something of a protected market.

Australia's recent economic performance has been quite astonishing by global standards. This plus the China link has focused more attention on the country.

Allen & Overy's core practice areas in Australia will be energy, mining and natural resources; finance; infrastructure; investment funds; mergers and acquisitions; private equity; tax; telecoms, media and technology.

These are generally all areas where Australia has a significant local market for legal services. It will be interesting to see how Australian practices respond.

Why active listening is important to all professionals

2010-01-07T16:33:00.001+11:00

Just back to duty and still very saddle sore.

The only really professional thing that I have done this week was a consultation for a manager seeking advice on how to manage a particular problem. This got me thinking.

Most professionals know, I think, that the capacity to listen is a key professional skill. This holds equally true for a lawyer, management consultant or doctor. The problem for most of us, however, is that time is limited and that as soon as we identify a problem we switch into problem solving mode. See problem, fix problem.

The difficulty here is that the first identified problem or problems may not be, often is not, the key problem. This is true whether dealing with individual or corporate problems. Too often, the first identified problem is either one of a number of problems or simply a symptom of a deeper underling problem. So we need to probe through active listening.

Active listening involves several different processes.

One is simply the gathering of information. We do this by listening and by asking questions. We also have to analyse the information as we go along. What does it mean? What additional information do we need? This leads to further questions.

We also have to test the ideas we are forming. This may be done by asking questions or by summarising, testing our conclusions with the client.

Summarising can be used as a validity test, but it is also used to change a direction in the discussion. In this second case, we summarise and then ask a question, taking the conversation in a new direction.

We can all consciously practice these steps.

Welcome to visitor 25,000 and Happy Christmas to all

2009-12-22T07:07:00.000+11:00

Time pressures this year have really limited my ability to post to the point that I almost decided to archive this blog. Then, for a number of reasons, I decided to continue.

Noric Dilanchian was one reason. He sends me a steady stream of material that he thinks, correctly, is worthy of comment. Then, too, the blog still attracts traffic despite my poor posting. In this context, welcome to visitor 25,000 who came from Finland.

A lot of the traffic is attracted by the nuts and bolts posts I have written, the how to do material. This seems to meet a real need. Just yesterday I got an email from someone seeking advice on resolution of a very specific problem.

Finally, there is other writing that I should comment on. Yesterday in Pin Striped Prison, for example, Legal Eagle reviewed Lisa Pryor's The Pin Striped Prison, dealing with some of the issues that I have written about.

I find it hard to maintain a very active posting pattern. What I will try to do, however, is to maintain a regular posting pattern to keep the blog current.

For those to whom it is relevant, have a happy Christmas. May 2010 be a good year for all of us.

Problems with authority and responsibility - are you guilty?

2009-11-30T06:08:00.000+11:00

I have written a fair bit on this blog over time about problems with delegation. A key problem lies in the the grant of responsibility without real authority. This often links to a related problem: constant changes and interventions that further undermine the authority of the person meant to be doing the job.

These problems are often linked to two of the management styles I have discussed: the micro-manager and the over-enthusiastic manager.

You can check whether or not you belong to either class. Simply take a small handful of delegated jobs and monitor your own involvement. Actually write down what you do.

The observer always affects the observed. The fact that you are monitoring your own behaviour will affect that behaviour and for the better. However, you can tell what type you are by your gut reactions.

Does the act of standing back make you uncomfortable? Do you find that you have to discipline yourself not to give staff new assignments before the previous ones are completed? Do you, in fact, have a tendency to delegate and then forget, fail to follow up? Do you give one set of instructions and then actually countermand them?

You cannot change your personality, but can change the way you manage your personality. All these things give you clues that you can use to improve your own perfomance.

Decline of the professions in Australia

2009-11-28T20:46:00.001+11:00

Over on my personal blog I have been reviewing Professor Don Aitkin's What was it all for? The Reshaping of Australia. (Allen & Unwin, Crows Nest, 2005). The first post is here, the second will come up tomorrow.

The book itself examines social change in Australia over the last fifty years in part through a prism set by the Armidale High School leaving certificate class of 1953.

I don't think that anyone of us would not accept that the professions have declined in status and not just in Australia over the period covered by Don. I mention this because he has some interesting material on what he perceives to be the causes of the decline in the professions in Australia.

The first thing he points to is the sheer increase in the scale of the professions. They grew and grew. Further, the growth was associated with the emergence of mini-professions, constant subdivision into smaller areas of knowledge, each with their own societies, journals and specialist knowledge.

As the numbers in the professions increased, as the number of professions also increased, so the general respect in which professionals were held declined.

The growth in the professions was linked not just to the growth of knowledge, but also to a broader process, the "professionalisation" of work. Here I want to quote Don:

Name and fame went with specialised knowledge, and the generalist became seen as someone who knew very little.

The problem is that this professionalisation process and the consequent rejection of the value of broader knowledge has aided the process of locking the professions into narrower silos that have, of themselves, reduced the effectiveness and power of the professions.

Here we get into somewhat slippery territory.

Central to the concept of a "profession" is the idea of professional independence. Without this, a profession becomes simply another occupation. I accept that the concept of independence is a difficult one. In practice, no profession has ever been completely independent, yet the ideal is still central to the professional ethics that lie at the heart of any real profession.

The killer today, as Professor Aitkin notes, is the rise of the concept of "compliance", a concept that has come to replace the old idea of professional independence,

In simple English, to comply means to obey. That is exactly the way the term is now used.

When people speak of compliance, they mean that the profession in question must comply with rules. Of course professions have always had rules, more precisely sets of ethics. However, now we are talking about externally, especially government imposed, rules.

One can mount a case for Government regulation. However, the modern use of compliance is in fact far broader than simple regulation. In a practical sense, it increasingly substitutes rules for ethics and professional standards.

To my mind, this lies at the heart of the decline of professions as professions.

Software patents and IP risk management

2009-11-07T07:40:00.001+11:00

Interesting short post from Sydney lawyer Noric Dilanchian on the rising use of patents in software protection and the consequent need for software developers to do patent checks. Worth reading.

As a broader comment, Noric's overall web site including the blog remains one of the best if not the best specialist law firm web sites.

Leader vs manager – reflections on Hitler as this blog turns three

2009-07-17T06:21:00.001+10:00

I have been reading Mark Mazower's Hitler's Empire: Nazi rule in occupied Europe (Penguin Books, London 2009). It is quite a gripping if also depressing book.

Mazower focuses on the way Nazi Germany administered the large European empire it acquired so quickly and then lost. There is no doubt that Hitler was a great leader. He was able first to place his stamp on a nation and then lead that nation into a huge and initially successful war. He failed, something for which we can all be thankful, because he was such a bad manager.

I do not think that Hitler would have claimed to be a manager. In fact, he would have dismissed the concept. He was simply the leader. Management was the responsibility of others.

The problem is that Hitler’s own leadership approach made effective management impossible.

The Germans were very good at managing particular things, Adolf Eichman and the death camps are an example, yet the overall Nazi empire was run in an increasingly ramshackle fashion. Even those things that were effective had unforseen side effects.

Hitler’s difficulty, although he did not see things in these terms, is that he was the leader. Power was increasingly centralised in his hands. The German system dissolved into a series of satrapies each competing for the leader’s attention.

