How do we manage on-line technology?

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

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.   

Sustainability vs short term managerialism

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! 

Problems with technologists

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

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

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

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

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

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

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

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

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

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

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

The importance of a discipline of professional practice

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:

1. Common techniques can be used to analyse the processes followed by professionals in their work.
2. 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.  

Concept of sustainable profit

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.     

Time based billing goes round and round

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.           

Common problems with performance indicators - complexity and control

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.

In Defence of Partnerships

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

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

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.

Professional Services Management - a note on problems with continuous improvement

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

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

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

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. 

Keddies case threatens legal billing practices

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.

Economics of Professional Services - surviving recession 1: introduction

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

• Economics of professional services - surviving recession 2: know your business
• Economics of professional services - surviving recession 3: don't freeze all new spending
• Economics of professional services - surviving recession 4: getting the cash in

Cadwalader Caned - strategic lessons

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

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

Corporatisation, Keddies and professional ethics

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.