Common Management Problems - the isolation of being boss

I thought that it might be of interest if I shared with you from time to time some of the problems I have experienced as a manager.

Australia has what the Australian historian John Hirst has called a democracy of manners. Differences of wealth, authority and power do exist in the country and have widened in recent years. But our language and attitude are egalitarian, democratic and somewhat cynical. This flows through into the nature of relationships within organisations.

I grew up in this world. It influenced my attitudes and approaches when I first became a manager in the Commonwealth Public Service. Among other things, it meant that I identified with and was close to my staff, an approach that got very good management results. Then suddenly I was promoted again and met a problem that took me a while to even recognise.

The Australian Public Service was then broken into four divisions:

• the first division made up of the heads of Departments and senior statutory office holders - a small group - was at the top.
• then came the second division, a smallish (several hundred) group of senior managers across the Service from branch head to deputy secretary level.
• followed by the third division, the main administrative/clerical division
• and then the fourth division, all the support staff.

To put all this in terms that may be more familiar, the first division was equivalent to managing partners, the second division to partners in general, the third division covers all professional staff, the fourth division paras and support staff.

At the time of the promotion I referred to I was a Chief Finance Officer (Director) in the Commonwealth Treasury in charge of a section with nine staff. I had acted as branch head for extended periods, but I was still seen in terms of my third division role. In addition, Treasury was a relatively open non-hierarchical Department in part because of the number of well educated, ambitious and highly intelligent junior staff.

I was then promoted to the Department of Industry and Commerce as its senior economist in charge of the Economic Analysis Branch. I was now a senior officer in a much more hierarchical department with three sections and seventeen staff. I had also also inherited a branch under pressure with serious internal problems that needed to be fixed.

I had made special transition arrangements and had been receiving copies of the pinks, all branch correspondence, for a month before I formally took over. I had also met all the staff at lunch and had spoken on a regular basis to the acting branch head. So I had a fair understanding of the nature of the work and indeed was already carrying out some of the duties at the time I moved across.

Then I hit a wall on arrival. I knew that there were problems, but I wanted to make my own mind up about them. And indeed I am very glad I did because the problems were not quite as they had been presented to me. But initially I found it impossible to get the information I needed to make judgments. There seemed to be some form of barrier.

I had not changed. I was still applying the management approaches that had worked so well in Treasury. So was was the difficulty? It may sound dumb, but it took a little while to work out that I was now being treated as a senior boss, that I had moved from being one of us to one of them. As a consequence, people were now filtering what they told me.

I know that this problem is not unique. I also know that most managers are aware of it, although my experience has also been that a surprising number do not recognise its full extent. I have seen too many CEOs in particular who think that they know what is going on, that they do get good information, when the opposite is clearly the case.

The first thing that I had to accept in my new role was that the problem was real and was not going to go away. It made perfect sense for my staff to treat me with a degree of caution because I was simply too important to them to do otherwise. Importantly, I was now wearing a wider range of hats so had direct responsibility for enforcing policy in a way that had not applied in the past.

I also had to accept that it was going to take time to build trust. Trust did not mean, to use an old Australian phase, being one of the boys, boys in this case including both sexes. Rather, it meant treating people consistently and fairly, protecting confidences, recognising achievement and providing top cover. We used the term top cover to recognise my continuing role in protecting my people, in ensuring that they had the operational freedom they needed to do their job.

I will write on the top cover issue in more detail later because I believe that this is an absolutely critical condition for the creation of high performing teams.

Given that the communications problem was real and that it was going to take time to build trust, I still had an immediate need to find out what was wrong in the branch, what to do about it. Here I did two things:

1. I focused on understanding work flows. What was being done, who was doing it, how was it being done, at what standard? I must emphasis that this did not mean micro-management, itself a major problem in professional services. I saw my role in setting quality standards and then letting people get on with it. As I gained understanding I was able to identify a few immediate problems that I could act on that would help people, thus building trust.
2. I also got out of my office a fair bit, just talking to people, while also encouraging a range of branch activities. Some of this was informal and social, just stopping by people's desks to ask them something, follow up something. I also tried to find ways of working with as many people as possible, trying to help them on particular tasks.

