On Tuesday, September 27, my colleague Mira Perry and I participated in a session with Sage, a global software company providing solutions for accounting, ERP, CRM, HR and much more, to see a training session they are providing to their consulting business partners on the Firm of the Future.
It was about business model transformation. There were also three Sage partners on the line who talked about how they transformed their businesses. Now this particular business model is not for everyone, it provides some very interesting food for thought. Here's how it works.
Essentially, the Firm of the Future is a philosophy that bases the price of a project on the value it has to the customer rather than figuring out billing rates and estimated work hours. I've always thought of these types of projects as fixed fee engagements. This means the project is controlled by agreements with the customer on deliverables and due dates rather than billable hours and timesheets. There is a management philosophy behind it called ROWE (Results Oriented Work Environment) that first popped at the Best Buy retail chain, and has since found its way into various management books and consulting firms.
This business model is not for everyone as it requires a huge amount of trust between the customer and the consulting firm. Paying people and firms by the hour is easy to track and a familiar process to many managers, but difficult to value. However, if a job is worth $100 does it matter if it took person A ten hours to complete the task while it took person B just one hour? The job was still worth $100 to the customer.
Now this doesn't mean that you can just agree on a price with the customer and go for it. In reality, the consulting firm still needs to have a clear understanding of the capabilities of its employees, the scope of the project, and an expectation of what it will take to deliver. After all, the goal is to make the projects and the company profitable. Plus if you determine that the project is not profitable you can decide whether to pursue it or not based on the goals of your business (e.g., this may be a new customer).
On hand to answer questions were John Shaver of Aries Technology Group, Peter Wolf of Azamba and Keith Greeno, Asyma Solutions. Each of these three CEOs has transformed their companies to be "Firms of the Future". The three men explained that they have eliminated timesheets and other administrative burdens from their businesses. They reported that their employees are happy with the change, are more committed to the business and glad to be free of timesheets (there was a lot of focus on timesheets!).
The transformation wasn't entirely smooth, as some employees had to be replaced and one company ended up splitting off as their previous partner wasn't willing to give up the perception of control provided by timesheets.
I've believed for a long time that value based pricing is the way to go. When I was in a consulting job implementing enterprise applications, it was always frustrating to be pushed to burn the hours on a project just to get the revenue in. Or hearing colleagues brag about how many hours they worked; it often seemed to me that they didn't know how to manage their time, were using the wrong tools and resources or just didn't know what they were doing. Value-based pricing and consulting makes sense to me, but I understand that it is not for everyone.
Kudos go to Sage for supporting this business model change with their partner community, which seems to fit with Sage's own positioning of focusing on the personal nature of business and being willing to do things differently. Ed Kless, Senior Director of Partner Development and Strategy at Sage teaches a two day course on the Firm of the Future. You can find out more information by contacting @edkless of the Sage team or by looking at the Firm of the Future presentation on Ed's blog.
Posted by Christine Dover