It's not rocket science!

One of the challenges for any business is the fact that employees prefer their own way of producing the goods or services they sell. Let’s say our business is in the accounting space and we sell audit services. If I went and reviewed how each Audit Partner delivered their product to the customer I am sure to find a variety of processes leading to a wide variation in on-time delivery, quality, efficiency, client satisfaction, and even staff morale.

It’s not rocket science to reach the conclusion that there must be one best way; a process for delivering audit services that achieves the best outcome on all dimensions. So why doesn’t it happen? The main reason is that professional service firms tend to operate in silos. In our hypothetical audit practice I would guess that audit partners rarely get together, and when they do is to discuss the lack of growth and declining profitability (and resultant cash-flow issues).

So how we change this culture of anti-continuous improvement? I usually wait until they have a crisis that can be tied back to the culture and then suggest the following five step process.

1.       Get all the Audit Partners together and commit to developing one process that everyone must follow.

2.       Invite the exemplar Partner(s) to share exactly how they do their job. Document the process.

3.       Invite contributions from everyone present to further improve the process.

4.       Lock down the process and set key performance indicators that will highlight any deviations from the process.

5.       Meet at least at six-monthly intervals to review the process and document any changes agreed. My rule of thumb is that if everyone has had their say and two-thirds of those present agree, it is policy.

It is not rocket science. Anyone can do this. In the quality space it is generally agreed that 85% of what goes wrong in a business is due to ineffective processes. It is also accepted that the custodians of the processes are the leaders of that business. That means 85% of what goes wrong in a business is due to leaders not leading. It is essential that you build in consequences if people fail to follow the approved (and agreed) process. It is not rocket science.

You've tried everything, but it's still not working ...

With my Coach hat on, I observe lots of people trying hard to create change in their lives, whether it is losing weight, making more money, or steering an organization through today's hazardous global economy. The problem with most is they focus on the "trying" rather than the "doing". The subtle difference is intent. They would say they intend to be successful, but if we could monitor their self-talk, you would hear that most of the language is around trying. Luckily, if you listen carefully, they display their intent in what they say. They say things like, "I am just so busy, I haven't got time to do .." or "I am hopeless remembering names", or even "I am always running late, it's just the way I am".
It is too obvious just to point out how their language betrays their beliefs, and that their beliefs drive their intention, which in turn drives their behavior, which in turn ..... See why there is little point going there? What I find works is to pick a small thing that is important to them and coach them to success on that specific issue. In a previous blog I mentioned the Theory of Planned behavior (Ajzen, 1991), this theory suggests that attitude, subjective norm (basically the attitude of the people around you), and perceived behavioral control (what control you think that you have over your situation regarding the specific change you want) are predictors of your intention to behave in a certain way (such as not eating stuff that is not good for you).
I remain a fan of Ajzen, but I would add another predictor called change readiness to the model. You need to be ready to make the change. Using the losing weight idea, I wouldn't start a weight reduction strategy the day you are about to go on a 14 day cruise, where all the food and alcohol is pre-paid. So if the person is ready to make the change, I then just need to help them refine their attitude towards losing weight, surround them with support that reinforces that attitude, and show them how to control the process. Now we have all Ajzen's predictors under control.
The specific how for each predictor varies from person to person, so if you have a specific situation, email me an overview and I can direct you. Once a person can prove to themselves that they can change the internal self-talk (beliefs) from "I am hopeless at losing weight, I never stick to a diet" to "wow, I did it, that's fantastic", they are ready to take on the world. Once I hear that belief I then ask, "so what else would you like to change in your life?"
The moral of the story is to start with simple things to change, modify attitude, subjective norm, perceived behavioral control, and change readiness, and you create a new habit that this person (maybe even you) then always does what they say that they will. That belief/behavior triggers a lifetime of success. What is your starting point for such a belief change? Listen to your self-talk for the rest of the day and be surprised.

Michael Porter

Thanks to fellow Mindshopper Mario Vicari, I found a book that takes all of Michael Porter's work and distills it into some practical tips in one book. The book, Understanding Michael Porter: The essential guide to competition and strategy (Magretta, 2012), has a large number of interesting tips, but five stood out to me, in part, because I am currently working on the next step-change strategy for Mindshop. 
The first tip to contemplate is "strategy explains how an organization, faced with competition, will achieve superior performance. The definition is deceptively simple" (Magretta, 2012, p.20). This quote resonates with me due to the focus on performance relative to the competitors. This is a daily measurement that reminds me that we at Mindshop have to have superior performance every day, regardless of what the competitors or markets are doing.
The second tip is "competitive advantage is not about beating rivals; it's about creating unique value for customers. If you have a competitive advantage, it will show up on your P & L" (Magretta, 2012, p.184). This builds on my first thought, that my superior performance may not beat the competitor; this may be due to a multitude of reasons, including that I may want to be a different size to my competitor, or not desire the type of client that they have. The competition is not toe-to-toe, in-the-trenches competition, it is all about superior performance (and values).
The third tip is "strategic competition means choosing a path different from that of others" (Magretta, 2012, p.30). So if you accept that the competitive goal is superior performance, then it makes sense to achieve that performance using methods different to the competitors. I have always done things in a way that others either do not understand, or believe are a good way to operate. Either way I have created a point of difference.
The fourth tip is "the value proposition is the element of strategy that looks outward at customers, at the demand side of the business. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together" (Magretta, 2012, p.97). What this is saying is that you need to define where you will have superior performance and then back it up with continuously improving the efficiency of your internal operations.
The fifth and final tip is "there is no honor in size or growth if those are profitless. Competition is about profit, not market share" (Magretta, 2012, p.184). This tip serves as a reminder that we need to be the most profitable, not the biggest in top-line revenue or head-count.
Consider these five tips in context of your own organization. What should you do to meet the requirements of all five? Is your current strategy going to work for you in the coming next few years?