Reading the detail in Mazower left me with the very strong feeling that Nazi Germany could easily have won the Second World War or, at least, worked to a peace that preserved their core gains. The leadership that drew them into the war and gave them initial gains condemned them in the end.

Leadership versus management, that’s the rub.

When I started this blog all that time ago in July 2006, I called it managing, not leading, the professional services firm. I used the word managing deliberately, because it reflected my view that management in professional services was not very good.

In my first post on 2 July 2006 I said:

This blog has been created to encourage debate about and to provide information relevant too the management of all professional services firms.

With time, I hope that it will develop into a valuable resource.

I am not sure that I have achieved the second. However, I remain convinced that improved management in professional services is critical.

Problems with English in drafting

2009-07-10T10:21:00.000+10:00

Recently I was preparing a funding agreement. Essentially a scissors and paste of previous documents to provide a base that could then be supplied to the lawyers for review.

In doing so, I found a major problem with language and in particular the difference between English usage in the US and the rest of the English speaking world. I found that I had to go through on a line by line basis to ensure consistency.

I mention this because in a A Licence to Spell the LexPublica blog had an interesting post on the same topic from a Canadian perspective.

New statistics on Australia's legal services' sector

2009-07-08T06:17:00.001+10:00

Short note to say that the Australian Bureau of Statistics released a new publication, Legal Services Australia 2007-2008. It has been quite some time since we have had statistics on legal services, and unfortunately the new release is not directly comparable with the previous one. Still, there is some interesting data.

Common problems with performance indicators - complexity and control

2009-03-08T11:13:00.003+11:00

A little while since I posted. Life has just been too busy!

During the week I had cause to look at some performance indicators. Several pages of them in table form. My heart sank because they really breached two key rules.

The first rule is simplicity. The more things you try to measure, the more complicated the indicators become, the less effective they are likely to be.

The second rule is control. If people are to be assessed using indicators, then there needs to be a link between the indicators and those elements of performance that people can control on an individual basis. With these indicators, no individual or even individual teams could guarantee results.

Sigh. I wonder how we can get the message across in an effective way. Certainly I am not very effective.

Australia's dominant role in Asia's legal services market

2008-12-03T09:00:00.000+11:00

At drinks one evening in Shanghai, I was struck by the Australian legal presence in China. The following table illustrates in a fairly dramatic way just how big the Australian legal sector is in Asian terms.

Table: Asia's Top Fifty Law Firms by Country of Origin

Country	Top Ten	Top Fifty
Australia	7	16
China	2	7
UK	-	6
US	1	5
Japan	-	4
Korea	-	4
India	-	3
Singapore	-	3
New Zealand	-	2
Hong Kong	-	1

Source: The ALB 50. Joint country firms allocated to main country.

The Australian dominance in both the top ten and top fifty is quite striking. Equally striking is the dominance of common law countries.

Looking forward, it will be interesting to see how Chinese and Indian firms perform. China is already number two.

The view over drinks in Shanghai was that China was using administrative action to tighten up on the grant of required visas to expatriate professionals.

From an Australian perspective, access to the Chinese market for legal services is a key issue in the current negotiations on a China-Australia free trade agreement.

Managing the professional services firm - what people want to know 4

2008-12-02T17:58:00.001+11:00

Continuing my irregular series on what draws people to this blog, the most popular posts among my last 100 visitors have been:

Australian law firms retrench. This short post came first by a very considerable margin.
Designing a simple performance appraisal system - sample policy statement came next. This post has been consistently popular.
Law, Life Style and Legal Salaries in Australia came in third with a gap.

Then came five posts:

In all, a fairly mixed lot!

Managing the professional services firm - end month reflections November 2008

2008-11-30T18:00:00.001+11:00

So we come to the end of another month and a rocky month it's been in some ways.

Just to take our mind of current troubles, this poster is from an exhibition by Australia's National Library, Follow the Sun - Australian Travel Posters 1930s to 1950s.

The scene is quite iconic of Australia then (c1930s) and now.

I continue to wonder whether I should merge this blog with Management Perspectives simply because two professional blogs are difficult to maintain.

I have decided not to for the present. To my mind, the two blogs are complimentary.

Management Perspectives provides a vehicle for my writing on economics and broader managements issues extending beyond this blog's focus.

I am better of maintaining both for the present, cross-referencing material as appropriate.

Managing the professional services firm: a pause for reflection

2008-11-28T10:40:00.005+11:00

As I write this post, it is twenty two days since my last post.

There is so much to write about. I have written many posts on other of my blogs, plus I have a large number of part completed posts on this blog. As issues come up, I start a post.

What to do? I have decided to bring up this explanatory post, then back-fill. I really want to maintain the continuity in my thinking and writing.

Updated

Australian law firms retrench

2008-11-28T09:37:00.003+11:00

The economic downturn in Australia is clearly biting the legal sector.

A story in today's (28 November) Australian Financial Review - I cannot give you the link because it is behind the pay wall - records that Corrs Chambers Westgarth has retrenched fourteen lawyers to try to fit its business to the new economic landscape. This brings the total number of retrenchments including support staff to something approaching fifty staff.

Last week DLA Phillips Fox confirmed that it had retrenched twenty staff including twelve lawwers at its Sydney and Auckland offices.

A Scottish doctor's reservations about evidence based medicine - measurable vs the immeasurable

2008-11-24T10:58:00.003+11:00

In my on-going series on the development of a discipline of practice, see Establishing a Discipline of Practice - stocktake of posts, I discussed the concept and some of the implications of evidence based medicine.

In Real world medicine a Scottish doctor expresses his concerns about the application of evidence based medicine in a UK context. In doing so, he makes a distinction between the measurable and immeasurable, suggesting that blind focus on the measurable

He has a point. Part of the reason for the development of evidence based medicine lay in the need to challenge and test previously accepted medical nostrums. However its blind formalised application can distort practice to just the measurable. This holds especially where application is mandated through formalised Government rules.

The issue of measurable vs immeasurable links to craft vs science.

Any practitioner knows that certain things work from experience even though the results cannot be proved in a rigorous scientific fashion. This is the craft component.

Yet we also know that practitioners, and this is not limited to medicine, apply things from belief independent of real results. Belief stands as a barrier. Evidence based medicine aims to test this. This is the scientific component.

In thinking about the development of a discipline of practice, we need to take explicit account of the importance of the immeasurable. Measurement is not all.

Postscript

A comment from Bob Quiggin on another post really made me laugh:

Just on evidence based Scottish doctors, perhaps the most famous is Sir Arthur Conan Doyle, who used to emphasise the importance of observation and evidence in medicine as a medical lecturer.
One of his favoured tricks was to take a beaker of foul tasting fluid, dip his finger into it, taste it, pull a face and then ask the class to do the same. Only after they had all tasted the fluid did he take them to task for not noticing that he had dipped one finger, but tasted another. Unlike them. :)

Nice story, isn't it!

In Defence of Partnerships

2008-11-21T13:47:00.004+11:00

Who would have thought it? I have spent a fair bit of time crtically evaluating partnership structures. Yet now I feel the need to come to their defence!

The reason for this is simple. The best partnerships do tend to focus on their clients on one side, their staff on the other.

Note I say the best partnerships. Too many partnerships actually combine the worst elements of corporate structures on one side with the weaknesses of partnership structures on the other.

