Edge International

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ProfitMotive®

A mini case study about positive change…

Many of our clients strive to build on current achievements. To that end, when planning retreats and workshops, managing partners often ask us to suggest a structured list of objectives — and to reflect on what the discussion topics ought to be. It was just this kind of occasion that led us to reflect on David Maister’s study, housed in his bestselling book, Practice What You Preach, and resulted in a highly satisfying experience where partners came together for a focused and productive effort.

The senior leadership of our client firm wanted life breathed into their existing well-crafted strategic plan — but there were many reasons why the approach had to be fresh and appealing. Traditional processes just didn’t seem to fit. The partners were a little jaded from previous experiences that were not as satisfying as they had hoped. Touch-feely approaches were a turn-off. This was exacerbated by the fact that profits had dipped (the result of the economy and some investment in the firm’s future) resulting in an obsession for billable activities and apathy toward non-billable activities — especially activities for the benefit of the group or firm rather than the individual.

We listened carefully to and noted the kinds of things this managing partner ideally wanted to see happen. As we pondered the situation, Practice What You Preach came to mind. We were very familiar with its content and the most exciting part of its findings. The brilliance of Practice What You Preach is that it proves empirically that effective management and behaviours drive profitability. David’s ground-breaking work discovered nine factors that correlate to and predict higher profit.

It struck us that the factors which were predictive of profitability paralleled our client’s description of an ideal outcome from the retreat. It did not escape us that the magic word in the preceding sentence is profitability, based on the even more magical word: profit. Do we think profit is the end all and be all? No. Is it the most important thing? No. Does it get partner attention? Yes. Does it drive behaviour? Yes. Maybe this was a way to help the managing partner get the behaviour he was hoping for from his partners because he could argue with good authority that the result would be greater profit.

David Maister believed for a long time that rewards would come to those who managed their professional firms properly and no one was as excited as he was when he found the empirical proof. This proof surpassed his expectation for it not only showed a correlation between certain behaviours and profitability — it showed causation. It might be worth a moment on the difference between correlation and causation so that we can all appreciate how special it is to find both. Suppose we were to predict that in your firm, the larger and plusher the chair in which a professional sits, the higher that professional’s revenues.

Let’s suppose we test this theory and sure enough there is a positive correlation. So, next someone recommends that if you invest in better chairs, revenues would jump. Wait a moment, you think…more senior people tend to qualify for the better chairs and it is often the case that those with more experience and larger client bases have greater revenues…so how would getting a bigger chair for a brand new junior increase that junior’s income? Ridiculous? Bingo! Except for the well-known Hawthorne Effect (which basically says that if you change anything performance improves because the workers know that you are paying attention) the idea of better chairs for better profit is at the very least ill-conceived. However, causation goes infinitely beyond correlation. Where something has a causal relationship with something else on the basis of some measurable factor then such factor does not merely predict, it drives change. In Practice What You Preach, David found that nine out of the 74 factors he used predict and indeed drive profitability.

The nine predictive factors are thus (not in order of importance):

  1. Client satisfaction is a top priority at our firm.
  2. We have no room for those who put their individual interests ahead of the interests of the clients or the office.
  3. Those who contribute the most to the overall success of the office are the most highly rewarded.
  4. Management gets the best work out of everybody in the office.
  5. Around here you are required, not just encouraged to learn and develop new skills.
  6. We invest a significant amount of time in things that will pay off in the future.
  7. People within our office always treat others with respect.
  8. The quality of supervision on client projects is uniformly high.
  9. The quality of the professionals in our office is as high as can be expected.

(Warning: It is necessary but quite insufficient for you to agree with this list.)

Your first reaction might be, Of course, these are exactly the things I believe in so I must be on the right track, right? Not so fast. First, the bad news. David’s Study did not conclude that firms whose leaders held these beliefs were more profitable; rather, firms where all personnel gave these statements high scores were more profitable. So the good news is that if your personnel (all of them — partners, non partners and the entire support staff) score high in relation to what they believe of your firm in relation to these nine factors, then based on the study your firm is highly profitable. More importantly, attitudes can change…in fact, as a leader, one of your key jobs is to drive that change. A scientifically verified roadmap that tells you exactly what changes to drive that lead to higher profitability now exists.

We suggested to the managing partner of our client that we create a customized survey (with David’s permission, of course) and provide it to all of his personnel. While we were at it, we added the capacity to look at the scores of sub-populations within the firm; for example, partners v. non partners, members of particular practice or industry groups, by age, etc, etc.