For Accountants Only

Accountants are more comfortable talking to clients about financial matters than strategy. If a business has profit and associated cash-flow issues it is a reflection that their strategy is not working. Blaming the economy, the government, competitors, and even poor quality staff, is like blaming the weather, you may be right, but you are still left with low profit and poor cash-flow. A good strategy will take into account all scenarios, and will enable profitability in any situation. So if the accountant is uncomfortable talking strategy, and it is the strategy that makes a company successful, what should we do?

The answer, we need a sleight of hand, we need to convince the accountant that it is their job to provide advice to their client to ensure profitability and a healthy cash-flow. The accountant will normally accept that responsibility. Accountants also like check-lists so if we gave them a process for improving the profit and cash-flow of a business that would also help. Compliance work is fast becoming a commodity, mainly because the clients endure it rather than value it. The client is more interested in things that directly benefit them, and having more money in the bank is an easy benefit to sell. That means profit improvement should be an easier sell than compliance work.

So what if the accountant promoted a service to significantly improve profit in the client’s business, and what if we guaranteed we can show the client how to add pre-agreed amount of money to the bank balance? Notice I said guarantee to show how, rather than guarantee to actually put it there. The accountant cannot guarantee the client’s commitment to the profit improvement process, they can only guarantee their own part of it. At this point most accountants are pondering, what amount of money would I be prepared to guarantee? The answer should be that it depends.

It depends on a lot of factors, such as the size of the business, the level of waste there is, the resources we have available to remove the waste, and how much time it will take? I think you would be safe guaranteeing to find around 10% of the cost of running the business (overheads and variable expenses combined). I may not have to guarantee that much to provide an attractive return-on-investment. For example, if the operating costs were $10 million, 10% is obviously $1 million, I might guarantee $200k, particularly if I thought my cost in doing so was $20k. I have always worked on a ROI rule of thumb of 10:1, even then most clients don’t need a ROI so high if they are confident in the outcome.

The guarantee is one part of the confidence, but it is even better if you can demonstrate how you would save the money. I can normally do that in a two hour workshop. I run that workshop on the basis that if we don’t go ahead the workshop is free. I then use the two hours to walk the client through the seven wastes process and put the outcomes into a one page profit improvement plan. If the client then takes the plan and tries to implement it themselves don’t be concerned, it is highly unlikely that they will be successful, but if they are I have still been of significant value to them. Most clients appreciate that implementation is the key and that they need your help to generate the results. At Mindshop we use eight week cycles with multiple teams to work our one page profit improvement plan. The client learns as we go, but we keep working on issues that become more complex and difficult as we go along, so we are always required.

In time, the low-hanging fruit of profit are addressed, and the client’s attention moves to growth, throwing up issues of marketing, recruitment, pricing, competitor analysis, and leadership, all strategic issues. So what started as profit improvement, has morphed into strategy, as we have built both trust and confidence in the process. Once the accountant knows strategy there is no stopping them. The challenge is to get the accountant to agree to helping clients with cash-flow, then to guarantee their work, and then to keep going no matter what. Mindshop’s backing should give them the confidence to start the process, if it doesn’t there must be some other barriers to unblock. The accountant of 2015 has no choice, all the good ones will be doing this, all the average ones will be working for the good ones or have gone off and got a job in industry! Either way they will be all working more on creating change through strategy than compliance work.

So how do we move forward? Apply the waste reduction process to your own firm, experience it first hand, learning as you go. The next step is to offer the process to some “friendly” clients who need it. The third step is to develop a one page marketing plan for the profit improvement product. The plan should cover issues such as the web-site, events, waste process, training, and pricing. These three steps are all that is required to get sufficient momentum to sustain itself as a valuable service and on to ultimately a specialty in strategy. What’s stopping you from starting?

