Services Safari

Think Before You Do That Layoff

                       The Flight of Great Talent Post-Layoff

BusinessWeek (4/21/2008 - "Think Before You Fire") referenced an Academy of Management Journal study of 200 enterprises. The study showed that a layoff of 0.5% of one's workforce triggers an average turnover rate (attrition) of 13% versus a 10.4% turnover rate for firms that didn't do layoffs.

Professional service organizations must constantly prune underachievers/poor producers from their ranks as their continued payroll presence is a financial and morale drain on the company. Poor performers do more to demoralize their peers than any other single act by management save a massive layoff. Even in the face of massive PR problems, the people of Arthur Andersen were willing to publicly support their employer as they believed in each other and the firm.

Layoffs are toxic to morale and workers. That's very true and I'm surprised the variance in the study wasn't greater. One thing is for sure though, once a company lays off workers, the very best and brightest workers will leave for greener pastures. In fact, they'll leave first as they are the people that every other employer wants. Post-layoff, all a company has left are the lesser grade employees. The lesson from this is that layoffs are short-term fixes that create long-term/long-lasting distrust with the rank and file.

Ouch - The Cost of Roaming

                              $693/Trip Roaming Charge

Vinnie at Deal Architect loves to chide service providers/systems integrators and outsourcers for their high SG&A costs. Likewise, Jason at Spend Matters is all about helping companies get a better grip on their expenses. When I saw this piece in the March 2008 issue of Communication News, I just about fell out of my chair.

The story reports on a Harris Interactive study that found businesses paying $693 per trip per business traveler for overseas cellular roaming. Worse, 61% of responding firms indicated that they had no plans to switch their overseas providers to reduce this cost.

If my employees submitted a bill like these, they'd be unemployed. Far lower cost options are available and should be used. Since almost any office or hotel they stay at will have internet access, Skype is clearly a lower cost option. Second, local SIM cards can be acquired for those essential calls that must be made locally. But, any employee that plans to use his/her cell phone overseas needs to do some homework in advance of the trip. Some carriers in the US will not allow calls to originate overseas. Some phones promise GSM compatibility but those claims are often in error. Some networks, I've discovered, don't work with anything we could pre-purchase in the United States.

Still, I've managed to survive just fine overseas without incurring bills of anything like those mentioned in this article. This is coming from a fellow who has logged as many as 48 international round-trips in a single year.

This looks like a ripe opportunity for sourcing pros to get involved.

Would You Want Your Client Work on the Internet?

                150,000 Pages of McKinsey Documents Online

Allstate this weekend made approximately 150,000 pages of project documents that McKinsey & Co. helped produce for them in the late 1990s. McKinsey was apparently hired to help them review their claims processes and reduce total claims expenses. You can view these documents at: http://media.allstate.com/categories/53/releases/4391

Allstate faced criticism for using these new claims practices and litigators have tried to force public disclosure of these documents for the last several years. Allstate, correctly, resisted these efforts as the intellectual property within them was partly or wholly owned by McKinsey. In other words, Allstate may not have had the right to disclose them.

Be forewarned, 150,000 pages of PowerPoint slides is a lot to review. Certainly, I like to look over the work of consultants to see new ideas, new approaches, etc. but 150,000 pages is clearly overkill. Years ago, I met a Big 8 partner who billed based on how thick the executive presentation was. Back then, he thought $100,000 per inch was appropriate. The mind boggles to think of what McKinsey billed Allstate for this. Moreover, I've never seen a project that produced 150,000 pages of original content.

This event creates a new precedent in professional services. The bigger issues for service providers in this are:

• Are your working papers, proposals, reports, etc. really yours?
• Would you let your work products be posted by a client on the Internet?
• Could you prevent public disclosure of these products online by a client? Could you keep these products from becoming legal documents in litigation? Can they be kept from public records or court filings?
• Would competitors benefit from seeing your work products?
• Can your firm charge a client more (substantially more?) if they disclose these products publicly?
• Are all of your documents trademarked, copyrighted or otherwise protected?
• Do you need to separate your work products into distinct groupings so that only the least differentiating documents could be released publicly?

