The Long-Term Impact of Building An Upside-Down Pyramid – Part 2

In the first article in this series, we introduced the Upside-Down Pyramid Capacity Model™ and the Hour Glass Capacity Model™.  For either of those models to be in place, the firm has had to have either actively or unintentionally put systems in place (often like compensation and/or employee evaluations) that predominantly support personal production while discouraging spending time developing others.  Both models are the evolution of inaction regarding developing a better, stronger, faster staff, which in turns, puts more and more pressure on the partners and managers to perform the work.  Eventually, this model creates significant problems for firms to overcome, including workload compression, more hours required from the more experienced personnel and the weakened profitability, sustainability, and succession.

As promised, this column picks up discussing steps a firm can take to fix either the upside down pyramid or the hour glass capacity models.  We have already alluded to or discussed all of these steps in previous columns, but we are going to try to put them all together here.  The steps are really fairly simple, but they all need to be executed in the correct order to make a real impact:

• Hire enough people to create excess capacity
• Everyone needs to report to someone for development and performance assessment
• Do your job – not someone else’s job, but your job
• Before you start your work, determine all of the work that can be delegated to someone below you
• Once you know what work can be delegated, verify whether the people you are handing the work to are able to do the work
• If the person you are delegating work to does not have the requisite skills, then train them

The first step – hire enough people – is covered in our previous column entitled Metrics: Their Value is in Creating More Questions – Part 2.  In that column, we go through an example of why most firms under-hire, which is simply because they have never really thought through the combination of:

1. Add: New hires needed to do the work required from the expected growth
2. Add: New hires needed to develop overtime to close some talent/competency gaps that exist in the firm
3. Add: New hires needed to give the firm enough capacity to allow management to dismiss margin performers or problem employees
4. Subtract: New hires that never perform that need to be let go in the first 90-120 days
5. Subtract: New and existing hires that are performing but leave the firm for various reasons, many at no fault of the firm
6. Subtract: Marginal existing performers
7. Subtract: Problem employees

Without available excess capacity, firms tend to keep every employee, no matter how much of a virus they are due to the negativity, dysfunction and morale problems they create, which eventually have the added bonus of driving off the firm’s top performers too.  It is always surprising how so many firms consider a negative to be a positive.  For example, consider a very low employee turnover rate.  While a low turnover rate could be something to be proud of, the vast majority of the time it is a sign of negligent hiring practices (not hiring enough people) and lack of accountability.  This then allows marginal performers to stay for years longer than is justifiable because the firm needs the bodies to do the work (and you read that right—we mean years).  By the way, the more your firm hires people right out of school, the greater the likelihood that your employee turnover rate for those new hires will be double your normal experience.  Why?  Simply because many of the accounting school graduates are not even sure they are interested in public accounting, or they might not be cut out for it, or they have not established roots in your areas which makes them more likely to leave to follow a dream, a love-interest, go back to family, etc.  So, while hiring people right out of school is definitely our suggested approach as a capacity-building strategy, firms need to consider counseling new hires out much more quickly that are not performing than they are probably accustomed to doing (not performing includes not catching on as to how to do the work as well as attitudes about doing the work).  And that window, instead of being years as is typical in most CPA firms, should be 90-120 days.

Interestingly enough we have this conversation all of the time with our client firms.  And it is not uncommon for the firms to create goals for management to act more timely in this decision-making evaluation.  But recently, we had this conversation with a partner who also is a savvy investor in the stock market (and consults in that area).  After a quick discussion about the problems being encountered, that partner said something like this:

I totally get what you are saying but I never applied it to hiring practices within a CPA firm.  When I invest in a stock, I decide that day what my stop-loss will be.  If the stock falls below my minimum expected performance level, it is automatically sold.  I don’t hold on to it hoping it will recover the losses it has sustained thus far, but rather, cash it out and reinvest that money in some new stock that has been performing and has a promising outlook.  This approach has allowed me to make all of my money work for me rather than just some of it.  It frees up an investment that is marginally performing and allows me to buy into something that has a chance to be my next star performer.

That is exactly what we find with firms.  Every time we let someone go because they have a bad attitude or treat people poorly or perform marginally, while the firm will go through a little bit of pain shifting work and bringing along someone new to fill the gap created, they almost always trade up.  And every spot a marginal performer is filling now is a spot that might be filled if available by your next rising star.  However, because you only have a limited investable amount to pay employees (salary and bonuses) that makes sense with your current and near term volume, it is critical that you free up those funds that are tied up in marginally performing people assets so that you are constantly building a better firm with stronger people driving it.  You can’t trade up if your firm philosophy is really about holding on and hoping!

