Clock watching

An obsession with racking up billable hours threatens to damage many leading professional services firms, according to research from the Faculty of Management at Cass Business School.
The study suggests that the way in which accountants, lawyers and other consultants charge clients by the hour for their services has led to high turnover rates among overworked junior employees and a failure by firms to confront serious, long-term strategic issues. In addition, clients are often unfairly treated and over-billed, which is likely to prompt a backlash - or even defections to rival service providers.
"In the past, professional services firms operated as traditional partnerships, with an emphasis on working together for the benefit of the clients," said André Spicer, Professor of Organisational Behaviour at Cass, who co-authored Financialisation as a Strategy of Workplace Control in Professional Service Firms. "However, as the largest firms have become much more corporate, their focus has become ever narrower - success at these firms is now measured almost entirely on the basis of the number of hours billed."
Professor Spicer and Dr Johan Alvehus, of the Department of Service Management at Lund University in Sweden, spent two years interviewing tax lawyers at one of the Big Four accountancy firms.

High expectations
"There are benefits to the way these firms have changed, particularly around visibility, with clients getting bills that are more transparent and staff getting very clear signals on their performance," Professor Spicer said. "But this obsession with billable hours has come at the expense of quality and this is, in any case, far too narrow a measure of performance."
The problems begin with junior staff starting out in their careers, he suggests. Professional services firms take on many of the brightest and best graduates, who have high expectations of fulfilling careers on leaving university but rapidly realise that the reality of their roles is not what was sold to them.
In particular, they are very quickly forced to accept that they will be judged almost solely on the number of billable hours they clock up, which leads them to attempt to play the system - to ensure that all their time in the office is spent adding to their totals.
Non-billable - but nevertheless important - activities such as training and competency development are routinely neglected as juniors focus on fee-earning tasks perceived as the way to advance their careers at the firm. Alternatively, these tasks are completed out of normal working hours, which adds to the gruelling demands on junior staff.
Within a couple of years, warns Professor Spicer, many junior employees are questioning their choice of career. "They come to realise that what they thought they were coming into the profession to do was very different from their day-to-day roles - and also that there has been a huge impact on their personal lives."

Alienating talent
Invariably, they socialise only with fellow employees - their peers and the senior staff they hope to cultivate - and rarely see other friends or their families. Their health may also suffer, with long hours leaving little time for exercise or a healthy diet.
The result is that many junior staff quit. "Professional services firms have a bad habit of alienating their best talent," says Professor Spicer. "These firms have very high drop-out rates and they're often losing exactly the people they wanted to keep."
The issues are not confined to junior staff: the obsession with billable hours exists at every level of the firm and continues to cause problems throughout workers' careers, with unfortunate consequences for their employers.
One effect is that when a firm's star performers are judged to be those who generate the largest sums in client fees, employees who want to progress are reluctant to take on roles where there is less potential to generate revenue.
Staff routinely avoid leadership roles, for example. For one thing, the duties that these entail reduce the time available to rack up hours that can be billed to clients, which is perceived as damaging to future career prospects. For another, as leaders have less credibility within firms than those star fee earners, management roles are especially challenging and often confrontational.

Office politics
"These jobs seemingly have high status but the reality is very different," says Professor Spicer. "Those who are prepared to take on the leadership roles may not necessarily be the firm's best talent and they have to waste a great deal of time on destructive office politics generated by the fact that collegiate respect is all about the number of hours billed."
The culture of professional services firms not only inhibits the development of effective leadership, but it also discourages any activity that can't be charged to clients. "Issues at strategic level begin to get neglected and people get stuck in competency traps because they're too busy racking up fees based on their existing skills to develop new ones."
Over time, these problems can cause serious damage to many firms, he suggests. Any business that lacks strong leadership, neglects strategic issues and has a workforce that isn't developing its skills in a changing world is likely to begin struggling sooner or later.
In some cases, clients are already being poorly served. One concern is that the narrow focus on fee income has come at the expense of service - work is effectively commoditised by the billing system, with firms more concerned about the number of hours they will put in on behalf of clients than the outcomes of that work.

Estimated charges
Moreover, the billing system effectively discriminates in favour of price-sensitive clients, to the detriment of those who are less assertive in questioning what they are being charged.
Professional services firms routinely calculate fees based on the number of periods - sometimes as short as six minutes - spent working for each client. In practice, the system is impossible to administer in real time, with work for one client often interrupted by demands from another, or by something as mundane as a visit to the toilet. The firm almost always has to work backwards to compile bills, making estimates about what clients should have been charged based on approximate timesheets.
"The bills are calculated retrospectively and they are not shared equally between bill-sensitive clients and those who are less bill sensitive," says Professor Spicer. In other words, clients whom the firm expects to kick up a fuss are charged less while those who routinely pay on time without questioning invoices are over-charged.
In time, client dissatisfaction is likely to increase, Professor Spicer suggests. Where once focusing on client service was an intrinsic part of the ethos at professional services firms, the obsession with billing has become all-consuming. The effect may be to drive clients elsewhere.

Need to rebalance
Is there anything to be done about the billable hours obsession? If so, change will have to start within, suggests Professor Spicer. "There is a need for a rebalancing," he says. While fee income is likely to remain a key performance indicator within the firms, the use of other yardsticks might mitigate the adverse effects of the focus on the number of hours billed.
However, James Knight, managing partner of the legal services firm Keystone Law, warned that other charging models were not necessarily practical. "There is this idea that lawyers, say, won't do fixed fees because they're very greedy - in fact it's because it is often quite impossible at the beginning of a transaction to say how long it will take or how much work it will involve." Clients, too, may be able to help drive change. Those that use procurement teams to source professional services may have become overly focused on cost, at the expense of quality of service, which has reinforced the behaviour of the firms they retain. If they can find new metrics for sourcing providers, firms will have to adapt accordingly.
Knight added: "At the end of the day, it's up to clients to drive the arrangements that they want for a particular transaction."

Self regulation
Finally, suggests Professor Spicer, there may be scope for intervention from the professional bodies - in a "controlling, co-ordinating and even policing role". The financial crisis has already prompted the professional services industry to re-examine self regulation and that will have wider implications. This could be a valuable opportunity to look at the broader culture of the professional services sector, he suggests.
However, Knight warned that not all professional services firms should be tarred with the same brush. While the criticisms might apply to many big City practices, plenty of other firms did not operate in the same way.
"The world of the huge commercial firm is a very different world from the one that many of us inhabit," he said. "These very large corporate transactions are not the real world for most people."

David Prosser is a freelance business writer. He can be contacted at davidprosser1972@gmail.com

For more information on the research, contact Dr Christina Makris, Business Development Manager. E: christina.makris.1@city.ac.uk T: +44 (0)20 7040 3273