In essence, by backing the firm into this study, we could determine exactly how that firm would have rated had it participated in the original research. This approach provides objective scores. Credible scores. Scores that partners will pay attention to because one agreement that most partners will come to easily is the notion that profits could be higher.

We allowed the managing partner a safety valve in that we arranged to vet the findings privately with him and his immediate team. This gave him the opportunity to consider whether the findings could be counterproductive, even divisive, if disclosed. (He agreed that this was a highly unlikely possibility — but it was comforting to him to have the net in place.)

The results were fascinating. Out of respect for the confidentiality of the information of the firm to which we am alluding, we will offer a few illustrations that do not reveal sensitive proprietary information. Of the nine factors, we found that the firm scored much higher than the worldwide average on two factors, very close to average on three others, somewhat lower on two and extremely low on yet another two.

Since the scores reflect perceptions and cannot be coerced, but earned, it was important at the retreat for the MP to congratulate the firm on the areas in which it scored so well. In addition, it was necessary to provide a proper briefing to the partners regarding the overall study and how the firm did in relation to subjects that were represented by clusters of questions, including:

The information was well-received as it came in the context of how all these issues related to the present and future success of the firm, but the most exciting and rewarding part of the process came from breakout groups. We chose four breakout topics: namely, the four profitability driving values where the firm scored the lowest. Individuals were chosen at random for those groups. (There is always an argument to be made for the fact that groups share common attributes and challenges and therefore should collaborate in finding solutions — so a sensible approach might have been to use existing practice or industry groups. It was our judgment, shared by the managing partner, that the rewards of allowing partners to work together across traditional group lines far outweighed any advantages lost.)

The objective was to create action plans that would credibly transform the perception of firm personnel regarding that factor.

By way of illustration, we wondered how effective the process would be regarding a factor such as: People within our office always treat others with respect. Not only did the breakout group responsible for this subject define the problem, but they came up with several specific actions, including a set of rules of conduct as to how individuals within the firm were to treat one another.

This was not someone finding a good book on how people should treat others and then circulating a list that people will judiciously ignore. This was not the senior team preaching at the masses. Rather, this was a group of rank and file partners coming at the subject eagerly and with healthy self-interest —making the firm more profitable by making it a better place to work. The ideas were generated by the people, for the people. There was no idiot to blame for these ideas — on the contrary, the firm would know that they were conceived by peers who shared the same objectives. Further, before being published, the rules of conduct were then vetted around the entire firm for input to ensure that all views were considered. The astonishing aspect of the result is that this is the first professional firm we have encountered with a set of rules of this nature. (By the way, if you are tempted to see that published list of rules of conduct, you are on a dangerous path. It really has to be invented in the context we described by your own people.

In fact, we were so excited by the results of this experience that we developed a program (with David’s blessing) called ProfitMotive® in which a firm can be backed into the study after the fact. The results are analyzed and formalized, compared to the original study, and then the firm is assisted in developing and implementing achievable change. In essence, we replicate the situation that would have occurred  had the firm been part of David’s original study.

Now, what are the chances that the personnel of the firm will believe that it now places greater importance on people showing respect for one another? 100%. Why? Because the partners thought it was important enough to sit down and create a protocol. Will the firm be perfect as a result? No. Will it make mistakes? Of course. Will it occasionally tolerate inappropriate behaviour inconsistent with the value of showing respect? Probably. But, will it be better than it was before the process? Unquestionably. Will it score higher in the future? You bet. Will it be more profitable? Yes. (Practice What You Preach has literally proven it.)

There were some surprises in the findings. While we can’t disclose them all, one we are at liberty to disclose is that senior firm personnel were more negative in attitude than juniors were. Now imagine the context. We were looking at anti-profitability attitudes and finding them near the top. Awful…horrible…unthinkable…? Oh, yes. Wonderful? Yes, again. Why? Because there is no better way to get a patient to take medication for hardening of the attitudes than to see that the disease is decreasing profits! The eyes of those seniors were wide open during the discussion and in the breakout sessions that followed. They came to wanting to improve their scores with enthusiasm — the fact that respect might be touchy-feely was irrelevant — it was in the partners’ minds linked to profit.

You as a leader are obligated to do what David calls in his book “practice what you preach” and foster an environment where all personnel follow suit…from the most senior partners to the newest clerks to the staff. By exploiting the study, you can move in harmony with the profit motive of your partners — paddling with the profit stream as opposed to against it.

Remember, it is insufficient for a firm’s leadership to be striving to achieve these factors to attain increased profitability; it is necessary that these nine factors be those currently present in the minds of all personnel such that the firm would score highly if the survey were administered today.

For more information, contact Gerry Riskin.