Ideas are the currency of consultants (well, maybe the perfect currency is airline miles but I digress). When others take advantage of your ideas, they devalue your intellectual assets. If competitors steal your ideas, it's theft. If you let them gain access to these ideas willingly, it's stupidity.

Your ideas and intellectual property should remain yours. Protect them.

EDS - Overtime Dispute

                                Money Will Settle This

Last month, six former/current EDS employees filed a class-action lawsuit seeking overtime pay (see: http://www.examiner.com/a-1224633~EDS_technical_service_workers_sue_for_overtime_pay.html ). This type of suit occurs frequently and hinges on whether or not specific workers were correctly or incorrectly identified as 'exempt' under Fair Labor Standards Act (FSLA) regulations.

Not surprisingly, specialized websites have sprung up to identify other potential claimants/plaintiffs (see: http://www.edsovertime.com/ ). CRN, Computer Reseller News, has also covered this story.

FSLA suits are usually solved with money. Some goes to the litigants and some goes to lawyers. If found in violation of FSLA regulations, the offending employer makes adjustments to their payroll system going forward, recalculates owed back pay and makes restitution.

Is this a BIG story? Probably not. It's interesting and very solvable. It's only scandalous if long-term patterns of deceit/fraud are uncovered. If it's a legitimate difference of opinion in interpreting regulations, fraud is much harder to prove. Without fraud, the fines will likely be scant. 

Let The Fighting Begin - H1B Issue Goes to Washington

                The Best Reading on H-1B: Issues, Testimony, Fraud....

                        Can't We Make a Hit TV Show From This?

Ever get the feeling that someone's making money on those H-1B visas you read about? Check out U.S. Senator Chuck Grassley's letter to the Bush administration re: H-1B visa abuses: http://grassley.senate.gov/public/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=9af53fa4-b99b-5638-8db2-5021e681c258&Month=3&Year=2008 There's some really juicy stuff in this. It discusses the blatantly illegal job advertisements here in the U.S. where advertisers are only looking for holders of H-1B visas. It details how visa factories are being established to create false employer fronts within the U.S. There's the story of an Iowa businessman getting harangued by an offshore firm with all of these potential visa holders on the bench. The fact that Homeland Security is being alerted to these abuses suggests something is really rotten here. Great reading - really.

Computerworld expands on the Senator's letter in this story: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9067738&intsrc=hm_list . Like the above, it's a great read, too.

We also have Network World chiming in with their piece: http://www.networkworld.com/news/2008/031208-h1b.html.

Bill Gates, of Microsoft fame, testified before Congress and a synopsis of his remarks can be found here: http://www.networkworld.com/news/2008/031208-gates-immigration-reform.html

All this comes at a time when the U.S. government is being asked to raise the limits on H-1B visas from 65,000 to 110,000/year.

Here are the questions U.S. policy makers must address pronto:

• Does bringing in more non-US workers actually motivate US students to pursue technical degrees or does it achieve the opposite effect?
• The H-1B program was intended to bring in people with unique skills and talent. How do green, low-level tech coders meet that standard? What aren't more PhDs being granted this visa?
• Why are large tech outsourcers allowed to hog the number of available visas? Should U.S. based tech companies get an equal or better opportunity to import scarce, unique talent?
• Why are students at U.S. colleges electing not to pursue careers in technical areas? Is it because of bad employer behavior? Is it because these positions are vulnerable to outsourcing? Is it because potential employers send mixed signals to colleges, employees and job seekers? Or, is it that U.S. college students can't be bothered with these degrees? What is the real root cause?
• Is the L-1 visa program as messed up as the H-1B? Should both be addressed?

Approving or disallowing the increase in visa permits is not the issue. Congress must address bigger concerns (e.g., national security) and discover the answers (and appropriate remedies) to the matters above and more.