A key advantage of partnership structures at a time of economic downturn is that partners as owners can choose to reduce their own incomes in a way that senior managers in corporate structures cannot or will not.

This comes about because to partners as owners, reductions in remuneration flow (a partner loss) can improve capital performance (a partner gain).

I do not think that this detracts from the validity of my previous arguments. However, it does demonstrate the need to take a broad range of issues into account when considering firm structures.

Economics of professional services - surviving recession 5: expanding the business 1

2008-11-06T06:07:00.001+11:00

In my third post in the surviving recession series I emphasised the need not to simply freeze all new spending since this was likely to cripple your chances of doing the new things that might be required to survive a downturn. This is especially important if you want to grow the business despite the recession.

Just because the economy has gone into downturn does not mean that you cannot increase billings in your existing practice areas, nor expand into new areas. However, you also need to be aware of the problems involved.

The starting point is to understand your marketplace.

How bad is the contraction in your key areas? If the market is down by a third, and this happened in a number of professional services areas in the Australian economic downturn over 1990 and 1991, then you have to increase your market share by just over fifty per cent to maintain constant fees.

If you are already the market leader, this may in fact be impossible. In this case, you will need to consider new areas if you are to maintain or increase billings.

The next point is to understand your competition. They will be facing the same problems, and may respond quite aggressively. You need to be able to understand this and take it into account.

An example to illustrate.

The 1990 crash meant that all the big shops suddenly started looking for new work to try to cover their fixed costs, in so doing bidding for jobs that they would not have considered before. In the case in question, the firm (the consulting arm of a big consulting firm) had a survey centre whose work had dropped very sharply.

The Australian Department of Defence wanted a capability census carried out of a small but important local sector. This involved identifying and then contacting every industry participant, writing the results up in a standardised way to allow the Department to make judgements about both existing capabilities and capability gaps.

Defence industry was one of our core areas. We really wanted this job, cut our costs as much as we could while putting forward a very detailed methodology. The Defence area in question wanted us to do the job because they thought we would give the best result. However, without giving away information, they indicated that the big shop had come in with a much lower offer, making it very difficult to reject them even though their methodology was not as good. We and the big shop were invited to put in revised offers.

We really agonised over this one, Finally, we told Defence that we could not lower the price further because this would almost certainly risk a cash loss on the job. The assignment went to the big shop.

Later when we found out the tender price (tender results of this type are on the public record) we discovered that our opposition's price was 60 per cent of ours. We knew our costs very well. It seemed clear that they had no idea of the real costs involved. And so it proved. The job took twice as long as expected at a cash out cost on our estimate more than twice the tender amount.

The third point is to understand your clients. In a sense, the starting point in surviving recession is to try to keep what you have.

Now this one may seem self evident. Of course you need to understand your clients. You do, don't you?

The problem is that understanding clients is quite complicated and is actually not well done because it involves interactions at a number of different levels. Many firms are really quite bad at it.

I will look at the detail here in my next post in this series.

Next post. Previous post. Entry post.

Common Management Problems - get the booklet

2008-11-03T12:37:00.000+11:00

Some time ago I began the Common Management Problems series as a way of providing nuts and bolts advice that might aid especially professionals entering into management roles to improve their performance. Measured by visits, the series has been quite popular.

I have now turned this into a simple and quite short word document to make it more accessible. To cover processing costs, I have put a small charge on it of $A15 payable through Paypal. Those who do not want the convenience can still access the material through this blog.

If you would like your own copy, please email me at ndarala(at)optusnet(dot)com(dot)au and I will send you the Paypal account.

Distant Hills

2008-10-31T21:57:00.000+11:00

Just for variety, I thought that I should finish October with a photo by Gordon Smith.

This country in Australia's New England ranges is country that I know and love. Great gorges cut their way in from the eastern coast, creating a complicated range pattern. Enjoy.

Managing the professional services firm - what people want to know 3

2008-10-28T21:46:00.000+11:00

Continuing my irregular series on what draws people to this blog, the most popular posts among my last 100 visitors have been:

Designing a simple performance appraisal system - sample policy statement, first last time, retains number one spot.
Problems with Performance Pay came a close second.
Law, Life Style and Legal Salaries in Australia came third.
Then came Performance Measurement - Profit Per Equity Partner (PEP).

This was followed by four equal posts:

And then a further four equal posts:

Quite a range really.

At the moment I am just recording. I think that once I have half a dozen posts in this series, they will provide a useful guide to further writing taking reader interests into account.

Professional Services Management - a note on problems with continuous improvement

2008-10-24T14:11:00.000+11:00

This post is really a note to myself.

I have always been a supporter of continuous improvement as a management approach. Recently I have begun to have doubts about its application in practice.

Take a reliable part time professional who is yielding a good profit to the firm. He/she may be balancing work and family responsibilities. Now increase the pressure to try to improve results. This will often result in an immediate increase in billings. However, this may in fact be just a short term result.

If the person is already in a personal balance position, just balancing work with other commitments, immediate tension is created. This may lead to subsequent declines in performance and even the loss of a profitable professional.

In theory, continuous improvement starts be recognising the constraints faced by individual workers. In practice, these issues are often ignored.

Economics of professional services - surviving recession 4: getting the cash in

2008-10-21T09:29:00.000+11:00

Continuing my series on surviving recession drawing from our experiences in the last downturn (entry point for the whole series here), a remarkable number of professional services firms are not good at getting cash in. Too many carry excessive work in progress, essentially funding client operations.

As recession bites, clients begin to delay payments to preserve their own working capital. In our case, we found that the average age of our receivables began to blow out from just over thirty days to forty then to sixty and even 120 days. I am talking about good clients who could pay. This tightened an already strained cash position.

To overcome this, we launched a collection program. Our problem here was to find a way of doing this without disrupting relations with clients (and especially individuals) on whom we were dependent for future work.

Many firms in this situation try to rely on individual professionals to follow up their own clients. He/she is your client, you sort it. This can work. However, many professionals find it an uncomfortable process. It is also one that can alter relations between professional and client. To overcome this, we adopted a multi-stage approach.

In most larger organisations, the direct client may authorise payment. However, payment then has to be made by accounts areas who may be operating under different rules.

We began with close monitoring.

Where our relations with individual clients were good (here I mean not just the organisation, but also the specific individuals involved) we found that we could sometimes get early payment even within thirty days by a private chat at the time of billing. In other cases where the individual might authorise but could not control payment, we focused on the accounts area. To do this, we had to understand the payment system in the client.

In our experience, the people we were dealing with in a professional role were happy to explain how their payment systems worked. Once we knew this, we could follow up.

Now here comes an important distinction from some firms. We did not ask our professionals to talk to accounts areas. They had neither the skills nor the time to do this. Instead, we used our own accounts people because they could talk like-to-like.

The approach was always the same. An initial call to check on the status of the account immediately following the thirty days. This was always done in a gentle, friendly fashion, seeking information. Our accounts people would always explain that they were doing cash flow planning. With on-going clients, a key aim was to establish individual relations.

In a remarkable number of cases we actually got fast payment. Where the accounting areas were operating under fixed rules - in one case an instruction to pay at 120 days! - we at least knew.

