Ron Baker

This is a tall order given the current state of the accounting profession, which is still recovering from more than a year of corporate malfeasance and bad press. Accountants are only beginning to grasp the impact of the Sarbanes-Oxley legislation and its trickle down effect -- in the end all accountants and firms expect to be affected in some way, big or small. Does the accounting profession have room for more improvements, for such a drastic overhaul of the way it prices its services?

In The Firm of the Future: A Guide for Accountants, Lawyers and Other Professional Services, published this month, Baker, a CPA and the founder of value pricing think tank Verasage Institute, and co-author Paul Dunn, marketing consultant and founder of the renowned Accountants' Boot Camp, present a cutting-edge "new paradigm" on what professional services firms will look like in the future. The Firm of the Future tackles critical elements of the accounting profession -- including its "brain drain" and "ethics" debate -- that many critics argue are the profession's significant flaws. Most importantly, the authors encourage less focus on efficiency and more on effectiveness in order to improve the quality of life for professionals.

"We basically wrote the book because we see a gap between where the professions are and where they could be," says Baker. "Anecdotal surveys tell us that the majority of people would not pick the [accounting or legal] profession again. We want to re-ignite passion in the profession."

Baker says the book is a collaboration many years in the making, precluded by his book Professionals Guide to Value Pricing, Fourth Edition (Aspen Publishers, 2003), in which he states his case for burying the billable hour and trashing the timesheet. After sharing his message with accountants around the world, Baker teamed up with Dunn to create a better model for the "knowledge worker," who Baker describes as someone who works with his or her head.

Measuring knowledge
"Knowledge" work is difficult to measure quantitatively, acknowledges Baker. But the accounting profession, he says, is stuck in the mode of measuring its service by the old "assembly line" model, charging clients for their service by the hour -- what he considers an antiquated and broken model -- rather than charging for the value of the service.

"With knowledge workers, a measurement is not as important as a judgment," states Baker. "How do you measure communication and listening skills? You can't measure them quantitatively, but as accountants, we think we have to. The Firm of the Future says you can't measure them, you have to judge them. Yes, it's hard, and yes, it’s subjective. But I'd rather be vaguely right than precisely wrong."

Baker and Dunn insist the billable hour is having a profound, negative impact on knowledge professionals.  Due to the hyperfocus on the billable hour by the profession, and specifically by the Big Four accounting firms, accountants are losing passion for the services they provide.

"Nobody entered the profession to bill the most hours," says Baker. "We've created firms that are sweatshops with a quota. It takes your life and divides it into two time zones. If you're billing, the firm is happy. If you're not billing, you feel guilty. How can you enjoy working if you have to account for every six minutes of your day? This destroys the morale of educated professionals."

Employees as volunteers
In fact, punching the timeclock "every six minutes" of the day not only decreases the morale at the workplace, it also decreases the workforce's commitment to community programs, research indicates. And Baker points out that professionals often feel more personal fulfillment when dedicating their time, efforts and expertise to a nonprofit program.

"Most professionals donate time to not-for-profits without micromanagement. Why can't we develop the same in the firm?" posits Baker. "Knowledge workers as volunteers come from the ethics of a nonprofit -- a contribution that is bigger than themselves."

This is a key point in The Firm of the Future, to view employees as volunteers, not assets or resources. Knowledge workers "own the firm's means of production; it's in their heads," states Baker. "And those people can walk out at night. Whether or not they come back is determined by the way they are treated and the psychological return, and their return on human capital investment."

For this reason alone, employers need to invest in their workers' knowledge and skills, says Baker. To those who are afraid to invest in their employees precisely because they might leave for a better opportunity elsewhere, Baker asks: "What happens if you don't invest in them and they do stay? Which is worse?"

Baker and Dunn propose a model that gives employees a certain amount of free time to do whatever they want, that gives them the autonomy to manage their own workflow and apply their expertise. For instance, allow employees to apply 15 percent of their time to think and act creatively, such as present at a seminar or speak to a class. Innovation, says Baker, is incredibly important. While it may not be altogether efficient, it is very effective.

There is a secondary benefit, too, with this shift in how employees are viewed and treated. By giving employees more autonomy and creative freedom, they are contributing to the pool of ideas and innovation for the profession.

"We have lacked any amount of innovation or creativity," remarks Baker. "The last new service from the CPA profession was the compilation and review in 1978. A 25-year innovation curve in accounting ... and we wonder why we're getting hammered."

Pricing on purpose
It's not a far stretch to conclude that with happier employees come satisifed customers. Employees who aren't micromanaged by the minute -- and a pricing system that doesn't charge clients by the minute -- will produce a value-driven service.

"There are a multitude of questions to consider internally before setting a price for a service," Baker says. "Firms need to get away from the cost-plus mentality, out of hours-measurement; it has nothing to do with the customer! We are advocating the CPA firm should charge commensurate with the value to the customer, which has no relation to the internal hours that it takes.

"Value is subjective," he continues. "You're never going to get 100 percent assessment of the client's value. You have to gauge the client's price sensitivity one at a time. A professional can customize a price based on the customers' needs and wants and how they will value it. Airlines are masters at this."

Since launching his worldwide efforts to switch more firms to value pricing, Baker says roughly half of law firms now offer some form of alternative pricing, but notes lawyers have more pricing options than CPAs. He estimates approximately 10 percent of accounting firms have moved away from the billable hour. He cites a recent California MAP survey, which found that four to 20 percent of firms had moved away from the billable hour, depending on region.

Visualizing the future
Looking ahead at the firm of the future, Baker visualizes professional services that leverage intellectual capital through human, structural and social capital. Rather than leveraging hours and people, firms will price up front with a price guarantee, making firms accountable for the value of their service. He doesn't expect the establishment of this system to be easy, but suggests it will become easier with practice.

"We're giving our readers a new way to think about the firm of the future -- a mental model of the way the world works. We're giving them a new model that we think is superior to the old."

The Firm of the Future: A Guide for Accountants, Lawyers and Other Professional Services is available this month, published by John Wiley & Sons. Save 15% with promo code W4448. Expires 4/30/04.

Does your firm prescribe to the billable hour?