Book Review - 4 stars

Book Review: Business Consulting

The Economist developed a serious, substantial book on the consulting industry. Its no-nonsense title is: “Business Consulting” (ISBN  1 86197 702 6). This book is an exceptional assessment of the consulting industry from the late 1990s to 2005. Whether you work in a strategy consultancy, management consultancy, BPO firm or traditional systems integrator, you really should read this text.

Here’s one brief excerpt that particularly resonated with me:

“Everyone is a consultant these days, from sales people to beauticians, so what do we mean by “business consulting”? The more traditional “management consulting” is usually associated with one particular high-end style where the consultant’s role is to advise senior managers. But this style ignores the large proportion of consulting that is now involved in implementation: systems integration, outsourcing, and so on. These days, most consultants are expected to provide not just advice, but also solutions. If that is the case, what is it that distinguishes business consultants from all the other consultants out there? Why consultants, not contractors? The point is that business consultants are supposed to improve businesses: they are not hired to maintain the status quo but to change it. This might be changing a company’s strategy or revoking, even taking over, a process in order to transform it, but it does not include managing an existing process or taking over a function in order to deliver the same levels of service at a lower cost. Consultants should be defined less by what they do (offering advice, implementing systems, outsourcing processes) and more in terms of the changes they achieve.”

This is spot on. People who managed outsourced functions are not consultants. Technicians are often not consultants. This book goes to great depth in explaining how and why so many consulting firms changed direction in the last decade to pursue different kinds of work, use different kinds of workers and offer different kinds of careers to their service workers. They look at the cumulative impact of service firms going public, of changing workforce expectations, of new work technologies and more.

This book carefully dissects the consulting market of late. A great bit of discussion focuses on the changing nature of clients and how much shrewder they’ve become. When so many consultants were cut loose after the 2000 tech bubble meltdown, many of these went to work for clients and have become an integral part of current pricing negotiations. Gen Y (or Millennial) workers are also creating a strain on consultancies. Economic and other factors (e.g., tendency to be fast followers instead of thought leaders or innovators) are also explored extensively.

This book will be of lesser importance to those running service delivery groups within technology firms. But, the issues that are discussed will still be pertinent.

If you read this blog, you should read this book.

Reaping What You Sow...

Why are we paying bonuses? 

 

I attended a recent PSVillage meeting here in  Chicago a couple weeks ago.  Since then, I have been thinking continuously about one of our discussion topics that day: motivating today's services workforce.  While much of our conversation centered on the difficulties in motivating today's Generation-Y worker, we did get into a spirited discussion involving bonus compensation for service workers. 

 

Several executives indicated that they feel pressured to pay bonuses to today's service workers because that is the norm in compensation.  Unfortunately, the use of these bonuses often triggers some very undesirable outcomes. 

 

This issue is not a single dimension problem.  Today's workers are quite different than service workers of a generation or two ago.  Several executives at this meeting lamented that key skills they require within service workers are no longer present within their workforce.  Many service organizations worldwide have relied on Big 8 tax/audit/consulting firms to teach people how to act as consultants. Those farm clubs are no longer functioning to the training levels of the past.  More specifically, those organizations have shifted much of their business offshore or have moved their offerings to services like outsourcing which made may not require the same level of training as line consultants received previously. 

 

Years ago, these Big 8 farm club firms spent a decade or more grooming and apprenticing top business school graduates in skills like: consultative selling, appropriate etiquette for dealing with CXOs, business writing, presentation skills, interviewing skills, etc.  Now, many service employees come straight into the workforce from technical schools and/or with technical degrees from universities without ever having an opportunity to hone or develop those critical soft skills. 

 

If that weren't bad enough, this new generation of service worker has not had a enough experience working successfully in teams.  Again, farm club systems made workers sublimate many of their individual needs, wants and quirks to be more effective as a member of the team.  Military organizations around the world have dealt with this phenomenon for centuries.  They take raw recruits and mentally strip them to the bare and rebuild them back as integrated members of fighting units.  No one is doing that with today's mercenary, independent service worker. 

