Value and Billable Hours

Why do companies and individuals still insist on billing for services “by the hour?” If you are tracking billable hours, you are not being efficient. And, even worse, you are not providing the best possible service to your customers.

When companies focus on billable hours, it may be to the exclusion of other important activities, like building capacity to better serve customers.  

However, this is a Catch-22 situation:  As you build capacity to better serve your customers, you are not able to bill for your time. Then when you use this new capacity to serve customers, you discover that it takes you less time to provide the same service. If you are billing by the hour and you are very efficient, you are unable to earn as much as someone who is less efficient providing the same service.

This is why billing based on the value of service being provided makes so much more sense. Why wouldn’t your customer want to pay you the same (or more) for a service that you can deliver in less time?  

According to Canadian statistics, the amount of time spent at work is decreasing. This is also the case in the United States. Does this mean that “billing-by-the-hour companies” are earning less? Perhaps, but it might be that these same companies are realizing that it is more economical (and profitable) to bill for value rather than hours. 

The secret to creating value for both parties (the company or person providing the service and the company or person receiving the service) is to focus on outcomes rather than inputs. How much time it takes to create a widget or develop a plan is irrelevant to the value the widget or plan provides to the customer.  

In Lean Six Sigma terms, we want to go beyond just meeting our customer’s needs and wants – we want to be sure our customer is delighted with the product or service they purchase from us. This is value. And it has nothing to do with money.

If customers are delighted with the service provided by your staff, they will pay your asking price to continue to receive this value. It is irrelevant to the delighted customer that it cost you $100 to produce the widget, but they pay you $1,000 for the same widget.

In addition, fixed fees (i.e., value-based fees) have the advantage of using up less administrative time for both sides. There is no need to track hours unless the provider of the service wishes to do so. This improves efficiency for both sides.

In the words of Alan Weiss, “No one cares, really, about how good you are. Clients care about how good they are going to be when you’re done with them.”  And that, really, is the ultimate goal of any service or product.


The Big Lollapalooza: Exposed

Lollapalooza: an extraordinary or unusual thing, person, or  event;
an exceptional example or instance.

When was the last time you experienced a lollapalooza? Well, these days it seems that Lean and Six Sigma are the big lollapaloozas, although Lean and Six Sigma are nothing more than common sense approaches for efficiency. And getting work done efficiently is never an exception to how organizations are (or should be) practicing. Along with effectiveness (doing the right job), efficiency is essential to ensuring productivity.

Efficiency has a long history, starting with scientific management in 1899 with Frederick Taylor’s industrial experiments to Edwards Deming’s Total Quality Movement (TQM) and influence on the Japanese following World War II, to Peter Drucker’s management philosophy in the 1980s and Concept of the Corporation, and, of course, many other influencers in between. Their goal was to enable individuals and organizations to do their best for the least possible cost and maximum gain. Efficiency can save you and your organization time and money, and sometimes in a big way. Let me give you an example.

Client X (not his real name) had a problem with the way his organization’s decentralized branches were managing and delivering services to their customer. Specifically, management felt that branches were duplicating work both within and between branches. One example I was given was that some branches were calling on each other to invite ‘guest staff’ from one branch to speak at another branch for the purpose of sharing vital information that the recipient branch could incorporate into their own processes. Client X clearly needed help.

The first step to solving Client X’s problem was to convene key staff in one room to create a value stream (flow) map of their processes. For this initial meeting, in person attendance was mandatory. Using sticky notes, staff wrote and illustrated each branch’s process(es). When all the sticky notes were posted on the wall, it was clear that branches were duplicating multiple steps that had no value to delivering customer service. In addition, for one process alone, there were six different methods for getting the job done. From here, staff wrote down the time required to perform each step. Then participants had an opportunity to pinpoint areas where delays and complexities were the greatest. With just a few simple improvements, they were able to eliminate 20 processes out of 40, streamline another 15, and reduce waiting time for their customers by 95%. Not bad for a couple of days’ work in the boardroom!

So did Client X and their staff have a “lollapalooza” moment? Sure, they probably did. My take on this, however, is that through Lean and Six Sigma concepts, efficiency and effectiveness have been re-invented in order to help a worldwide sagging economy. We needed something new, something trendy, so that people and organizations would stop throwing time and money away. If you haven’t jumped on the efficiency and effectiveness bandwagon, you must have money to burn.