In combination, this started to give me a feel for the the real scope of branch activities, of the strengths and weaknesses of individuals, of the real problem areas. I was also able to triangulate, to look at a person or an issue using several different information sources.

People's perceptions are always imperfect.

Two of my people were perceived by the Department as non-performers. I formed a different view.

One in a fast response, high pressure area was being so badly crippled by tension induced migraine headaches as to render him a non-performer. Yet when I talked to him I found his deep knowledge of the Australian economy and of economic statistics invaluable. He also had a female staff member who I felt was being under-rated, who had considerable potential.

In this case, and with his full agreement, we restructured section operations so that the female staff member and I worked on the fast response stuff, mainly daily economic briefings to the minister, while he focused on longer term issues. His migraines eased, the standard of our economic advice improved, while the female staff member seized the opportunity, in so doing moving onto a faster promotion path.

The second case involved a deputy section head who was perceived as non-performing in large part because he could not work the required hours. When I looked at this case I found that he had a non-performing section head who spent a lot of time on a private business interests and that he was in fact trying to carry the section. I also found that he was a single father with four children, creating enormous problems for him in trying to balance work and family. There was simply no way he could be on call in the way the Department was trying to demand.

In this case I facilitated the exit of the section head. I say facilitated because the section head and I agreed that he should go on immediate leave without without pay to do other things. A little later he resigned.

In doing so I found that the Department was well aware of the performance problem. I spoke to the section head in the morning and then prepared the necessary request. The required Departmental and Public Service Board approvals came through in just two hours, with the section head on leave that afternoon. When I commented on this, I was told that it had been just too difficult to handle previously!

I now restructured the section, making the deputy section head acting section head. With his cooperation I also restructured the work to give him greater time flexibility to meet family needs with other staff providing back-up when he was not there. He was later confirmed in the section head position.

None of this would have been possible if I had not spent the time required to overcome the communication barrier created by my role as boss.

Small Business USA - a business primer

I must congratulate David Anderson for a series of outstanding posts on his Small Business USA blog.

This is a new blog in which David has been working his way through key issues facing firms that wish to bring in new equity partners. He began with the business plan and is now discussing marketing. While David's starting point is admission of equity, the posts are building a core business primer relevant to all businesses.

I mention the posts on this blog for two reasons.

First, the posts are relevant to all those concerned with the management and marketing of professional services.

Secondly, the posts provide a valuable check list for all professionals providing management or business related advice.

Keep up the good work, David.

Legal Fees Review Panel - Legal Costs in NSW

Chris Marston and I have been having an off-line conversation on issues associated with value pricing. As part of this I sent Chris a copy of a recent report by the Legal Fees Review Panel on Legal Costs in NSW.

Given continuing US discussion on time based billing and associated problems, I thought that this review of the Australian position might be of interest to a broader audience (here).

Professional Services - On Time, Time Keeping and Performance Management

One of my recurring themes with my colleagues has been the need for all of us to keep time sheets. I know some do and some don't. But, in my view, we all should. So I would like to start by looking at some time keeping issues.

When I go into a professional services firm, I start by finding out about their time keeping systems. I do this regardless of the assignment. Why? Because as a strategic consultant with a strong expertise in professional services firms, I know that measurement drives performance. That is, we focus on the things that we measure. And in doing so, we set the structure for performance across the whole firm. To illustrate.

If the time keeping systems are sloppy, then I know that I can normally get an immediate improvement in bottom line performance by tightening up those systems. The reason for this is simple. Our memories about time are very imperfect. As a general rule, filling in time sheets at the end of the day normally leads to underestimation of time on time on particular jobs of up to a third. This figure can rise to 50 per cent if time sheets are filled in on a weekly basis. So it is important to capture time properly.