 

Service firms today now employ a number of solitary, What's-In-It-For-Me (WIIFM), independent freelancers who happened to get a paycheck from their firm.  I heard a number of examples of individual behavior tromping client and employer best interests while at the PSVillage meeting.  For example, when workers have been assigned to two different projects and one is fixed cost, workers will book all of their time (and as much time as they can)to the fixed cost project initially even though they may have done no work on the project.  How service workers game time reporting systems is not new; however, the rationale for doing so today has more to do with personal self-interest rather than finding ways to do right by the client and the employer. 

 

So with problems like these whose fault is it?  Believe it or not, I will not necessarily single out workers as the main culprit here. No, I believe it is short-term selfish behavior of employers that has a lot to do with the workforce troubles they experience today.  When employers pay bonuses based on exceeding chargeability goals, they in fact reward employees for violating work-life balance requirements, for sticking it to clients, etc. In David Maister's book,  Strategy and the Fat Smoker, there is an interesting little paragraph on page 111.  It says:

"Doesn't this sound exactly like a group of professionals?  Say "Do it and I’ll pay you" and they will immediately translate it into "I'm not going to do anything you don't pay me for!""

 

That sentiment was at the core of the executive frustration at this meeting.  Workers weren't interested in doing anything else to help their employers for their clients unless there was a specific cause-and-effect relationship between their future actions and their immediate pay.  Bonus payments often reward the wrong behavior. 

 

Service organizations need to rethink the following:

• What are the behaviors we want all of our service professionals to display?
• What are the values we want within our workers and are our recruiting practices focusing on these?
• Should we alter our overly technical training so that we can develop more well-rounded service workers?
• How do we get our compensation systems and methods to align with the values our company desires?
• How do we extricate the worst of the selfish workers out of our workforce and bring in more business oriented, team playing, consultative, and long-term oriented workers?
• Should our managers be spending more time developing our talent?
• Do we have enough role models for our staff?  Are they visible?  Do we reward these individuals more than we do the more self-centered workers?

I have run several services organizations in my career.  Lone wolf, mercenary workers are a quixotic lot for managers.  Yes, in the short term they can deliver in a big way.  But, because they know this, they often adopt a take it or leave it personal style that makes them less than desirable long-term players for co-workers or clients to have on their teams.  In short, they become a costly maintenance issue.  I've seen these workers throw tantrums when they do not get the staffing assignments they covet.  Forget about fairness or equality, they want all of the plum assignments and don't care what happens to their colleagues within your firm.  Make no mistake - they do not have your firm's best interest at heart.  These workers think of themselves first and foremost.  Your firm is but a means to an end for them. Their loyalty is to their paycheck and their bank account not to your firm or to your clients. Their loyalty, to be more succinct, is up for sale to the highest bidder.   The sooner you recognize this and deal with it, the easier your service management challenges will be. 

 

 

Paying bonuses that reward selfish or other incorrect behavior is wasteful but is also wrong. 

 

   

There are probably several books that could be written on the challenges of today's service environment and its workforce.  But, for a blog posting, this will suffice for now.

Resurgence in Big 8

                                      Big 8 Redux

There’s a short table in an article titled “Back to the Big Eight?"  in the September 2007 issue of CFO Magazine (www.cfo.com ).  This table (see below) identifies the eight largest accounting firms by revenue in 2001 and 2006.  It also shows the number of professionals and SEC clients each firm has. 

I did some additional calculations off of the data within this table on a separate spreadsheet.  I noticed that the:

§         number of professionals within the top eight firms has declined in the last four years.  Specifically, there were only 84,384 professionals in the Big 8 in 2006 yet there were 108,948 professionals in largest eight firms in 2001.

§         revenue per professional has increased by almost 20% during that same time frame. Revenue per professional has grown from $259,349 per person to $311,917 per person.  While this could be due to inflation, this increase could also point to reduced competition and larger fee/client arrangements, possibly driven by increased compliance costs.

§         number of SEC clients has declined from 13,617 to 7,302 in these same five years.  This represents a significant reduction in the number of publicly traded firms.  Some of this reduction may be due to mergers, acquisitions and business failures (resulting in de-listings). However, many firms have chosen to go private rather than subject themselves to the added cost and trouble of new reporting regulations like Sarbanes-Oxley.

