13. Results
Keeping the sense of purpose and having a clear orientation to get results were basic principles at Andersen. The motto in this case was “Performance oriented”.
As an exception to our own rule for raising a concept to the column category, this principle does not have so clear expressions as the others in the corporate values official declarations. Perhaps that is the reason we mention it last. However, we believe it is also very relevant (last, but not least).
Though it was not written in the manuals, we could say this principle was concealed in the Firm’s culture, like a painting’s background that we perceive without noticing it consciously.
All profit-seeking organizations require that work is done without losing sight of the need to get results; the profit or cost-effectiveness may not be the essential reason of a business, but they certainly are like air for people: we do not live to breath, but we do not live without breathing. The professional services practice, like any other business, needs to be profitable and, in this special case, needs it to be able to compensate its professionals in an attractive way.
In Arthur Andersen it was especially significant the series of simple indicators, directly connected to the income statement, which were easily available throughout the organization at all levels.
It can be fit to examine at least three of them that made part of the basic concepts installed in the Firm’s culture:
- The “chargeable time”
For each professional, the percentage of his total available time dedicated to projects that could be invoiced to customers, giving thus a measure of each professional’s productivity. By accumulation of the data the figures were obtained for each group, each office, even for each country. - The “write-off”
For each client, the average discount on standard list prices obtained by the ratio between the invoiced value and the total cost estimate of the work done, as would be obtained by applying the standard hourly prices to the actual hours spent. It gave a measure of each project’s profit. - The number of professional hours worked
A measure of the total activity and therefore the size and development of a practice, an office, a project, etc.
Obviously these three indicators do not fill all the elements of a full scoreboard, but they are simple, very relevant for the income statement, and suitable for use as “performance standards” in general.
All of Arthur Andersen’s professionals from their early years of professional development, independently of whether it was in their particular management capacity or not, were conscious of the fact that having a high chargeable time (i.e. a high percentage of time assigned to projects to be invoiced) meant that they were very busy, but also that they were considered as valuable professionals and therefore were in better conditions to keep in progress in their professional career.
In the Spanish offices in fact, the public and transparent exposure of the professionals’ assignments to the different clients and projects (known as “planning”) showed after all the importance of each professional. This really simple mechanism automatically aligned the interest of the business (to have very productive professionals) with that of the professionals (to be busy meant more opportunities for learning, development and promotion).
In the same direction, those professionals who belonged to one of the practice’s management (usually managers or partners) were conscious that the level of overall chargeable time of the professionals under their control was a key indicator in support of decisions for growth (more recruitment or more promotion among their people). Therefore, having a high level of chargeable time on their team was good both for their personal promotion and for their people promotion.
Something similar can be said about the write-off concept, that on its turn could be planned (conscious decision to offer the client a lower price than the standard list price) or unplanned (deviation between the budgeted amount of work required to finalize a project and the amount that was really needed in the end)
The unplanned write-off occurrence was not normally in the responsibility area of the members of the direct team doing the work, but rather in the managers and partners area since they were the ones with the management capacity towards the clients and the establishment of the fees and scope of the work; however, when a job or project had cost deviation problems, all members of the team ended up being conscious of the situation and seeing how important it was to cooperate, each one in his own measure, in reducing the negative impact of the situation. Once more, the Firm’s goal becomes a collective goal independently of the individual responsibility exposure.
A similar effect can be associated to the number-of-hours indicator. Because of the Firm’s strongly standardized schemes, when decisions about new capacity had to be taken, the number of hours was a basic element to understand the relative importance of a given practice, an office or a project and then became an alignment factor in favor of the collective interests.
In fact, for instance, to open a new office, a certain number of hours worked in that market had to be proven; in the same way in order to “make room for new partners” a certain number of sold and/or supervised working hours had to be reached. The success in the development of a business, a practice or an office could be assessed by measuring the actual growth of total invoiced hours from one fiscal year to the next one.
These simple indicators were important because they helped to align the individual interests of each professional with the Firm’s general collective interests and also with those of the different organizational segments: offices, practices, projects, etc. They could also be very easily extended to the professionals’ ensemble, raising them to the collective objectives category. Being that simple, they facilitated, at all levels, a prompt communication of what was well and not so well with the organization.
This type of shared collective objectives culture impregnated all levels and fostered a deep-rooted sense of purpose and efficiency throughout the organization.
As long as a company’s objectives are genuinely collective (i.e. all organizational layers benefit) and short and long term are well defined, the system generates a very positive energy.
The problems and drawbacks appear when the indicators are no more the result of a collective effort and come to be considered as “individual trophies”, confronting professionals with each other. Or when they are established without proper identification of the application’s consequences in respect of other principles (for instance, to stimulate sales objectives against service quality objectives).
The difficulty of keeping Results and Cooperation together
In a results-oriented company as Andersen, it seems very difficult that respecting at the same time the Cooperation principle was at all possible. But it was.
It seems that, either one is oriented to achieve the best Results and then does not cooperate with anybody or one cooperates but then Results are not optimized. But it is not necessarily so. The solution is to believe in the group’s force, in the Firm’s strength.
In Arthur Andersen there was belief in the Firm’s force and the Results obtained from Cooperation were neatly superior to those independently obtained. Though it was not easy to understand by some, and difficult to put into practice because the Firm was one of the places with the highest internal competition that have ever existed.
In sum it was about cooperating to get better results, about uniting Cooperation and Results in a virtuous circle.
To make that possible in any organization, the accountability system must be aligned with the desired objectives. Many systems do just acknowledge results to one person, forgetting the help and support, the Cooperation lent by others. That would be incompatible with the spirit of Cooperation.
Both the measuring of individual results and the evaluation system need to take this into account. In practical terms, the principles are true principles only if they are accounted for when evaluating the persons. If the evaluation is done in their absence, they are just window-dressing. One friend of us calls them in that case “bookshelf philosophy”.
At Andersen, in its original culture, the mechanism truly worked. However in the 90s, results and ambition started to have more weight in the system than what would be recommended to properly maintain balance. The Cooperation system was seriously affected by the Andersen Consulting separation process and the idea of Unity began to be questioned in practice. It is more than likely that the separation process just mentioned, along with the specific and concrete harm it was producing, caused a kind of delusion, a sort of envy and emulation surge that brought the imbalances, in favor of results and ambition and against other principles like cooperation, integrity and even service to the client.