Source: Kazuki Yamamoto
Formulas, equations and rules of thumb continue to be a popular way to communicate important principles in leading and managing professional service firms. For your interest, here are the ones I use or refer to most often…
CHANGE
David Gleicher: D x V x F > R. D = level of dissatisfaction with the status quo. V = a vision of a future state i.e. clarity of what we’re moving to. F = first steps in a clear action plan. R = level of resistance to change. If R is more than the multiple of the other three, then no change. Click here for more. A graphical variation of this formula:
STRATEGY
A.G. Lafley and Roger Martin: Firm strategy = 5 questions – What are our winning aspirations? Where will we play? How will we win? What capabilities do we need? What systems and enablers are required? Click here for more.
Mehrdad Baghai et. al: McKinsey 3 growth horizons – concurrently manage both current and future opportunities for growth. Spend roughly 70% of your time on H1, 20% on H2 and 10% on H3. Click here for more.
George Beaton: Firms that fly = a shared vision + a strong culture based on shared values + shared power across the firm and key stakeholders + strong leadership and management to pull it all togetherand sustain it. Click here more.
Joel Barolsky: In the past… Firm Success = Ability x Stability (firms succeeded if they were competent practitioners and were able to keep the firm stable and collegiate). Over the past decade with the increase in client power and sophistication… Firm Success = Ability x Stability x Affinity (firms that have close trusting relationships with their clients outperform others). In a VUCA future… Firm Success = Ability x Stability x Affinity x Agility (firms that can make changes that add value quickly and efficiently will outperform others). Click here for more.
BUSINESS MODEL
David Maister: Profit per Partner = Leverage x Utilisation x Realisation x Blended Hourly Rate x Margin. Click here for more.
Ron Baker: Profit = Intellectual Capital x Effectiveness x Value-based Price. “Effectiveness” is a measure of the outcomes achieved for the client, not like the Maister equation which focuses on the cost of the inputs used to create the service. “Intellectual Capital” includes leveraging human capital, structural capital and social capital. Click here for more.
ORGANISATION DESIGN
Dunbar’s Rule: Our brains are only capable of sticking together within a community of around 150. Design organisations, offices, divisions, etc. with this number in mind. Click here for more.
REMUNERATION
J. Stacy Adams: People will trust a remuneration model when they perceive, [1] there is a sense of fairness of their contribution relative to their reward, AND [2] there is a sense of fairness of others’ contribution relative to the reward that others receive. Click here for more.
INDIVIDUAL PERFORMANCE
Mitchell and Porter: Performance = Motivation x Ability x Environment. Click here for more
David McClelland: Match jobs to an individual’s relative needs. People have three core needs, usually with different weights – Need for Achievement, Power and Affiliation. Achievement – the drive to excel, achieve in relation to a set of standards, strive to succeed. Power – the need to make others behave in a way that they would not have behaved otherwise. Affiliation – the desire for friendly and close interpersonal relationships. Click here for more.
Dan Pink: Drive = f(Purpose, Mastery, Autonomy). Click here for more.
STAFF TURNOVER AND PRODUCTIVITY
Mornell: If you make a mistake in hiring, and you recognise and rectify the mistake within six months, the cost of replacing that employee is two and one-half times the person’s annual salary. Put another way, the wrong person earning $50,000 will cost your company $125,000. Click here to read more.
Revenue per employee: In most industries, above-average firms produce revenue per employee that exceeds three times their average employee’s salary. Interestingly at Apple, it exceeds nine times. Click here to read more.
CLIENT RELATIONSHIPS
David Maister and Charlie Green: Trustworthiness = (Credibility + Reliability + Intimacy) / Self-orientation. Click here for more.
Joel Barolsky: Long-Term Relationships = (Understanding + Reliability + Value + Affinity) / Complacency. Click here for more.
Ford Harding: Geometric growth of social networks. With 90 strong connections in your personal network, you can make around 3,500 matches i.e. introduce one person to another for mutual benefit – see chart below. Click here for more.
SALES
Sales 101: Your Revenue = Number of Opportunities x Average Value x Overall Strike Rate. Click here for more.
Andrew Sobel: Number of Opportunities = Number of initial conversations you have or initiate x % that convert to a proposal. Click here for more.
McKinsey’s 2-4-8: Directors in McKinsey need to be working on 2 major assignments, be the process of proposing for 4 more, and in communication with 8 more prospective clients. Management within McKinsey follows up to ensure that 2-4-8 is a reality. Click here for more.
PRICING
The Discount Matrix: The amount of additional revenue required to make up for the lost profit as a result of a price discount:
SERVICE EXPERIENCE
Frederick Reichheld: Net Promoter Score = % Promotors (i.e. clients that score 10 or 9) – % Detractors (i.e. clients that score 1 to 6) on the question, “What’s the likelihood of recommending XYZ to a friend or a colleague?” Click here for more.
Customer Effort Score: “Firm XYZ made it easy for me to handle my issue!” (on a Strongly agree / disagree 7-point Likert scale. Click here for more.
What formulas or rules of thumb do you use? Please share using the comments feature…
