by Ronald J. Baker
There are two ideas that are killing our profession: Pricing by the hour and maintaining timesheets.
They are stifling growth, wealth creation and innovation, inhibiting customer service, and destroying morale and the quality of life, not to mention making the accounting profession less attractive to potential students. Even more disturbing, the consultants to the profession — supposedly the “change agents” — are playing a significant role in perpetuating this death spiral.
Any profession or industry has a genetic immune system providing a natural resistance to new ideas. Of course, sometimes we are resistant to change for good reason. If we tested every crackpot idea, the costs would be astronomical while the benefits would be minimal. Yet if no new ideas were ever tried we’d still be in the Stone Age.
The diffusion of an idea is a social process whereby an innovation is communicated through certain channels over time among the members of a system, which often takes a substantial amount of time before it becomes accepted by a majority. As they say, the future is already here, it is just unequally distributed.
Consider, as evidence, germ theory — the idea that diseases are transmitted by specific germs, or microorganisms. This idea dates back to the 16th century, after which it was generally ignored until Jacob Henle revived it in 1840.
Still, it remained on the fringes of medical science until 1865, and became conventional wisdom by 1914. It is one of the most significant ideas to better the human condition, while prior to its acceptance its absence was one of the reasons that a trip to the doctor, on average, didn’t do much good — and sometimes did harm — until the 1920s.
A radical idea
Attempting to diffuse a new idea into a social system is a frustrating mission — one that I have been on since 1995. The new idea is this: To bury the billable hour (and timesheets) in the accounting profession.
Why, you might ask? Because the billable hour has nothing to do with what customers buy, as it measures efforts and activities, not results. Since there are only so many hours in any one person’s life, it is an artificial ceiling on the income potential of the profession. As for timesheets, nobody joined this profession to bill the most hours and become a galley slave on the SS Billable Hour. It is a form of degradation for a knowledge worker’s efficaciousness and value to be measured in six-minute increments, making modern day accounting firms redolent of the sweatshops of yore.
There are approximately 80,000 accounting firms in the English-speaking world and approximately 7 percent to 10 percent of them are successfully utilizing some form of value pricing (quoting fixed prices up-front to the customer, utilizing fixed price agreements and change orders). However, less than 1 percent have gotten rid of their timesheets. Why haven’t these ideas diffused more quickly within the accounting profession?
Obstacles to diffusion
DNA. The accounting profession learned the billable hour from the legal profession approximately two generations ago, long enough ago for it to become part of the molecular structure of every CPA. When I entered the profession in 1984, I was told, “You sell time,” and it took me over five years to challenge this assertion. How can we sell something the customer doesn’t buy?
Metrics. Peruse any Management of an Accounting Practice survey, read any trade journal, attend any seminar, listen to any consultant, or read any book on the profession, and you will find metrics related to billable hours, realization and utilization rates, revenue per hour, etc., ad nauseam. The billable hour is the standard yardstick that firms use to measure themselves — and worse, to compare themselves with others — thereby benchmarking mediocrity and never rising to new levels.
No burning platform. Accountants aren’t starving, and they certainly are not being threatened by any significant external shocks. Indeed, the more complicated the tax code and regulations such as Sarbanes-Oxley become, the more accountants earn.
Partnership structure. Margaret Thatcher was fond of saying, “Consensus is the negation of leadership.” Whenever a new idea is introduced, inevitably one (or a few) partner(s) will rise and assert, “We tried that idea during the Coolidge administration and it didn’t work.” Then and there, the initiative dies.
Lack of leadership. Most accounting firms are over-managed and under-led. A firm without timesheets requires leadership and vision.
It requires knowing that you are doing the right things, not just doing things right. It requires an attitude of experimentation, not simply doing things because that is the way they have always been done. It requires less measurement and more trust.
Disdain of theory. Pick up any book (or attend any seminar) and one of the first things you’ll hear is, “This book is not based on ivory tower theory, but practical steps you can implement.” Beware: You are about to read a bunch of discombobulated facts (like reading the phone book) and learn nothing of lasting value.
All learning starts with theory. Man is ruled by theory: It keeps planes in the air, bridges and buildings standing — and, by the way, is the reason that you price by the hour and maintain timesheets as well.
Truth is not determined by popular vote. At one point in history, the majority of learned opinion thought the earth was flat, which didn’t make it so. One of the most puerile objections I hear to the value pricing and the no-timesheet argument is, “If these ideas are so good, why aren’t more firms doing it?” Because, that is not how science progresses, nor does an idea become validated simply because a substantial portion of a population engages in it.
The Scientific Method, invented in Europe between 1589 and 1687, gave us concepts such as hypothesis, falsification and the experimental method. This is how new theories are tested, not by democratic vote or opinion poll.
Consultants. This obstacle is perhaps the most disconcerting because consultants are usually the “change agents” in the population, spreading new ideas. Yet some of the most mind-numbing opposition I get is from this sect, arguably today’s Luddites. Simply put, they are keeping the profession mired in the mentality that measuring efforts and activities is correlated with results and wealth creation.
It is inexcusable how all of them categorically reject the ideas posited, rather than scientifically refuting them. Since the idea is now being tested in many firms around the world, one would expect this group to show the most intellectual curiosity. Unbelievably, this is not the case.
The physicist Max Plank wrote, “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.” This is an incredibly pessimistic view of human nature — and one I reject — as it implies that the way to make progress is to kill off the older members of a profession.
My open questions to the consultants are: Why am I the only voice in the wilderness calling for the elimination of timesheets, and why do you continue to ignore the firms that have eliminated them and discovered a better way to create and capture value?
What will you be known for in 50 years? Are you simply going to perpetuate the current orthodoxies in the profession and create more efficient ways to do the wrong thing, or will you have the courage to explore new and innovative ideas to help the profession remain dynamic and relevant?
Not final words
For a profession to be truly innovative, it must not only do new things, it must stop doing old things. It is not possible to create tomorrow unless one first gets rid of yesterday. The human body has an automatic mechanism to discharge waste, but it appears the profession does not.
The billable hour and the timesheet are ideas from the day before yesterday, and they are gradually being eliminated in firms around the world. Good ideas may be neglected, but they seldom die. My only hope is to live long enough to see it happen.
Ron Baker is the founder of the VeraSage Institute, a think tank dedicated to advancing the professions. He is also the author of “Professional’s Guide to Value Pricing, Fifth Edition” (Aspen Publishers Inc.), and “The Firm of the Future: A Guide for Accountants, Lawyers and Other Professional Services” (John Wiley & Sons Inc.). Reach him at (707) 769-0965, or
