Why You Should Stop Running Your Firm at Maximum Capacity

By Tim Williams

By Tim Williams

Has your billable time ever been scrutinized? If you work for an advertising agency or other type of professional services firm, chances are you have been subject to a battery of billable time evaluations, all designed to achieve one thing in the mind of the agency owner: maximize productivity.

Both feet in today

Aside from the problems with using billable time as a means of generating revenue, there’s another equally important problem with agencies’ obsession with high “billability.” Imagine that Apple was so busy manufacturing and selling computers that they didn’t have any time to develop the iPod, iTunes, and the iPhone. This isn’t such a ridiculous example. Most companies are so focused on “today” that they have no time left for “tomorrow.”

Harvard’s Clayton Christensen preaches that the natural inclination for most business is to devote their time and resources to “efficiency innovations” rather than “market-creating innovations.” And while it’s important to optimize your current operations, professional services firms like ad agencies don’t exist to be efficient; they exist to be effective.

Overworked and underpaid?

Morever, the constant focus on high utilization of resources – like expectations that agency professionals be 90% billable – will not only rob your firm of the ability to invest in its future; in actually has the potential to hurt the agency’s productivity, not improve it. Research has shown shown that high utilization almost always leads to delays in a company’s workflow. “Add 5% more work, and completing it may take 100% longer,” say Stefan Thomke and Donald Reinertsen, writing in the Harvard Business Review.

This phenomenon is based on “Queuing Theory,” which shows that with variable processes like those of an ad agency, the amount of time projects spend on hold (waiting to be worked on) rises steeply as utilization of resources increases.

Thomke and Reinertsen take pains to point out there is a big difference between utilization in a business like manufacturing – where most activities are standardized and repetitive – and professional services, where there are many variables in any given project. Which means that while 100% utilization is theoretically possible and maybe even desirable on a manufacturing line, it is highly problematic in a company of knowledge workers. In knowledge work, organizations that operate near or over capacity experience chronic problems with past-due work, errors and sub-optimal quality.

The best strategy for making more revenues from the same staff is to improve your pricing, not increase workloads that are often over capacity to begin with.