Having just started at a new company, I can talk from fresh experience: Knowledge I have gathered throughout some time has helped me to ask different questions, new questions that helped my colleagues rethink and reword. At the same time, I find that knowledge I thought was very helpful and important seems uninteresting to them – and vice versa: simple concepts can provoke amazement.
Concerning a special service offered to their customers: all performed activities were always taken for granted since they had developed it some time ago – it seemed normal and boring. From my point of view, I’m pretty sure that no other company can offer what they (or now we) do. They had a USP kept unnoticed.
Two days later: we now have a presales presentation that has these features highlighted. Value has been created – not really because special knowledge has been added, but because different knowledge and experience has put the existing into a new perspective.
What you need, however, is time and a culture to share the thoughts. And time to document and establish the new. In our case, we were able to assign these costs to a certain presales project. Would we have extracted a new USP if that presales project hadn’t been around?
A consultant or any other knowledge worker will inevitably learn while executing projects: on-the-job experience. He will improve his skills with handling the customer and partners and will do some project-related research he can bill the customer for.
The Increase of Knowledge
However, I’ve recently had the first customer who has actually clearly stated “no learning while earning”. In his opinion, he pays quite a high price for a well known professional service provider because of their knowledge. And understandibly, he won’t pay for us to obtain general knowledge we could then reuse with other projects as well. He wants to pay only for our services not for our intellectual well-being.
If the knowledge he wants does not exist in-house, we can either ask him to look for another service provider (not very likely, I guess) or we’ll actually pay for the acquisition of the required knowledge by our own (let aside that there are ways of billing without his knowing what he payed for – however, this is not what this blog is about and what the author stands for).
The Billing Price Does not Run Parallel to Knowledge Investments
The Price of Knowledge
A problem arises: During the time in which the responsible consultant is being trained or does his research, we can’t bill his hours, plus we might need to invest in off-the-job training. Would we increase the billing price for this consultant by 1$ for each dollar invested in his knowledge acquisition, theoretically we would always receive the same margin (margin = billing price – employee’s cost including investments in his knowledge). However, the actual return at the end of the year would be negative because we can’t bill the days on which the employee has acquired the knowledge.
Thus, we would need to increase the billing price for this consultant by 1.5$ for each dollar invested, right?
I won’t discuss this from a moral point of view. I pose this question because I try to provoke new thoughts on lean and foresighted people management.
A Little Theory (bear with me)
A Warehouse with Inventory
Why does a retailer need inventory? To reduce the lead time from the order until the product has reached the customer. You don’t want to wait for the cow to be milked when you go out to buy a yoghurt.
Since inventory invokes costs such as space, management, raw materials, you will want to have an inventory that is always as low as possible. But at the same time not too low because else the customer would need to wait for too long and switch to your competitor.
The Similarities of Employees and Inventory
At my university, we had a discussion that a mere service provider does not have any inventory costs. In a physical sense – that’s true. But the amount of people you have at any specific point of time has similar characteristics to the amount of inventory:
- You shouldn’t have too few because you would have customers waiting for outcomes. You shouldn’t have too many due to the costs. You see a similar fluctuation during times of recession in professional service agencies and manufacturers.
- Better employees deliver a unit of output faster to the customer (those are the closer warehouses), worse or newer employees need more time to deliver a unit of output to the customer (warehouses farther away). The more central a warehouse is located (the better an employee), the more expensive.
- You can either store the inventory yourself (full-time employees) or you have a supplier who stores it for you (contractors). The first means more bound capital but at the same time it’s reliable and you know exactly what you got and what quality you sell. Secondly, you don’t have a risk of losing your customer to your supplier.
The Difference: Storage Time Improves the Product
The main difference, however, is that physical inventory can not improve while it is being stored. Free time of employees that can’t be billed to a project can be used more effectively – such as the 20% rule of Google. You can improve the knowledge or the creative output of the employee. He will become more productive.
The down side is that the best employees will most probably be always be fully booked, and thus, can not increase their knowledge since they don’t have any free time to do so. Here’s the difference to the before mentioned Google approach: Google’s rule holds up irrespective of the amount of work that needs to be done. And they have made quite a nice PR effect with that story – even increased their sales due to innovation. While lean people management seems more cost effective in the short-term since you try to reduce non-billable time (see my share price idea in an earlier blog post), the contrary (investing in your core competency: knowledge) may increase the amount of sales and enhance your innovation potential and your image.
Concluding, one can say that the every-day management of an employees time (resource management) is equally as important as inventory management is to retailers. Professional service agencies have the advantage over retailers, however, that storage times can be well used with the product improving.