We already had tight work-in-progress monitoring systems in place, in combination with billing rules. A surprising number of firms do not - WIP can build and build. I have seen many firms still carrying WIP in the accounts that is more than five months old. This can play absolute havoc with accrual accounting systems because it creates a divergence between the firm's real position and that shown by the formal accounts.

If you do not have these systems in place, then you must establish them. Otherwise you may go broke while showing an apparent profit.

Economics of professional services - surviving recession 3: don't freeze all new spending

2008-10-17T07:47:00.000+11:00

This post continues my discussion on the best ways to survive recession, drawing from the mistakes we made in responding to the last major Australian downturn in professional services. Those interested can find the entry point for the whole series at the end of the post.

One of the first standard reactions to downturn is to place a freeze on all new spending.

We did this as the 1990 recession bit. Fees dropped by two thirds during the March Quarter. We were bleeding cash. We put a freeze on all new discretionary spending to give us time to respond. This proved to be a bad error.

The problem with this type of blanket freeze is that its stops all development activities in their tracks. It also increases the difficulties faced by existing activities in responding to changing market conditions. Both act to worsen the situation.

You may need to tighten spending controls sharply, but you have to ensure that cash continues to be available to support your recession responses.

Return to the entry point in the series.

Economics of professional services - surviving recession 2: know your business

2008-10-13T07:06:00.000+11:00

In my introductory post in this series, I suggested that we had probably made every mistake in the book in responding to the severe downturn that hit the Australian professional services market place at the beginning of 1990, the last major downturn to hit professional services, at least in Australia.

Before describing some of our errors, I wanted to make a basic point: know your business. This may seem self evident, but in my experience the most fundamental error that firms make when facing trouble is to focus on corrective action without linking that to the nature of the business itself.

Most firms facing economic challenges respond in a small number of ways - they try to cut costs, they look for new business, if things are really bad they look for merger partners. Each has its place. However, the actual action taken has to be consistent with the firm's underlying business. To illustrate.

We had introduced an external director, a very senior experienced business executive with a sales and marketing background, to provide independent business advice.

As the recession hit and fees dropped, his advice was to cut back spend to the level required to restore profit. This meant retrenching professional staff. In start up, we were reluctant to do this because it meant losing productive capacity and especially people whom we had invested in and were just becoming productive.

Both points of view were equally right, both equally wrong. Neither side knew at that point that the bottom of the downturn in the economy was then eighteen months away, a long period when you are struggling to survive.

Our director's business experience in sales and marketing lay in cyclical areas with considerable pools of trained people. The logical business response to downturn was to cut costs, then rebuild as the downturn came to an end.

Our business was different. Our productive capacity was directly related to staff time. Because we were working in a new area, developing new types of professional services, we had had to train our own people. Apart from loyalty issues, staff cuts meant a longer term reduction in productive capacity, not something that could be turned turned round quickly.

If you have to discuss serious business restructuring issues, please do so off-site. Our board meetings became difficult affairs focused on arguments about the quantum of the required cuts. Staff quickly became aware of the nature of the dispute. Enthusiasm and productivity dropped.

I said both sides were equally right and wrong. We did need to make cuts. However, instead of focusing on the cuts themselves, we should have focused on the business - what were core activities, what development activities might be deferred, how long were projected pay-back times and so on.

Had we done this first instead of moving straight to a discussion focused just on financials, we would have been in a far better position to address cost issues in a sensible way.

Each firm is different. The key lesson is that effective action in a downturn starts with the business, not the financials as such.

Return to the entry point in the series.

Economic Analysis - finance 101 and the global financial crisis

2008-10-12T20:57:00.000+11:00

I began my professional career as an economist and policy analyst, later moving into management consulting. Recent developments in the global have led me to dust off some of my original skills. Given this, I thought that it might be sensible to cross-link some of my economics posts for the benefit of readers to this blog.

Saturday Morning Musings - finance 101 and the global financial crisis provides a simple introduction to some of the issues associated with the global financial crisis.

There is no management silver bullet

2008-10-06T08:52:00.003+11:00

Over on my personal blog, I have been trying to pull together some of my current concerns about management thinking. For those who are interested see:

I will add other posts as I complete them.

From a professional services management viewpoint, the thing that I would add is that there is no such thing as a management silver bullet, a single solution that will solve your firm's management and business problems.

I know that this will sound self-evident. However, you would be surprised how often I have found clients expecting me to provide a simple universal solution to their problems, or help them implement one that they have decided upon for themselves.

Management is a practical art form, not a science. Further, it is an art form that has to be carried out within the very particular cultures of firms and sectors.

Business improvement comes from a constant focus on improvement and is best achieved by continuous incremental steps. It is far easier in practice to achieve 100 one per cent improvements than one 100 per cent improvement.

I used to do a fair bit of hiking. On a long road carrying a heavy pack, the only way to go is one step at a time. Further, you need regular pauses to regain your breath.

Management is no different.

Keddies case threatens legal billing practices

2008-10-04T12:30:00.000+10:00

Back in July 2008 in Corporatisation, Keddies and professional ethics I reported on the problems facing Sydney law firm Keddies centred on allegations of overcharging. Since then the firm has been forced to retrench staff, while the whole legal billing system in Australia is now under review.

Those interested can find out further details here.

Managing the professional services firm - what people want to know 2

2008-10-03T12:07:00.000+10:00

Welcome to visitor 18,000 who came from Melbourne searching on lawyers' salaries.

Continuing my irregular series on what draws people to this blog, the most popular posts among my last 100 visitors have been:

Designing a simple performance appraisal system - sample policy statement. Performance appraisal is a long running popular topic among visitors.
Performance Measurement - Profit Per Equity Partner (PEP).
On financial metrics - professional services
Law, Life Style and Legal Salaries in Australia
Problems with Performance Pay
Causes of project failure - lack of central control
Common Management Problems - the over-enthusiastic boss

New England brumbies

2008-10-02T11:08:00.003+10:00

The photo by Gordon Smith shows brumbies (feral horses) at the junction of the Chandler and Macleay Rivers in Australia's New England Highlands.

The brumbies have always occupied a special place in the Australian imagination in part because they are free, in part because horses occupy such a pivotal position in Australian life.

Just a break from serious stuff!

The financial crisis - when traffic rules fail

2008-10-01T10:41:00.000+10:00

This scene does not do the story justice because I missed the main shot.

I was standing there in Shanghai watching the traffic. A number of drivers needed to go in different directions, requiring others to give way.

As I watched, traffic grid-locked because each wanted to do their own thing independent of others. As a consequence, it became a zero sum game in which all lost.

The Importance of old fashioned management

2008-09-30T10:26:00.002+10:00

Like many of us, the current financial crisis has raised issues in my mind about the way we all do our jobs. I mean this in a broad sense, including our approach to management and to community and political involvement.

The fallacy of modern management explores one element of this. Put crudely, we have allowed ourselves to get caught in a zero-sum game.

Economics of Professional Services - surviving recession 1: introduction

2008-09-28T09:21:00.003+10:00

Continued economic problems mean slowing demand for most but not all professional services. Insolvency practitioners, for example, are likely to have a field day!

The length of the last boom means that many professionals have never experienced a downturn. I have, and it's not pleasant.

At the end of 1989, the Australian market for many professional services collapsed, down one third in a very short space of time, a leading indicator of a recession that did not in fact bottom until the middle of 1991. We were in start-up fast growth mode at the time. In responding, I think that we probably committed every mistake in the book.