In my experience, people often become very uncomfortable at this point. We have been charging the client x. We are going to lose our clients if we now charge them x plus 30 per cent. Sometimes these concerns have a degree of validity. If so, we know that the firm has a performance problem that has been concealed by the sloppy time keeping in that they have in fact been discounting their fees. Nevertheless, improved time keeping nearly always flows through to an immediate and positive bottom line impact.

This holds for both time based and fixed price charging. In fact, accurate time keeping is most important in fixed price or blended charging modes because otherwise you cannot dtermine the real profitability of either individual jobs or different classes of work.

Performance follows measurement

The next thing I look at is just what is measured and the targets attached to those measures since this indicates immediately what problems the firm might have, as well as just what will work in that firm.

I start by looking at individual time recording. What hours are staff expected to work, how is that time broken up between charge and firm time?

Now there is substantial variation in approach here between firms in terms of target hours and the break-up of those hours. However, from my experience there is an almost universal rule that firms focus first on charge time, after all that is where the income comes from, with firm time treated almost as a residual to be minimised. I also know that where this happens the firm is likely to experience problems in terms of over-runs in charge time, together with unwillingness on the part of staff to commit time to marketing or personal development since this is usually included in firm or non-charge time.

The lesson here is that firm time is an asset that requires conscious management.

I then look at the way in which performance is assessed.

A key issue here is the extent to which measurement, especially for more senior professionals, is solely based on personal performance. As soon as I see this, I know that the firm will have problems of delegation and revenue maximisation.

A second, broader, issue is the way in which measurement links to the stated objectives and values of the firm. As soon as I see a conflict here I know that there is a problem.

Time keeping, performance measurement and performance for the individual independent

Many smaller independents argue that these issues do not apply to them. We are small and know our own business. The reality can be quite different.

To begin with, most if not all of us overestimate our real working hours. As soon as I hear someone say that they work 55 hour weeks, I am suspicious and want to know what they mean by work.

Now I work reasonably hard. I also keep very accurate time records, logging off whenever I stop work. For example, my time on this report is recorded. During the shower I just had (I mainly work from home), I stopped recording and have just started again. So I know my real working hours very exactly.

Some weeks I work very long hours. But when I look at the overall pattern, I find that my average hours across the last five calendar years as a whole ranged between 43 and 44 hours per week. Further, given family commitments, the only way I can get to these figures is by working early in the morning, at night and at weekends.

So you can see why I am suspicious when some one tells me that they average 50 hours plus per week. It suggests to me that they do not really know their time. And, consequently, they cannot really judge the value attached to that time. The only way to overcome this is to keep proper time sheets.

Of course, it's not just the hours we work but the distribution of those hours that is important. Here time keeping is very important in adjusting priorities as we go along.

On Activity versus Reflection
One of the things that I try to focus on in time monitoring is the level of time devoted to service and personal development.

In my experience, independents can be broken into two groups, those that act and those that both act and reflect.The majority of independents act, get the job, do the job. Of course they learn to some degree as they go along, but this is limited to what they notice and internalise while doing the job. A smaller group stands back and reflects on what they have learned. Within this second group, a still smaller cohort attempts to define and document.

In my view, action combined with reflection is essential to professional and business development in laying the basis for future work. Further, the process is greatly reinforced where the lessons are properly defined and documented. Without these steps, we will not have the things we require two years out.

On the difficulties of reflection

The problem, of course, with reflection, definition and documentation is that it takes time. This can make it very hard to do.

I was reminded of this at a dinner in Sydney for one of our senior colleagues who was in Sydney because of the work he is doing with a specialist medical college on the definition of medical competencies.

Over dinner, our colleague talked about the fascinating leading edge work he has been doing with another client. All those present could see how this might form the basis for a new national service offering. We could all share our colleague's frustration about the way in which other pressures made it difficult for him to do the necessary thinking and writing required to really take advantage of the work.

There is no easy answer here. We just have to do the best we can, recognising that we are all human. The key thing is to recognise that action is required and therefore to allocate at least some time despite other pressures.

Ndarala launches new blog

I put the Wednesday forum aside this week because I have been working on another project.