All in all, though, it is good to see the profession financially healthy and that its smaller brethren are growing. For there to be choice, competition and healthy innovation in the industry, a balanced group of large competitors will benefit all users of these services. Buyers of these services should question though the real value they get from an audit staffer billing out 3-6+ times their fully burdened cost though. I’m not convinced that true value is accruing to the clients and that these costs are appropriate. They may be market-driven and scarce at the moment but are they really providing value and does this value go beyond the amount billed?

I also think we need to examine why the number of professionals in this industry has dropped by approximately 24,000 individuals within the Big 8.  If this is a problem due to the lack of recent college graduates entering the profession, then clearly the industry is not doing enough to educate students and prospective graduates of the appeal and opportunities available in public accounting.  Alternatively, work-life balance concerns of recruits (a problem that has dogged industries such as public accounting or systems integration) may not be getting the attention it deserves inside these firms and this is keeping headcount down.  If so, then this is a signal that more public accounting firms need to adopt policies like the Booz Allen Hamilton 5 -- 4 -- 3 -- 2 -- 1 program. Or, maybe college students see the post-Enron world of public accounting as just unappealing. Whatever the cause, the industry may need a PR makeover.

What Do Clients Want/Like

                       Bain's Look at Selected Services

On the heels of that last post, here's another bit of data to digest. A very interesting graphic from consultancy Bain & Co. appeared recently in Global Services magazine (see: "More Satisfaction: Outsourcing or Offshoring?" in May 2007, www.globalservicesmedia.com). In the context of the article, this graphic shows that offshoring is more satisfactory to executives than outsourcing while the latter is used more frequently.

I thought the graphic Bain came up with told a far more interesting story for services and managment consultants. It showed a number of consulting offerings and the degree with which clients used them and how satisfied they were with them.

My take-away from this 2X2 graphic was that some initiatives (lower left quadrant) are best left to specialists who can target their marketing efforts to those firms who'll want those services and can deliver a bang-up job of exceeding client expectations. The top-right quadrant identifies initiatives every consultancy should offer and do well. I thought Mergers & Acquisitions looked a little lonely in the bottom right quadrant. However, with M&A, just because most firms don't do a lot of deals, the ones that do are often frequent, serial deal-making machines.

More consultancies should survey their client base like Bain did if only to find out what clients want and how well their services are satisfying clients.

Building Moats Around Service Firms

                            Wide-Moat Service Firms

Yesterday's Chicago Tribune had a nice story on a strategy companies can use to better protect their market share, revenues and margins from inroads by competitors (see: "Firms Made Impregnable" by Andrew Leckey http://www.chicagotribune.com/business/yourmoney/chi-ym-moats-0819-cpaug19,0,1506389.story).

Leckey makes a great case for why companies need to develop a wide moat. The moats are made when companies create durable competitive advantages that are hard to breach. Think of the buying scale Wal-Mart can utilize that its competitors can't. Think of those firms with huge patent inventories. Think of firms with phenomenal brands. Think of companies with favorable government licenses (e.g., gambling permits).

Service firms are notably absent in my mind when it comes to developing moats. It's a rare consultancy or systems integrator who actually creates and brands unique intellectual property. Service firms are more often known for fast following of someone else's ideas. In fact, fast followers are experts at breaching someone else's moat.

When you do see moat building in professional service firms, it often takes the shape of trying to ingratiate oneself to a client and keeping out other service firms via fawning and client entertainment. That approach is quite passe today. Clients are smarter and want maximum value from their consultants. They don't want generalists anymore.

Today's best advisors are those who really specialize and build their brand around that specialty. I've done that before and I'm repeating a second time in my career. For example, I've now got a huge database of almost 4000 tech buyers globally who are identified by their proclivity to be Innovators, Early Adopters, Early Majority, Late Majority or Laggard buyers of tech. That's what prospective clients get the most excited about: something no other tech strategy and marketing strategy firm has. Are you building a wide moat or still trying to build better seige engines to breach other firms' moats?