Given this, I thought that it might be helpful if I did a short series of posts on the major mistakes we made.

Later, I will add a list of posts in the series at the end.

Posts in the Series

Return from China

2008-09-25T09:09:00.000+10:00

I have been in China, hence the further delay in posts.

While we were there the financial crisis broke. There was a sort of morbid fascination in watching it unfold. At the same time, it was also fascinating looking at China on-ground, comparing what I saw with perceptions formed through Australian reporting in particular.

Perhaps the strongest impression was the weakening in the Chinese economy as compared to continued Australian reporting on China's economic strength. This came through in things such as local reporting on declining car sales, declines in manufacturing because of declines in international demand.

Then there was the milk scandal, something of immediate interest because we both drink milk. The damage to China's reputation has been significant, something the country could well have done without. The economic knock-on effects as well have been significant because of the sheer size of subsequent product recalls.

Establishing a Discipline of Practice - stocktake of posts

2008-09-03T04:58:00.002+10:00

I hold two strong professional views. The first is that the professions can learn from each other. The second is that we need to establish a consolidated discipline of practice across the professions.

This post simply list previous posts discussing the development of a discipline of practice.

21 September 2006 Towards a Discipline of Practice
22 September 2006 Role of the diagnostic in professional practice - medicine vs law
8 January 2007 Reflections on Professional Practice and Practices
16 January 2007 Towards a Discipline of Practice - Evidence Based Medicine 1
22 January 2007 Towards a Discipline of Practice - Evidence Based Medicine 2
23 January 2007 Towards a Discipline of Practice - Evidence Based Medicine 3
27 January 2007 Lessons for the Professions from Evidence Based Medicine 1
3 February 2007 Lessons for the Professions from Evidence Based Medicine 2 - Evidence Based Management
10 February 2007 Lessons for the Professions from Evidence Based Medicine 3 - Evidence Based Management 2
29 October 2007 Professional services - the importance of the diagnostic
9 November 2007 On saying no to clients
11 November 2007 On saying no to clients 2 - the importance of a discipline of practice
16 November 2007 Clients are people too - Introduction
20 November 2007 Clients are people too - looking after the client
23 November 2007 The Australian Prime Minister and Evidence Based Public Policy

Raising one's eyes unto the hills

2008-08-31T10:20:00.001+10:00

I don't know about you, but sometimes I get very jaded in a professional sense. When I do, I go to Gordon Smith's photo blog.

Gordon's photos are from my home area. This one shows wattles in flower.

Wattle also known as mimosa is Australia's national flower. I really love the colour.

Managing the Professional Services Firm - stocktake of posts

2008-08-25T10:06:00.000+10:00

From time to time I do stocktakes, pulling together past posts. These get submerged. It is also more difficult to edit posts that may be a fair bit back in the past.

Given all this, I am in the process of updating past stocktakes and then bringing them to the front of the blog.

Common Management Problems in Professional Services - Entry Page

2008-08-21T06:45:00.000+10:00

Common Management Problems - responsibility without authority

2008-08-17T21:35:00.001+10:00

This post continues my common management problem series with a look at a very common problem, responsibility without authority.

This one can be simply stated. You ask someone to do something, make them responsible for delivery, but then do not give them the authority to carry out the task properly.

This all sounds so simple to fix, yet the reality appears to be that this is one of the most common of common management problems.

In many cases, it is simply a matter of personality or approach - we want to micro-manage. Equally often, organisational structures simply do not allow proper delegation.

If the problem is the first, then it's up to us. If the problem is the second and the structures cannot be changed, then the only solution is to reduce the scope of formal responsibility so that it fits with actual authority.

Those interested can find a full list of the posts in this series here.

Managing the professional services firm - what do people want to know 1

2008-08-13T08:00:00.002+10:00

I do try to monitor what people search on in coming to this blog because it gives clues as to things I should write about. However, my free stats package limits the data to the last 100 posts. So what where the most popular entry pages for the last 100 visitors?

The largest number of visitors by far (23) came to the blog front page. This includes regular visitors plus those searching on "managing the professional services firm" - a Google search on "managing the professional services firm" presently brings this blog up as number three.

Then at 14 visitors comes Designing a simple performance appraisal system - sample policy statement. Performance appraisal is a continuing interest - Designing a Good Performance Appraisal System attracted a further 3 visitors.

Chris Marston's 4C's of Value Pricing attracted 6 visitors. Searching around, value pricing continues as a hot topic in professional services, especially law.

This was followed by two posts, each on 5 visitors. Common Management Problems - the over-enthusiastic boss is as the title says. The common management problems series is intended to provide simple practical advice, so I am always pleased to see it score well.

Law, Life Style and Legal Salaries in Australia also came in with 5 visitors. Graduate Starting Salaries in Australia came in with 4, reflecting continuing interest in how much people are paid!

There were 3 other posts on 4 visitors.

Performance Measurement - Profit Per Equity Partner (PEP) deals with a topic that continues to be popular within the professional services blogosphere.

Causes of project failures - responsibility without authority is, like common management problems, one of a series intended to provide practical management advice. This issue - responsibility without authority - is one that worries many staff.

Corporatisation, Keddies and professional ethics is a short comment post with links to various stories dealing with the problems faced by this Australian law firm.

Then came two posts on 3 visitors.

I have already mentioned Designing a Good Performance Appraisal System. Also on 3 visitors was Problems with Performance Pay, an introduction to the problems that can be created in this area.

In all, quite an interesting set of posts with a particular nuts and bolts management focus.

Blogging Perspectives - the need for persistence

2008-08-09T06:26:00.001+10:00

This seems to have been a difficult year from a blogging perspective.

At the start of this year my own posting became very irregular, with just one post in January, none in February, five in March, then a long break to July. Looking around, I am not alone.

Just to take three examples on my regular visit list: Chris Marston hasn't posted since February, David Maister stopped posting in June for at least a long break, while the Juris blog morepartnerincome also appears to have entered a state of suspended animation in June.

Maintaining a blog can be hard work, especially when busy. Further, as postings become irregular it actually becomes harder to post because the ideas generated through the act of posting drop away. Think of a blog as a professional conversation; the pauses in the conversation increase until the conversation stutters into silence.

Most regularly maintained professional blogs have at least a few regular readers. Some rely on feeds, others simply visit. Depending in part on the frequency of posting, some visit once a week, some just drop in from time to time.

As posting becomes less regular or even stops, regular visits decline. People still drop in from time to time to check, but finding nothing new, they stop coming. Search engine traffic continues, although this too declines with time as newer content comes to dominate.

I noticed all this on this blog during the low post period. My own flow of ideas declined. The number of repeat visitors dropped right away. Then search engine related traffic started to fall.

One of the points I try to make about the role of blogging in a professional services environment is that the reason for blogging must be clearly defined. In my case, blogging is central to my continuing professional development. It forces me to articulate ideas, to search for new material. This is especially important if, like me, you are often working in a degree of isolation from day-to-day professional interaction.

All writers, bloggers included, mine their own experiences. In writing, we capture and present ideas and lessons from those experiences. From a purely personal perspective, blogging has been invaluable as a device that allows me to stand-back from and reflect on my professional work.