As stated in earlier blog posts, I think publishing your knowledge is a wonderful PR technique. Now I have come across a new study that seemingly seems to prove my point: the blog ‘prmeasure’ cites a study of MarketingSherpa whereby whitepapers are one of the most effective means for lead generation (I’ll look more into that). But…
Be Sure About the Quality You’re Publishing
If you screw it up and can’t prove that it’s really knowledge but people come to believe it’s a scam (mere claims), you will rather do more harm than good – especially if it’s knowledge from your core business. To provide you with an example: A German blogger (Heike Scholz) has recently revealed that a company for market research seems to be inable to provide the numbers for a publication of theirs.
Therefore, be careful and be sure you only publish true, high quality information. Don’t try to be too hasty – even if you try to be the first one to write about a hot topic. Better to be the second company with solid numbers, seeing the first one crash.
Those of us who bill manhours or mandays know the tedious drill at the end of every day (or if you’re lazy like me every week): write down what you did for whom for how many hours. Most of you will probably have a system for that, connected to some ERP system, with projects being identified by numbers etc etc. The system I work with also got a commentary field where I can input further details about what exactly I have done during these hours.
Now I challenge you to think of this commentary field as a microblog. Like Twitter – or better yet Yammer or Co-op (since the information is clearly only intra-company). What would be the benefit? Clearly not following 100+ people – quite dull information. But you could use it like the Twitter search in order to find out who has billed hours on a specific topic before. I often see the case that people research on a topic, a colleague next door had just spent time researching on last week.
The scenario is: I need information on a specific topic. I type keywords for the topic into the search function of the time recording/ microblogging software and I get a list of people who have that topic in their time recording comment; ordered by number of mentions mixed with recency and vicinity of the colleague. I’ll call the displayed phone number and receive (tacit!) knowledge in the area of his expertise.
A last thought on privacy / secrecy and work’s council issues: You probably should be able to mark some posts private. Or at least be able to define groups.
Update: I have found a time recording web application (mite) on the net that have recently announced the support of posting your billable time via a microblogging service (Twitter), via a messenger (Jabber) or Firefox new Ubiquity. Not exactly what I was talking about – but microblogging has been picked up.
When you’re good at something – wouldn’t you want to try to perfect it furthermore to please yourself and others? Wouldn’t the pursuit of new challenges be the most important fulfillment possible to achieve? Where would you meet these new challenges: in your old job where you have been for 2+ years and where your work has become routine (and thus, masterly efficient) – or at a new job?
Probably, the highest risk factor for losing talents is their boredom. Additionally, the talents will very likely already know that they are welcomed pretty much anywhere (due to darn good job offerings). Stability and risk-avoidance is not a good argument for convincing a talent to stay.
What to offer?
What can you offer as an employer? Either more money or more challenging work. The latter is often not possible and also often not the most efficient and value-adding alternative for your company – a talent doing routine work would be way more efficient. Thus, you offer more money.
You also offer more money because you fear change. You fear that you might not find such a good talent again or that it would take a new employee too long to become as efficient or creative (if ever).
The problem with offering more money is that you’ll easily hit a number with the remuneration that might even make the best talent unprofitable. You build a bubble – the talent is overpaid. Additionally, you increase the market value of similar talents because a talent will expect the next company to pay at least the current oversized remuneration. And since that company has probably just lost a talent, they are willing to pay it (that oversizing of incomes and reputation is well documented in the movie 39,90).
But isn’t paying more money just a prolongment of the problem that the talent will soon be bored again? Even with more money? This will become a vicious circle until nobody can pay for these talents (and also pretenders by then) anymore and the market turns into either a winner-takes-all situation – one company has got the money for all talents – or talent remunerations burst and level out again with the larger companies having survived it.
When talent remunerations have leveled out again (still higher than for non-talents) the best strategy is probably to let talents go – because there’s always a talent in another company being bored and willing to leave and come to your place. Remember: they will leave anyway. So instead on focussing all too hard on retaining talent you should also spend quite a lot of time on scouting and obtaining talent. Get to know the common talent remuneration in your industry. Pay it – but only for real talents. Don’t overpay but don’t become inattractive for talents either.
An alternative, albeit very negative and inhumanistic strategy would be to convince the talents that they are not talents and every once in a while to assign unaccomplishable tasks. Is this a productive long-term strategy?
I just read in a blogpost on the Progress Blog that the author likes to differentiate between “cost” and “income” activities. Income activities include e.g. any billable work by a consultant. The central knowledge generation, codification and management would be cost activities, I guess.
But what is talking about that you know something (remember my early blog post about communicating your wisdom)? It’s very close to sales (convincing people of your qualities) – which the author clearly contributed to income activities. On the other hand, isn’t that classical PR work? Wouldn’t PR be a cost activity?
What the author also mentioned: “…these activities work together to create value for the end customer”. Does PR create value for the customer? It may, because the customer might receive status through working with a company that has a good reputation. But foremost it’s about impressing the customer – maybe even dazzling him. And PR is directed at more people than only customers – all stakeholders (at least a bit for each).
My solution: don’t call PR a “cost” or “income” activity. Call it a “reputation” activitiy.
Next question: is innovating a reputation activity?