Moneyball for Professional Firms
LinkedIn Article by Tim Williams
May 31, 2017
What if the metrics of success used by most professional firms are wrong? What if law firms, accounting firms, ad agencies, and a wide variety of consultancies are investing their resources at getting better and better at measuring the wrong things?
In the 2011 film Moneyball featuring Brad Pitt in the starring role of Oakland A’s general manager Billy Beane, a baseball team with a long losing streak finds its mojo by discovering what really defines and predicts an effective player. The persistent Billy Beane fights the establishment by abandoning the traditional ways of evaluating baseball talent and instead adopts the untried, unconventional predictive analytics of a freshly-minted Yale economics graduate. Despite heavy resistance from the A’s “seasoned” recruiters, the result was a 20-game winning streak.
While the team’s scouts were looking in the rear view mirror, Beane and his inspired young advisor, Peter Brand, put their efforts into peering into the future. It’s not enough to know what past success looks like; what’s needed is an understanding of what predicts success.
FORECASTING FUTURE PERFORMANCE
If an income statement and balance sheet are the main means of judging the success of your firm, you’re running your business based on lagging indicators. A positive number in the profit column is a good thing, but how exactly do the figures on this spreadsheet help you repeat your success?
The “financialization” of business over the past several decades has led managers to confuse the data on financial statements with a meaningful understanding of what actually creates and sustains a successful firm. To continue the sports analogy, it’s like a baseball manager trying to coach their team by constantly looking at the scoreboard.
As Thomas Johnson and Anders Broms observe in their insightful book Profit Beyond Measure, company leaders that manage using financial targets chronically overlook the actions and activities that create the value in their firms in the first place. “Instead of making time and providing opportunities for those in the organization to learn, they focus on managing the outcome,” say the authors.
The late Stephen Covey, author of The Seven Habits of Highly Successful People, referred to this counterproductive frame of mind as being too busy sawing to stop and sharpen the saw.
WHAT ARE YOUR LEADING INDICATORS OF SUCCESS?
You may have perfected the practice of tracking success, but that’s hardly the same as understanding what predicts your success. What are the activities that, if done today, will lead to profits in the future?
My colleagues and I have studied this question for the better part of 20 years and concluded long ago that most of the leading indicators of success in professional services are qualitative, not quantitative. They involve judgment more than metrics, but they can be measured and improved nonetheless.
Here’s a partial list, organized into five key areas:
- We have effectively identified what we consistently do well – core competencies that could be considered “best in class.”
- We have a clearly-defined business strategy that makes our firm intensely appealing to a select group of prospects.
- We have a set of core values that guide our business dealings with clients, associates, and business partners.
- We are inspired by a sense of purpose that goes beyond just making money.
- We do an effective job of defining desired outcomes at the beginning of major assignments and engagements.
- We help our clients identify and prioritize initiatives that will have the greatest impact on their business.
- We employ a thorough method for understanding our clients’ business.
- We develop and deliver proactive thinking and ideas to our clients.
- We have institutionalized a system for evaluating our clients’ success and showing accountability for results
- We have an effective onboarding and orientation process for new associates.
- We assign our best talent to our best clients and best opportunities.
- We recognize and celebrate exceptional performance.
- We cultivate a culture of continual learning.
- We involve key team members in setting and achieving ambitious goals.
- We have an up-to-date and consistently executed brand identity.
- Our business development program focuses on points of relevant differentiation, not points of parity.
- We have well-defined criteria — both objective and subjective — for identifying and selecting prospective clients.
- We demonstrate our knowledge and expertise by speaking, writing and publishing.
- Our website is an effective virtual representation of our firm.
- We carefully define and manage the scope of our assignments and engagements.
- We proactively manage workload based on capacity rather than arbitrary client demands.
- We follow the practice of pricing based on the value to the client rather than the cost to the firm.
- We routinely review and resign unprofitable, undesirable clients.
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In a pivotal scene from the movie Moneyball, a frustrated Billy Beane challenges the inane talent evaluation criteria employed by a crusty crew of baseball scouts by repeatedly asking “What’s the question?” Unless you ask the right question, you’ll get the wrong answer.
The predictive power of leading indicators can be quite remarkable. By paying attention to the territory ahead rather than just the road behind, you can greatly improve the chances of your firm creating its own future.