All this explains why I have resumed active posting on this blog. However, resumption of the blogging conversation has been harder than expected because the pauses in the conversation had become so long.

To manage this, I have chosen to back-fill. By this I simply mean that I am adding posts from a past point (in my case from the 1 July post - Break in posting) to create momentum and discussion, if only with myself!

I mention this because it explains the gaps between the dates on the post (in this case 9 August) and the actual publication dates (23 August) that some readers have noticed. I have to say that while the re-starting process has been difficult, it has also been invaluable because of the way it has encouraged me to revisit previous thinking.

Cadwalader Caned - strategic lessons

2008-08-05T18:27:00.000+10:00

Bruce MacEwen had an absolutely fascinating post on the troubles of the US law firm Cadwalader.

The short story is that the firm achieved five year's rapid growth reaching profits per partner of $US2.9 million. In doing so, the firm focused on one main market area, structured finance. To Chairman Bob Link, profits were all.

The collapse in the US financial markets badly affected the firm. Their attempts to build alternative practice areas failed. Now the firm has been forced into dramatic retreat.

I will leave you to read Bruce's story. I do not think that the firm's problems were in any way linked to corporate approaches as Bruce seemed to imply at one point in his post, but to greed combined with strategic mistakes.

There is nothing wrong necessarily with a focus on one market area, nor indeed with dependence on a small number of clients so long as you recognise and compensate for the risks involved. However, the problem is that when you are on a roll you become blinded to those risks.

Social change, demographic change and the professions

2008-08-02T05:10:00.001+10:00

I have written a fair bit on this blog about the impact of demographic and social change on the professions. I will add links to some of these later at the end of this post.

Recently there have been a number of small incidents that show just how hard this is starting to bite.

At a function at Sydney university I chatted to some senior academics in dentistry about the current shortage of dentists in Australia. We need to expand dental training, but it is almost impossible to find the dental academics required to maintain current training levels, let alone expand numbers. Those still in the academy are getting older, adding to long term problems.

A little later, I had a similar conversation with a group of doctors. They belong to a network in one of Sydney's more affluent areas, the type of area traditionally attractive to doctors for life style reasons. They, too, talked about the difficulties of finding new doctors for the network. They also talked about the impact of social change on the workforce.

The feminisation of the professional workforce has been a long standing trend. Women's need to balance career, family and children affects the way they work. Put simply, over time you need more professionals to do the same volume of work.

Men are not immune to this trend. They, too, are demanding greater working flexibility and are less prepared to make the specific long term commitments that used to be a feature of most professions. Again, you need more professionals to do the same volume of work.

The impact of these trends varies across the professions and from firm to firm. However, all are experiencing the double whammy of demographic and social change.

There is, I think, now clear evidence that firms are responding to these trends in their approaches to people management. However, my feeling is that those approaches are still too fragmented and do not adequately address the impact of the changes on the very design of work and of organisations themselves.

In a sense, we are trying to manage people in ways that will allow us to continue to do the same things. We have yet to come to grips with the idea that the things we do will have to change as well.

Somewhat later

In opening this post, I said that I would provide a list of previous posts at the end. Somewhat belatedly, I have now begun this.

12 October 2006, Demography, Universities and the Trades in Australia
14 October 2006, Changing Gender Balances in the Professions - a question for you
30 October 2006, Demography, Universities and the Trades in Australia - a postscript
31 October 2006, People Management in Professional Services- the Demographic Time Bomb
17 December 2006, Past Experiences. Present Challenges. Future Predictions

Overcoming chaos in the home office

2008-07-23T11:27:00.000+10:00

For much of the last few years, I have largely worked from a home office. Then I moved to on-site work.

My home office was always a bit chaotic. Things deteriorated rapidly after I moved to on-site work, not helped by the habit of my family of dumping things in my space for me to get rid of!

For reasons I won't bore you with, the need to find past papers has suddenly made tidying up a matter of urgency. So I have been going through the piles. In doing so, I suddenly realised that my presence in the on-line world has actually changed the way I work. More precisely, the way I should work.

I have my computer with its electronic files. Then there are my various blogs, web sites and social networking sites.

I tend to keep paper records because they are easier to read, while I have also been worried by things such as computer collapses as well as software changes. The quantity of electronic material that I can no longer access is quite astonishing! So paper records have been of great value.

No more. There are still some things that need to be kept in paper form, but now I have a wide range of storage options, as well as a content creation and modification process. Let me illustrate what I mean.

In my personal as opposed to professional space, I am an historian and economist. I write a fair bit of historical stuff that I would like other people to read. However, I struggle to find the time to write proper journal articles.

I know from experience just how ephemeral records can be. There is no certain way of ensuring that material is preserved. However, with an effective content creation process, you can improve both access (this is important in a professional sense) and the chances of your writing surviving.

The starting point is my blogs. I use these to explore and record ideas. In survival terms, I am dependent here on Google. If Google were to go down, this material would be lost. But in the meantime, blogging is a good way to develop ideas for later access and re-use.

Some of this material I transfer to my existing web sites. Here I can make longer material available in differing forms. As part of this, I have access to a password protected intranet that I can access from anywhere in the world. So I can post work in progress in various forms for later use.

This the most vulnerable point in the whole process in that survival depends upon the survival of the site provider on one side, my ability to keep payments up on the other.

To overcome this, I have begun to use Wikipedia to put up historical material, thus ensuring broader access. I have also just started to turn some of my material into forms suitable for book publication.

Linking all this back to my home office point. I simply don't need to keep a lot of the stuff I used too because my whole process has changed.

Partnerships - Problems with Multidisciplinary Workings

2008-07-20T11:28:00.000+10:00

In New South Wales, the use of multidisciplinary partnerships and of solicitor corporations has been permitted within legal practice since 1987. However, the conditions attached made effective multidisciplinary practices difficult to create.

In 1994, the NSW legislation was changed to try to make it easier to create true multidisciplinary partnerships involving lawyers. Then, following a 1998 report, conditions were further eased in December 1999, providing great freedom in the formation of such entities. Despite this, very few true multidisciplinary partnerships have been created.

The reasons for this are partially cultural.

In Multidisciplinary Working - Introduction I spoke of the way in which project management approaches allowed professionals to combine across disciplines. However, I distinguished this from full multidisciplinary working. To my mind, this occurred when professions combined in some way to create an integrated outcome informed by the knowledge and insights drawn from the different professions.

I extended this argument in Multidisciplinary Working - Practical and Professional Issues 1. There I looked briefly at some of the models that had emerged to try to manage different business and knowledge domains, of which multidisciplinary working was but one.

Underlying the arguments in both posts were the profound cultural divides that place the different professions into distinct silos. Professional Mudmaps - Cultural Differences Across the Professions: Stocktake of Posts as at 24 September 06 provides an early consolidated list of posts I have written in this area, a list that I must update. In doing so, I also need to consolidate the posts I have written on the creation of a discipline of practice; I see this as a key requirement for the creation of true multidisciplinary working.

In writing on multidisciplinary writing, I have become more conscious of the way in which differing legal and commercial requirements among the professions continue to create divides. The rules attaching to legal trust accounts is one such example, problems with professional indemnity insurance another.

These differing requirements almost need to be traced on a case by case basis if one is to provide effective advice on the creation of multidisciplinary firms, whether partnerships or incorporated entities.

