Ron Baker is a CPA who hates timesheets and the billable hour. Paul Dunn is an evangelist for building extraordinary businesses who co-founded Results Accountants Systems, a company that has led CPAs around the world into a new role as business consultants.
Together they have written a book expounding their vision of what professional firms should aspire to look like in a more ideal future.
Baker and Dunn believe that future firms should be more concerned with the value they present in the eyes of the customer and less concerned with inward-looking items like billing rates, billable hours and realization rates.
Baker believes the billable hour has its roots in Karl Marx's labor theory of value, which has been discredited. Customers value products and services based on the perceived benefits they receive rather than the time to manufacture or create the item. The extreme price difference between Timex and Rolex watches is not explained by amount of time and materials used to create them. The perceived status of wearing a Rolex as a fine piece of jewelry explains the difference.
They believe that professionals can best capture that value by reaching a fixed-price agreement (FPA) with a client for an agreed-upon package of services. When the customer requests a change in the scope of services provided, such for a proposed sale of a business or a business acquisition, a change order should be negotiated. Baker calls this approach Pricing On Purpose.
Baker and Dunn suggest that professional firms can find alternative measures, called Key Performance Indicators, to better measure whether a firm is successful. These measures should measure activities that are of concern to the customer. Examples would be turnaround time for jobs, percentage of projects delivered by promise date or internal target date, sales of new services, and customer retention. They also point out some of the most important activities can't be measured.
Although I agree in principle with this book, I think Baker has an uphill battle ahead in eliminating the billable hour. Most professionals will find it unpleasant and time consuming to negotiate and re-negotiate a fee for each client. They will resist what they view as a difficult and unpleasant change. I agree that clients/customers would rather eliminate being in suspense about their fees.
Baker and Dunn have contributed to the professions by re-examining some of the basic tenets for professional service firms. We are fortunate to have two fine minds stimulating the debate of what future service firms will look like. If you are in a service industry, you should study this book.
Buy it on Amazon: The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services.
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