I have not talked much on this blog about my own activities because I have seen the primary purpose of the blog as improving the management of professional services firms. However, I need to talk here about what I do because this sets a context for this post.

My day to day activities centre on two things:

• trying to help individual clients, especially professional services firms, improve performance
• coordinating the activities of the Ndarala collective.

Ndarala is a funny animal. Formed in April 1996, our mission is to help the independent management related professional practice and professional achieve their objectives through cooperative action while maintaining true independence. We try to achieve the first through the creation of a framework that will facilitate cooperation, while the second dictates that members chose the level and direction of participation that suits their individual needs.

Making this work is not all beer and skittles. The very fact of independence that creates the need for cooperation also creates the main barrier to cooperation.

One of Ndarala's strengths lies in the spread of its people across professions including law, engineering, training and management consulting, a second in the service spread of its professionals, a third in the different marketplaces served. While this diversity creates its own challenges, it also provides an opportunity for cross-fertilisation. Certainly I find it very valuable in a professional sense.

Collectively, the Ndarala people create a lot of material of value. This is presently widely spread. We have therefore decided to create a new Ndarala blog to try to make this material more accessible to a broader audience while also providing a forum for comment on specific issues of professional and management interest.

In doing so, we have also been influenced by the increasing tendency of people to search blog posts for material as compared to broader web searches simply because so much current material is now best accessed by blog.

The new blog does not pretend to be an easy read. Because we are planning to use it as a point of reference as well as a place of comment, many of the posts will be much longer than normal, full articles in their own right. Further, the spread of interests of Ndarala professionals makes for a wide range of potential topics.

Still, we hope that it will prove to be of value to a broader audience.

Professional Services - selling your practice: making the sale succeed

I was flattered to receive a mention on Chris Marston's Inside the Firm of the Future, although I should note for the record that I am not myself an attorney, an inference that could be drawn from Chris's words.

Chris's article Apathy Abounds, Until The Walls Come Tumbling Down addresses the issue of poor succession planning in medium and big size firms, using a comparison between partnership and corporation structures to make a number of points relating to management and governance. These are issues that I have been addressing as well.

In my last post I looked at the mechanics and some simple maths associated with sale of small practices. In this post I want to look briefly at what is required to make a sale a success for both side. This is not rocket science, simply basic common sense.

The approach I described in my post was designed to reduce financial risk while increasing chances of success through transition arrangements with sale price dependent on performance in the period after the sale. However, risks still remain.

These risks are not so much financial, but rather the danger that scarce time may have to be diverted from other activities to try to make things work. Both sides can take action to reduce this problem.

Key Risks

There are a number of common reasons why acquisitions of the type we are talking about run into problems. They can be summarised this way:

1. System and process incompatibilities. Information such as client records must be migrated from the old to the acquiring practice. Because systems and processes vary between practices, problems can arise in doing this.
2. Business incompatibilities. This area includes service offerings, billing approaches and pricing policy. Simple imposition without thought of the acquiring firm's billing and pricing policies may lead to very real business problems.
3. Client loss. Acquisition without a clear client migration strategy may lead to significant client loss.
4. Cultural incompatibility and integration failure. This links to earlier points, but extends beyond this to include issues of cultural fit between the selling professional or practice and the new firm as well as failure to properly transfer knowledge from the original to acquiring practice. A clear integration strategy is therefore required.
5. Exit failure. Exit failure comes about because both sides have failed to define properly how final exit is to be handled. Results can include unhappiness on both sides together with client loss.

Importance of the Due Diligence Phase

As I said, none of this is rocket science. Yet I remain amazed at how often both seller and buyer fail to address these issues.

The due diligence phase is critical if problems are to be avoided. Too often, this phase is seen in narrow terms, checking facts, negotiating required contracts. In fact, it is the core phase during which all the management issues associated with the acquisition need to be addressed and a proper integration plan developed.