FICPI Australia Annual Conference 2008

2008-07-16T11:09:00.000+10:00

In my last post on Corporatisation, Keddies and professional ethics I mentioned a conference paper I was delivering later this month.

Stephen Krouzecky (Hodgkinson McInnes Patents) invited me to be one of the key note speakers at the Australian Federation of Intellectual Property Attorneys (FICPI) 2008 Conference to be held on Magnetic Island from 25 to 28 July.

Australian legislation is to be changed to allow patents and trade marks firms to incorporate, perhaps the last professional services sector to be so affected. For that reason, FICPI has decided to focus this year's conference on issues raised by the corporatisation of patent attorney firms. I am to be the key note speaker at the session on the management and operational issues raised by the adoption of corporate approaches.

Stephen invited me to present because of the posts I had written on corporatisation within professional services. This reinforces a point I have made a number of times, the way in which an on-line presence can be used to reinforce professional standing.

Corporatisation, Keddies and professional ethics

2008-07-13T09:19:00.000+10:00

I have been reworking some of my material on corporatisation in professional services for a conference paper I am delivering later this month.

One of the concerns associated with corporatisation is the risk that it might create new ethical conflicts. I dealt with this one briefly in a post in May 2007, Corporatisation and Professional Ethics.

One difficulty faced by those who would oppose new corporate forms on ethics grounds is the reality that ethical conflicts can already arise in a billable hours environment. In this context, the troubles that have beset the Australian compensation law firm Keddies Lawyers are instructive.

Those who are interested can find some coverage of the Keddies' issue here:

13 June 2008, 2UE: Keddies case - how it started
13 June 2008, Brisbane Times: Top law firm under fire in compo dispute
14 June 2008, The Land: Angry clients accuse barristers over fees
16 June 2008, Sydney Morning Herald: Blank spaces left in legal papers, says Keddies client
19 June 2008, Sydney Morning Herald: Keddies ordered to repay $85,000
25 June 2008, Business Spectator: Keddies boss fined for misconduct
1 July 2008, Brisbane Times: Keddies client charged for saying thanks
1 July 2008, Rab Experience, The Keddies Bill

I am not in a position to comment on the detail of the Keddies case. However, if you stand back from the detail, you can see how existing billing practices can create ethical problems independent of the nature of firm structures.

‘”The Elephant in the Room”: Working-Time Patterns of Solicitors in Private Practice in Melbourne

2008-07-08T08:44:00.000+10:00

Skepticslawyer remains one of my favourite blawgs, in part because of the breadth of its coverage. Here I noticed with interest a post by Legal Eagle, “The Elephant in the Room”: work practices of solicitors, commenting on the release of a report on the working time patterns of solicitors in private practice in Melbourne.

Legal Eagle's post contains a link to the report as well as commentary on the material set out in it.

Back in March I put up a short post on Associate attrition in law firms - five bottom lines. If you look at Legal Eagle's post, you can see why churn remains such a problem in legal practice.

Common Management Problems - micro-management

2008-07-05T07:01:00.001+10:00

This post continues my common management problem series with a look at the micro-manager, one of the most common reasons for management failure.

All staff know the micro-manager. This is the person who cannot let go real control, who tries to set, control and check every activity. Lacking authority and responsibility, staff cease to be independent workers and instead become no more than arms and legs for the manager.

One common symptom of micro-management can be found in the complaint by managers that staff will not take responsibility, that they have to do everything themselves. When I hear this complaint, I automatically check for micro-management. Most times I find it.

With some managers, micro-management is a deeply entrenched feature of their personality, a need to control. There is often little you can do with such managers to improve the situation. If they are important in their position because of their knowledge or particular skill-sets, you may just have to work around them. Otherwise, you are better off removing them, or at least reducing their staff management role.

The partial or inconsistent micro-manager can be a particular problem, simply because they are harder to spot

Often insecure, this type of manager would not usually see themselves as a micro-manager. If queried, they would say (correctly) that they do give staff autonomy.

The core problem with these managers is that they are inconsistent. They stand back in most cases, but then intervene on an irregular basis. Having allocated a task with a report back deadline, they then ask before the due date, have you started or finished this task?

The staff member in question who has been trying to set his or her own priorities may not even have started the task. Now he/she finds a worried manager creating worry in the mind of the staff member. Suddenly the staff member has to shift focus, even though something else may suffer.

This can have exactly the same effect as the more extreme micro-manager cases in that staff take less responsibility for their own work, pushing responsibility up-stairs to their manager.

From an overall management perspective, it is easier to help the partial micro-manager improve performance, subject to one qualification: the problem has to lie with the manager, not the firm itself.

Too often, partial or inconsistent micro-management by one manager is in fact a symptom of, a response to, micro-management at the next level up. In worst cases, micro-management across the firm may be a cascade effect from the CEO or managing partner. Here we have a systemic problem.

One difficulty with micro-management is that it can yield high performance simply because the manager in question is so driven. However, it also has great dangers.

I saw a simple example of this recently at project level. The manager in question had to go on leave in the middle of a critical project roll-out. While the rest of the project team had the skills required to continue the roll-out, the project struggled because team members did not know everything that the manager had been doing, nor did they have the authority to take over key elements of the manager's role.

This case illustrates the practical problems that can arise should the micro-manager suddenly leave the scene.

At a more macro-level, the firm suffers because the bad drives out the good.

Staff who cannot work in a micro-management environment leave. Those who remain are less likely to be able or willing to accept responsibility and to provide the drive that the firm may need. Remove the micro-manager or managers, and the firm may go into sudden decline as a consequence.

Those interested can find a full list of the posts in this series here.

Break in posting

2008-07-01T06:43:00.000+10:00

This has been a long break in posting. There have simply been too many pressures to allow me to post regularly.

In all this, I have missed the discipline of posting. Even when posts are short, they provide an opportunity to consolidate my thoughts.

There is an irony in my failure to post because I am such a strong supporter of the use of blogs as a professional device. I am failing to deliver on my own advice!

Despite my failure to post on a regular basis over the last six months, the blog has continued to attract search engine traffic. In December 2007 it passed 11,000 visitors. The number today is 16,477. So my previous work is still attracting readers.

So I am going to try to resume posting as from 1 July, simply catching up on the July back log and thus getting back into a pattern of regular posting.

Causes of project failure - lack of central control

2008-03-20T20:22:00.001+11:00

Photo: The PC-9/A is the two-seat single-engine turboprop aircraft that is the major basic training aircraft for the Australian Defence Force (ADF). The PC-9/A is best known to the public as the aircraft flown by the Air Force Roulettes in aerobatic displays at major events throughout Australia.

This post continues my short comments that began with Causes of project failures - responsibility without authority on the common reasons for project failure.

Some years ago the Australian Defence Forces began the development of a new basic trainer aircraft. The project ran over time and budget, a not unusual result with a Defence project. In this case, the over-run was so bad that an Inter-Departmental Committee was formed to review the project.

The Committee concluded that the project should be cancelled. Instead, Australia purchased the Pilatus PC-9.

A core problem with the project lay in the absence of central control. The Air Force as client kept wanting changes to the design of the plane. There was inadequate central control to resist these demands. The core design was never frozen, while costs blew out.

How often have you seen this, where the client keeps changing its mind?