So now that we are hiring enough people and running off those who are marginal (having bad attitudes and treating people poorly are two excellent reasons to free up your human capital investment), we can move on to the next step which is to set up a system so that everyone reports to someone for development and performance assessment.  For those that are new to our columns, know that we totally understand that in a CPA firm everyone could report to almost everyone above them on a project-by-project basis.  But here, we are talking about management and someone being responsible for specific people to make them better, faster and stronger.  Just as with the first bullet above, we have a recent set of columns that address this process as well, from implementing accountability, how to develop an organizational chart around everyone reporting for performance and development to only one person, how to set goals, how to coach and develop others and how to assess performance.  That series of columns is called “Developing People Faster takes a Different Approach.”  We also have a monograph on this same topic called “SI Performance Management Monograph.”  In this series of columns or the monograph, we cover this bullet point as well as some other topics mentioned in this series of columns.

The main point here, regarding fixing the Upside Down Pyramid™ or the Hour Glass™ models, is that you won’t close competency or talent gaps consistently enough or quickly enough without implementing accountability.  And accountability requires that someone has been identified, not anyone or everyone, as responsible for making each person in your firm better, faster and stronger.  This is not to say that everyone reports to the same person, but rather, that you should be able to go to anyone in your firm and each person you ask will know the specific person that is their boss, or coach who is responsible for their performance assessment, skill development and career development.  In a video tape we use in our training on accountability, created by CRM Learning called “Accountability that Works,” the author makes the statement that:

‘We’ can’t do anything.  Tasks only have a chance of getting accomplished when an ‘I,’ an individual, is willing to take personal responsibility and ownership.  Simply put, a ‘We’ unowned is a ‘We’ undone.

And unfortunately, most management in a CPA firm is based on a “we” approach to accountability.  Don’t misunderstand us -- we very much value a “We” approach or a team approach, but the clarification is that while it does take a village to develop your people (meaning that many people will likely be involved in the training, coaching, mentoring, etc. of each individual within your firm), a village can never be accountable for anything.  That is why we focus on making sure that each individual has a direct boss – a person responsible for their direct reports’ performance.  And at the end of the day, for any direct report that is not getting better, faster and stronger, we can then turn to his/her boss for that accountability.  If that boss was negligent in making sure the proper training occurred, or negligent in assessment and oversight of the work performed, or sloppy about the timely addressing of poor performance, then the boss along with the direct report, will suffer the consequences of marginal performance.  But for the record, our experience is that anytime a boss is held accountable for their direct report’s performance, the boss from that point forward takes a definite interest in making sure his/her direct reports are performing.  And for those who are not performing, bosses will drive them out much more quickly.  This focus on accountability takes the common cycle found in CPA firms of letting marginal people go after about four years of moving them around in the firm, to counseling out poor performers in a matter of months.  This, in turn, allows the firm to reinvest in new human assets, which increases the changes of the firm trading-up regarding personnel, which in turns creates a much stronger bench of people to build the firm around.

Our last point, for this column, is “Do your job – not someone else’s job, but your job.”  Bill Belichick, head coach of the New England Patriots, is known for telling people to “Do their job well.”  Don’t worry about doing someone else’s job … make sure you take care of the job you are filling.  Yes, we have columns and articles on this too.  Our monograph “SI Roles and Responsibilities” certainly touches on this.  Our competency model drills down even further.  And just as we covered in Part 1 of this series, partners have a specific job to fill, and it is NOT filling the role of manager (manager is meant here just to describe the employment level below partner).  If the partners won’t do their job, then the managers, supervisors, seniors and staff have no chance of living up to their expectations.  We see over and over partners only filling a portion of the job responsibilities they hold.  Some lean towards the business development side, some lean more towards the technical side, some delegate everything, and others delegate hardly anything.  The point is … everyone, at every position, working in a CPA firm, should be expected to operate at least at a minimum level for each competency for that level.  In other words, you can’t be overqualified in one area with that special talent allowing you to be void in another.  As we tell our new partners in our partner-in-training workshops, we are not trying to develop you to be as good as your current senior partners, but rather that the firm is setting a higher bar for them and wanting them to be better than their current senior partners.  The “better” we are describing is for partners to “Do Their Job,” and “Do All of Their Job” not just the parts of it they like.  When people start actually living up to the jobs they hold, the firm quickly jumps to a whole new level of performance, sustainability and profitability.

We are going to leave you for now and pick up the next column on the final points firms need to address to reverse the Upside-Down Pyramid™ and/or the Hour Glass™ models.