Professional Services - selling your practice: terms of sale

Many self-employed professionals or small independent practices assume that nobody would want to buy their practice. In fact there is a marketplace, albeit imperfect, for such practices. This post looks briefly at the mechanics involved in the most common sale approach.

The normal steps are:

1. Buyer and seller define an agreed date for the acquisition.
2. The seller agrees to continue to work for the acquiring firm for an agreed period to ensure smooth transition of the practice business to the new owner. This is normally a minimum of a year but can be longer depending on mutual interests.
3. An agreed remuneration package is defined for the transition period. This is usually based on an agreed percentage of the fees flowing from the acquired practice client base taking into account overhead costs, any added service delivery costs and a profit margin for the acquiring firm.
4. An agreed price is defined to be paid at some point in the future, often the end of the transition period, based on the performance of the acquired practice during the transition period. The price many be paid in a single payment or may involve several payments again linked to performance.

A simple example showing the maths in operation. Assume a small practice with a single professional coming up on retirement, own office and a secretary, fees say $200,000 with a pretax net of $120,000. This is the type of practice that might normally close or simply run down as the owner gets older.

The two parties agree that that the practice will be acquired on the following terms:

1. The seller will receive 50 per cent of the paid fees he/she generates during the following year from both acquired clients and work done by the owner for other firm clients. Say this is $200,000. The acquired professional will get $100,000.
2. The seller will receive a cash payment at the end of the year based on 60 per cent of billed fees generated during the previous year from the acquired practice adjusted for any potential bad debts. Say this is $220,000. The acquired professional will get $132,000.

Under this arrangement, the acquiring firm pays out $232,000 plus any added variable costs associated with the extra business but receives $220,000 in added fee income. This means that it has acquired an added fee base of $220,000 for a net cost ignoring any added variable costs of $12,000.

Assume that the seller would have kept the practice going for another twelve months and then closed. He/She has received $232,000 for the period, an extra $112,000 as compared to the closure option. Both sides have benefited.

I recognise that there are many variables involved. In a later post I will look at what is involved in making this type of arrangement work.

Corporatisation & Structural Change in Law - a Canadian Perspective

As part of my monitoring I came across a very useful post on the Canadian Slaw blog, the practice of law in the 21st century, looking at some of the changes in the profession from a Canadian perspective.

One thing that I found interesting were the similarities between the Australian and Canadian perspectives. The writer, Jordan Furlong, looks at the changes in the UK as a consequence of national competition policy, linking this to possible changes in Canada.

In Australia, too, national competition policy has forced changes across all the professions, with the change wave now hitting law.

I note that Canada also has problems in attracting lawyers to regional areas. I suspect that, again like Australia, this problem is not unique to law. All very interesting.

Professional services & the Demographic Time Bomb - a postscript

As part of my research on demographic issues, I came across a rather interesting blog called demography matters providing demographic information as well as discussion on the individual country position around the world.

Wednesday (more correctly) Thursday Forum - The Demographic Time Bomb

Continuing my attempt to encourage discussion, my last post (31 October) People Management in Professional Services- the Demographic Time Bomb dealt with the impact of demographic change in an Australian context. Just to summarise a few key points:

1. The number of Australians attending University has not increased significantly since 1996. The economy has gown rapidly since then. Part of this growth has been supported by productivity improvement (working smarter), part by people simply working harder. Growth has now reached the point that there are skilled labour shortages across the economy.
2. In the absence of an increase in the proportion of Australians going to University, the number of Australians attending University over the next ten years is unlikely to increase. Further, over this period an increasing number of the baby boomer generation will be retiring. All professions and professional service firms will be struggling to find people to support growth and replace retirees.
3. Attitudes to work have changed and are continuing to change across the complete age spectrum People are tired and less willing to make the personal contributions (the working harder) that supported previous growth.
4. If my analysis is in any way correct, people recruitment and management is going to be the single most important strategic issue firms will face in the next decade. Why, then, do so few appear to be worrying about the issue?

Is my analysis for Australia correct? Do the same problems exist in other countries? Are firms in fact responding? What do you think needs to be done?