Causes of project failures - responsibility without authority

2008-03-15T20:06:00.000+11:00

Recently I had cause to look at some projects that had failed or were, at best, on the point of failure.

In my series on project management - see Project Management for Professionals - entry page - I looked at some of the steps involved in effective project management. Here I did not deal with one of the main causes of project failure, the allocation of project management responsibility without authority.

You cannot run a project properly if you do not have the authority to do so. Too many organisations allocate project management responsibility, but are not prepared to over-ride existing decision structures in the way required to make the project work.

I do not have a solution to this. It just is.

The only advice that I can give to project managers facing this problem is the need to be prepared to drive things through, to force decisions. If the organisation will not meet the requirements dictated by the project, then you really have no choice but to stand down.

Associate attrition in law firms - five bottom lines

2008-03-10T21:19:00.003+11:00

I was rather struck by the quote from Bruce MacEwen:

The problem, in a nutshell, is attrition. Despite increased salaries and bonuses, more (professed) attention to work/life balance and associate development, more indisputable investments in stress management, concierge services, and day-care, by years three to four anywhere from 30 to 50% and more of associates are out the door.

This problem is not unique to the US, nor just to law. The reasons are complex and relate to the way many professional services firms are managed.

Bottom line one: too many firms take all the fun out of work.

They do so in all sorts of ways. Too much emphasis on narrow performance measures. Too little emphasis on recognising personal success. Limited grant of real professional autonomy. The list goes on.

Bottom line two: firms are inconsistent.

How many firms have you seen where a real gap exists between the firm rhetoric and the way that performance is actually measured? How many firms have you seen where a firm emphasises perfomance while actually accepting the opposite, especially at partnet level?

Bottom line three: give the guys a break.

Unrelenting pressure can destroy anyone. There has to be a balance. People require time to recharge, to gather their strength. This is especially true for the best performers, even if those performers themselves do not always recognise the need. So look for ways to give your best people a break.

Bottom line four: make things easy.

The single biggest impediment faced by many associates in getting their job done is their superiors. And here the biggest problem is the availability of scarce supervisory time. If you waste your associates' time, they will leave.

Bottom line five: recognise that your associates have a career outside your firm.

This one is hard. How do you invest in and support people who might leave? The answer is that you must.

We live in a cynical world. The reality in most western countries is that staff no longer have an automatic loyalty to the organisation. We - public and private institutions - have told them that they must look after themselves and they have taken us at our word!

In this world, trust must be earned and re-earned. Ignore this fact, and you will lose your people.

Project Management for Professionals - entry page

2008-03-07T19:38:00.003+11:00

Now that I have again started to write about project management, I thought it sensible to establish an entry page that would bring together my various posts on project management. Later I will add linked themes to introduce you to related issues.

The posts are not intended for the professional project manager, already skilled at the craft. Rather, I hope that they will provide an introduction to the ordinary professional or manager in a professional services firm interested in the way that project management can help improve performance.

The Project Management Posts

2 October 2006. Multidisciplinary Working - Introduction
28 November 2006. Project Management for Professionals - Introduction
4 December 2006. Project Management for Professionals - What is a Project?
6 December 2006. Project Management for Professionals - Conceiving and Defining the Project
8 December 2006. Project Management for the Professionals - Planning the Project
4 December 2007. Project Management for Professionals - Implementing the Plan
3 January 2007. What Lawyers (and other professionals) appreciate
17 January 2007. Towards a Discipline of Practice - the Ndarala challenge
18 January 2007. Project Management for Professionals - Completing the Plan
28 August 2007. The Use and Abuse of Standardisation - Introduction
5 March 2008. Project Management in Professional Bodies

Project Management in Professional Bodies

2008-03-05T05:09:00.003+11:00

Well, back from my break and ready to go again.

Several years ago I was involved in the introduction of project management approaches across an organisation.

The idea made a lot of apparent sense. Much of the work of the organisation, a significant professional body, was in fact project based. Application of structured project management approaches should improve efficiency at project level, while also making the organisation's work more transparent and accountable.

The move failed. There were significant short term gains, but application collapsed because the transparency and accountability created came to be seen as a threat to the authority and autonomy of the organisation's governing bodies.

Part of the problem here lay in the fact that many "decisions" were not in fact decisions at all. Some reflected political and professional interplay within the profession and were really markers of that interplay. Others fell in the "it seemed a good idea at the time" class.

The governing bodies were quite comfortable with all this because the process accommodated all the personal, political and professional differences to be found in any profession. The introduction of project management approaches failed because the transparency it created interfered with the internal political processes.

A break to recharge

2008-01-10T04:53:00.001+11:00

I am taking some weeks off from posting to recharge. I expect to be back on line at the start of March.

The Year Ends

2007-12-21T09:49:00.000+11:00

This will be my last post for the year, apart from some part completed previous posts that I still have to finish editing and bring on line.

In addition to clearing the post backlog, over the Christmas break I hope to take the time to properly review all the posts I have written since my introductory post on 3 July 2006. Some are ephemeral, but there are also threads that I would like to review to consolidate and extend what I have learned.

To all those who have visited and especially my regular readers, I wish you the best of the season. May 2008 be personally and professionally fulfilling for all of us.

Welcome to Visitor 12,000

2007-12-11T04:28:00.000+11:00

Welcome to visitor 12,000 from the United States who came to this blog through a google search on sample manager appraisals.

The Australian Prime Minister and Evidence Based Public Policy

2007-11-23T14:54:00.001+11:00

This post continues my series on the application of evidence based approaches in professional practice.

The new Australian Prime Minister has been placing great emphasis on the role of evidence in policy development. This is not just a matter of rhetoric.

At a Commonwealth-State officials meeting a week back, Commonwealth officials stated that with the new Government they were in a position to consider new things. However, they also commented on the PM's demand for evidence to support new policy proposals.

This type of demand is not, of course, new. A wide range of approaches have in fact been developed by Governments and researchers to try to improve decision making within the public sector.

Cost-benefit analysis is an early example, becoming popular during the fifties and sixties. This approach attempts to measure the costs and benefits expected from a project expressed in present value terms, allowing judgements to be made as to value.

Program evaluation is a second example. This discipline evolved in the US during the sixties because of the need to assess outcomes from major social programs introduced by the Kennedy and Johnson administrations.

Program budgeting emerged during the same period, coming out of the US Defence Department. This approach attempted to express Government activities in terms of programs with sets of defined, measurable outcomes. Widely accepted, it forms the core of the input-output-outcome approaches so common now in public administration.

While evidence based approaches are common in public administration and in the professions surrounding public administration, it is not clear to me as a sometimes practitioner in the area that they actually work very well. In fact, I would argue that they are now having adverse effects on the efficiency and effectiveness of Government policy and programs.

There are a number of reasons for this.

To begin with, public policy involves more than simply measurable outcomes. Most policies and supporting programs involve a mix of objectives, some of which are not capable of easy quantification.

Then, too, the range of variables involved is wide, the interactions between variables uncertain.

But there is also, I think, insufficient focus on the effectiveness of various professional practices and their supporting tools. Put simply, we do try to measure outcomes from programs, but we do not assess the relative effectiveness of different ways of developing policies and programs. In this sense, public administration is a little like medicine before the development of evidence based medicine.