Profit making in 2012 – and why ‘keeping the score’ isn’t the answer

Once your creative business has agreed the remuneration/rate card with your client, the amount of profit you make is largely dictated by some basic factors:

• Estimating the time and subsequent cost for tasks and projects, and ‘selling’ the estimate to the client
• Managing the resources allocated to each task within that estimate

It’s a pretty simple equation – yet I suspect most of us have sat at the monthly management meeting reviewing the results for the month (compiled at significant cost and with great effort) to arrive at the conclusion “most jobs are running way over estimate, we’re just not billing the amount of time our people are spending on jobs”.

The natural reaction is to establish why this is happening so we can rectify the problem. Unfortunately the action/response usually seems to be focussed on identifying the cause of the problem rather than fixing it. We implement significant and complex software solutions that are an elaborate and expensive way of identifying which jobs, and which areas of the business are always running over the estimate. There are a plethora of systems available in Australia to do this, mostly designed by Accountants and most keeping the score really well, identifying which jobs and which areas of the business that are continually blowing out the estimate.

So now we know (by job, by department and by every complex matrix you can think of) where we think the problem is. The next step is to focus on the jobs where the biggest blowouts occurred, so naturally we go directly to the people who worked on the job (the suits and the creative) to ask what went wrong. You probably know the answers that come back:

Suits: “The creative guys just went to town on those jobs. They entered 40 hours on one of them that I only estimated 15 hours, which is just rubbish – there’s no way they spent that much time on it. Creative people are just hopeless with managing their time and money”.
Creative: “There’s no way I could have done that in 15 hours, the client kept changing the brief and the bloody suits just kept rolling over on it. In any case I had no idea they only allowed 15 hours for that, it was always going to take 30 hours even if the brief didn’t get changed 3 times”.

So where to now? We’ve kept the score, we know where the problem is, how do we do something about it in the future?

If we were in a manufacturing business, we’d focus on the production line and analyse each step in the manufacturing process to identify where things are slowing down and taking more time and materials than we can sell when it rolls off the end of the line.

So how do you that in a creative business where the production line is not so clear and where you can’t just pull up a chair and watch what is happening. I guess one way would be to go to every meeting and discussion, starting with the initial meeting where we got the brief, work out how the suit arrived at each component in the estimate, looking at the way the creative people were briefed, and watching the reactions when the client starts making changes when half way through the job. In other words examining the whole process just like you’d examine a production line.

That’s not easy to do. The whole process is fairly fluid and unpredictable and you’re probably so busy doing your own job it’s just not possible to do this. Even if you have the time to do it, what are you going to learn that stops it happening on the next job that you aren’t watching like a hawk?

OK, perhaps the comparison of the creative and production process to an assembly line seems trite and simplistic, but actually it’s not. What you really have is an assembly line staffed by highly paid workers, that is continually breaking down.

One solution is to hire a Traffic Manager, someone in between the Suits and the creatives to watch and control every step. Unfortunately, adding another layer adds another cost that is extremely difficult to recover from the client. Try adding a line “Traffic Management – 6 hours @ $150 = $900” to your next job estimate and see how the client feels about that. Even if they do swallow it – it often just means there is $900 less that they ‘ll pay for the other services (like creative) to get the job done. In the end, the job is worth what it’s worth. The client is often not in the slightest bit interested in how much it costs you to do the job; they just want to feel that the end product is value for money based on the total cost.

I’ve talked to a lot of suits and a lot of creative people about this problem over the years. Without exception they recognise this issue and want to be part of doing something about it. They fully understand that their job security and sense of contributing to the well being of the business depends on them managing time and resources effectively. They WANT to do this better.

I don’t buy the argument that creative people are hopeless with time management and hopeless with managing money. What they do tell me is that they just need the basic tools and information about how long they actually have to do the job. When they can’t do the job in the time allowed they’d like to put their hand up and find a solution. They want to work with the suits to achieve a great outcome within the budget.

Curiously, the business management tools these front office people (creative and suits) are using day to day (timesheet systems as well as spread-sheets and the like that Finance keep putting in front of them) are not actually focussed on giving them the information they need to solve the problem, they are focussed on KEEPING THE SCORE. And most of these systems are so complex and unfriendly that they don’t actually even achieve their objective of keeping the score. You’ve all heard your suits and your creative people say it “I hate that bloody system, I only use it to enter my timesheets because I’ll get my ass kicked if I don’t”. They have the score keepers telling them stuff like “if you don’t do your timesheets you won’t get paid”.These guys are smart. They know damn well that the scorecard (their timesheets) doesn’t actually achieve much at all, other than keeping the score keepers happy.

In my view, the only solution is empowering the suits and the creatives with some simple information and tools that allow them to manage this process between themselves. And I’ve always found that these people are smart enough to do a great job at managing this process – they can do it way better themselves if you get out of the way and let them do it.

Keeping the score won’t solve the problem, in fact the more sophisticated/complex processes and systems you throw at solving the problem, the further you move away from solving it.

Actually you’ve got a great advantage over the businesses that are running an assembly line with relatively low paid people working the line. You’ve got some incredibly smart and savvy people that you can empower to self-regulate and make your business way more profitable in 2012 than 2011. You need to stop keeping the score, give them the tools they need to do it they and then get out of the way and watch it happen.

In the next article I’ll talk about the tools and their characteristics that will make it happen.

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