The business model of the new economy is characterized by talent and services on demand, automation, and magical user experience. At least, that’s how futurist and veteran of the technology game, Tim O’Reilly, put it in his latest bestseller, WTF: What’s The Future and Why It’s Up To Us.
Unlike technology companies that are more predisposed to living these values, professional services firms still rely mostly on people to create and deliver value to their clients. Scale is still dependent upon headcount, and I spent almost six years as part of this headcount at firms such as EY and KPMG.
Having left that world in 2013 to pursue entrepreneurship, I’ve since established and overseen the development of my own boutique firm focused on corporate innovation — Collective Campus.
I’ve been vocal about our team’s approach to getting sh*t done — which embodies O’Reilly’s model — and was manifest in my Harvard Business Review article, The Case for the 6-Hour Workday.
Recently I got thinking; just how much more efficient are we than the top end of town firms?
I put together the revenue and employee numbers of a handful of top and mid-tier firms, captured below, which gives you an indication of how employee efficient each company is.
At Collective Campus, we currently generate about $400,000 per employee, almost triple the big four ‘accounting’ firms, and five times Accenture and CapGemini. Only the pure play management consulting firms like McKinsey and Boston Consulting Group come close — probably a reflection of exorbitant fees more than anything, something they may or may not continue to get away with going forward.
Interestingly, if you consider the fact that the average employee at the above-mentioned firms works about 45–50 hours per week, versus our 30–35, their effective employee efficiency relative to ours is about two-thirds of what’s reported above.
And we’re not resting on our laurels.
With some luck, a process-automation project we’ve got underway and a subtle but significant strategy shift could see us propel our employee efficiency to well beyond $500,000.
Upon reflecting on my time at large professional services firms, and how we do things differently at Collective Campus, the following efficiency drivers become apparent.
While at EY, I watched countless six-figure earning colleagues painstakingly labor over perfecting Powerpoint proposals for days, if not weeks, only for the prospective engagement to go to a competitor. Auditors carrying folders of client receipts and bank statements were everywhere; automation tools not so much.
At Collective Campus:
We leverage machine learning to automate the development of our proposals. We’ll then spend 10 to 30 minutes customizing them and they’re out the door.
If anything is a repeatable process, we’ll attempt to automate it.
We do so along the entire value chain; product, sales, marketing, customer service, delivery, finance and operations. This extends beyond proposal development to content development and distribution, prospect qualification, you name it, part of — if not the entire — process has been automated.
You’re not getting paid six-figures to do expense reports.
Sadly, thousands of well educated, well-heeled consultants at large firms find themselves doing exactly that, often having to navigate finicky spreadsheets before handing off the report to another department (and then another department) for eventual processing.
At Collective Campus, if we can’t automate it, then we’ll try to outsource it — so long as it’s not mission critical or aligned with our strengths.
I’ve personally outsourced about 30 hours of work that I once performed myself. It’s now being shipped offshore for no more than US$10 per hour, with an acceptable to no compromise in quality.
The Pareto principle is trumpeted by many management consultants, yet too many find it difficult to say no to client work, and often ‘loss lead’ and take on low margin work in order to “build the relationship”. Sometimes it leads to more work, and often it doesn’t. It also sets an expectation of below-market pricing in the client’s mind that may not be sustainable. Not only that, but if such a client is a pain to work with, not only do they pinch your margins, but they’ll also pinch your workforce’s morale too.
The Pareto, or 80/20 principle, suggests not just that 80% of your revenue comes from 20% of your clients, but that 64% of your revenue comes from 4% of your clients (and 50% of your revenue can come from just 1% of your clients). By focusing on this principle and creating offerings that the 20% or 4% would be willing to pay much more for than the rest of your customers, you can become more efficient and spare your workforce the pain of dealing with difficult customers in exchange for tiny margins.
Perry Marshall put forward the case of gate attendance at professional sports stadiums to illustrate this point beautifully in his book 80/20 Sales and Marketing. While you might get 20,000 people to pay $20 each for a ticket, pocketing $400,000 in the process, there will also be 1,000 or so people collectively paying for and/or occupying 200 corporate boxes, which at $5,000 per box bring in $1 million — these are your high-value customers.
Large consulting firms tend to engage in long-term engagements, where the effective daily rate of work decreases significantly.
For example, whilst a firm might be able to charge $10,000 for a one day workshop, they will find it much more difficult to charge such a day-rate for a 100-day consulting engagement. Instead, they will probably end up charging an effective daily rate of about $1,000 — $2,000, which comes at a major blow to employee efficiency.
Again, at Collective Campus, we focus on value, and oftentimes this is manifest in shorter-term gigs.
This is not to say that we can’t add as much value. Whenever you’re getting paid by the hour, as many large firms are, there is a perverse incentive to book in as many hours as possible — regardless of the value being delivered.
In our case, by optimizing for shorter term projects, we’re forced to apply 80/20, or 64/4, and deliver the most amount of value in the least amount of time, whilst satisfying client needs, and keeping our employee efficiency healthy. This is essentially a hallmark of agile project delivery.
Building on the last point, we believe in the value of our work at Collective Campus. If a client wants to pay rock bottom prices, we’ll direct them to our competitors. You’re in business for the value you deliver, not merely to recover your costs.