Change Theory Made Practical

I had a client this week with one of his customers, actually a group of customers, who he perceived had really great ideas but just didn't get around to implementing those ideas. He was frustrated and wanted to get my view regarding how to resolve this. Rather than respond with the general "do a force field and see what it suggests," I decided to share some theory on change management. As it turned out, he went with the force field idea, but my email to him made me realize that we try to change people with little or no idea about the theory behind change, so here it is!
The theory that makes sense to me is the theory of planned behavior (TPB; Azjen, 1991) where he suggested that our behavior that creates a specific change (to reduce our alcohol consumption, stop smoking, or to implement change in our business) is driven directly by our change intentions. In other words if we intend to change something we have a good probability of doing it. So what drives our change intention? According to Azjen there are three things; our attitude to the issue (do we think that the change is a good thing), the subjective norm (what our peers think about the issue), and finally our behavioral control (the degree of difficulty we think we are facing).
In my client's change situation the variables based on Azjen's (1991) TPB he needed to decide where the problem was; their personal atttitude towards change, the groups'attitude to the change, and the perceived degree of difficulty in the task. Once he decided where the blockage was it would be a simple task to develop some specific actions to resolve the situation. For example, if the subjective norm is the issue I would pick a couple of the early adopter members of the group and engineer some change success and get them to talk about it (and publically reward and recognize them for doing so). If the problem was in behavioral control I would give them a coach to help them create and maintain the change.
If all that sounds like too much theory of course you can just do a force field on it (see this link of me doing one http://www.youtube.com/watch?v=GCPlKHuYwRY ) but why not use the TPB and then do a force field on the specific issue that is blocking your change.

Competition - a win-win relationship

I like having competitors, I even admire some, and respect others. I race a car as a hobby and I learn more from my competitors than I do from any other source. I have purchased books and attended driver training courses, yet it has been the analysis of my own performance, in relation to the performance of more experienced and more capable competitors, that has benefited me the most.
I have installed cameras and data recorders in my car so that I can review each race I participate in to see where and how to improve. This is important because I am really competing against myself, striving to continuously improve my skills and improvements. My race car is actually road-registered and has the number plate "KAIZEN" which is a Japanese word meaning incremental improvement. The number plate reminds me that my objective when on the track is continuous improvement, not just about winning. Kaizen is a philosophy, and it includes elements such as, quality, involvement, effort, willingness to change, and communication.
I share my videos and data with one of my competitors, he has emulated my data recording sytem in his car specifically so we can share the data. I am quicker than him on some corners even though we have the same make and model of car, and he is quicker on others, resulting in him being about 3 or 4 seconds a lap faster than me on all the tracks we compete on. I am not improving in relation to him (because we are both improving at roughly the same rate) but in 2012 I improved my average lap time for each track by 2 - 4 seconds.
We at Mindshop have a adopted a similar approach to our business competitors except for the bit about exchanging data. I think the motives and ethics of my race-car competitor are a mirror of mine; so I trust him; I can't say the same about my two main competitors. We can still learn from them, particularly by studying their strengths and using their weaknesses to develop strategies that I know they would find very difficult to copy.
My advice to you is to do a comprehensive competitive analysis of your competitors using yourself as the benchmark, then decide on some changes you need to make to continuously improve your own performance in relation to your current performance. This year, 2012, will be full of opportunities, but you need to be more capable than you currently are to take advantage of them. Your competitors will show you the way to KAIZEN, embrace it as your philosophy for 2012.

The Accounting Profession

I have been a student observing this industry for over 40 years and progress on developing a strategic advantage has been very slow, in part, because there has been little pressure to change. It has been more about fiddling at the edges rather than transformation. In recent months, or perhaps it has only been recently that I have noticed it, there seems to be some acceleration in some parts of the profession.

I have always thought that there were two pressing needs in the typical accounting firm, firstly to develop a production culture with regard to producing compliance reports, and secondly, to introduce value-added services to help clients generate more profit and growth. I have to say the success in both areas has been limited but more effort has been invested in the value added services and sales process.

I know believe it is difficult to do either strategy, and virtually impossible to do a good job of both. The main reason for this is the culture and the processes for production is so different to that required for value-added services. I have observed in recent months an increased amount of mergers (really take-overs) as good firms try to get bigger. The challenge for firms on the acquisition path is to have the leadership needed to manage something bigger. By leadership I don't mean just leaders, I mean the whole leadership structure and processes.

Having said that, the leaders that come front of mind doing this are very capable people, I worry about the (lack of) depth behind them. If they get it wrong divesting will fix it so hopefully no permanent damage done. The real cost will be the loss of confidence to try it again! Then there is the issue of will they step up the production culture or just try harder doing more work using the same inefficient processes they always have?

I think there is a huge opportunity for the smaller firms, I am thinking less than 20 Partners, to become a boutique full-service firm. My vision is $1 of value-added fees for every $1 of compliance fees (for a start at least). What needs to change? Firstly, the majority of Partners need to sign of for it. Secondly, the skills and confidence in delivering value-added services needs a massive step-change. Then we need a better sales process and pipeline. We can throw away time sheets. Sounds pretty exciting to me.

Sure these smaller firm should not be able to match the production costs of the big firms but that assumes the big firms can do it right and I'm not confident about that. The key point is the value-added services that will be the magnet that attracts and retains good clients so the accounting firm can still make a margin on compliance.

Who will have the courage to take this one rather than fiddling at the edges? If I owned an accounting firm, a boutique, full-service, strategy sounds exciting, and, of most importance significant value to the clients.