I saw armies of consultants — all on high five to low six-figures — sitting on “the bench” for weeks on end while I was at EY and KPMG. This meant that they had no real work to do, and were left twiddling their thumbs like sitting ducks waiting for a job to pop up — which sometimes did but often didn’t align with their interests, strengths or career aspirations — but they’d have to do it anyway.
We don’t have a bench at Collective Campus; everyone is on the court.
This brings me to my next point.
Instead of employing an army of consultants with the hope that we will be able to keep them utilized all of the time, we have a core team plus an extended network of on-demand, high-quality consultants and facilitators we have a relationship with that we can engage should we need to deliver work that is outside the core team’s capacity.
This means we’re also engaging people who want to work on these engagements and whose skills are truly aligned so that they can do a stellar job. This means that they truly show up, and are more fulfilled, positive and engaged as a result — which benefits the client. Everybody wins.
Compare this with the graduate or second-year consultant who’s picked off the bench to deliver a gig they’ve never done before for a company in an industry they know nothing about — a hallmark of many a top-tier firm.
I lost count of the number of multi-hour meetings I sat in while I was working at top-tier consulting with 10 or more people present. In most cases, only two or three people were truly required, and the meeting could’ve been handled in 30 minutes or less.
The cost of such meetings is astronomical.
Essentially, a 10-person, 2-hour meeting is a 20-hour meeting in terms of the cost to the organization, and when you consider hourly billing rates, the true cost of such meeting to an organization can be well upwards of $5,000, if not $10,000 depending on who is present.
The worst bit? Many meetings achieved nothing and subsequent meetings had to be called to recap the lack of what was discussed at the previous meeting, and again attempt to align on next steps. Oh, and let’s not forget the dreaded ‘meeting to prepare for a meeting’.
At Collective Campus:
Building on the 80/20 principle highlighted earlier, at Collective Campus we prioritize whatever we’re doing, whether it’s a project, strategy, marketing campaign, sales tactic, customer segment we’re targeting, and so on.
Similarly, at an individual level the team prioritises their time with a simple ‘value / cost’ calculation, so that they focus on value-efficient activities, and not just shallow level work that often tricks our primitive brains into satisfying our need to feel important or busy, but come the end of the day leaves us with nothing to show for all that busyness.
As such, we’ve turned off all push-notifications on our phones and desktops, we use email as it was intended to be used (not as a real-time back and forth communication mechanism), and don’t care one iota about getting to inbox zero, which is usually an indication that you’re great at misallocating your own time in favor of other people’s priorities.
Because we focus on value, prioritize effectively, have few meetings, and ignore the pull of email or notifications, we’ve got more time to get into flow. When we’re in flow, we’re up to 500% more effective than when we’re engaged in shallow level tasks.
Importantly, unlike in most traditional firms, we have no expectations of immediate response internally, nor do we set such client expectations. This means that we can intentionally carve out windows of time that can be several hours long for deep work, instead of being at the mercy of constant interruption and switching costs (it can take us about 23 minutes to get back to the task at hand after an interruption according to a study from University of California, Irvine).
High performers stop working when sufficient value is delivered.
Most people stop much later, engaging in all sorts of residual work.
Instead of reformatting that Powerpoint proposal for the 17th time, we apply Parkinson’s law to give ourselves short but reasonable windows of time to get a task done. This forces us to focus on value creation and frees us up to move on to other high-value activities.
By enforcing shorter windows of time to get things done, it acts as a trigger to get us into flow — no different to being in High School, having procrastinated on your term paper for weeks, and finding yourself with 12 hours to hand it in — suddenly you find yourself in the zone.
At Collective Campus, we don’t just set and forget on our value chain (kind of like that streaming service that keeps debiting your credit card without you’re knowing it despite not using said service anymore).
Short feedback loops are absolutely critical to adapting in a timely manner, performing at an optimal level and not wasting resources.
We’ve defined key metrics to measure what matters. This extends to how different aspects of our business, our strategy, and our people are performing. We reflect regularly on what we should do more of, less of, start and stop doing.
In order to avoid spreading ourselves thin and ensure we can stay focused, whenever we add a ‘start doing’, we attempt to balance it out with a ‘stop doing’. Likewise with a ‘do more’ and a ‘do less’. One in, one out.
Rather than waste resources by jumping to conclusions and over-investing in something, or sitting idly by in a state of analysis paralysis, this helps us to do, learn, and adapt, with a degree of confidence and control.
Is our model scalable? I think so. But it’s a question we probably won’t ever get the answer to because we’re intentional about defining what is ‘enough’ and not getting sucked into a ‘growth at all costs’ mentality.
The larger an organization becomes, the more processes and systems it introduces that ultimately serve to inhibit its way of working and its culture.
Once a ‘growth at all costs’ mindset starts to compromise our values or enjoyment of work and life, then you’ve pushed too far.
It’s not unreasonable to foresee greater fragmentation in professional services going forward, as more boutique firms embody these principles to deliver high-value work to clients at a lower cost, thanks to a lower cost base. This might become more pronounced as the sheen associated with stamps of approval from top tier firms wears off as generations shift.
If nothing else; this is a way more fun, rewarding and sustainable way to run and work in a professional services firm.
Steve Glaveski is the co-founder of Collective Campus, author of Employee to Entrepreneur and host of the Future Squared podcast. He’s a chronic autodidact, and he’s into everything from 80s metal and high-intensity workouts to attempting to surf and do standup comedy.