keynote the firm of the future baker ron PPT
Ron Baker, Founder VeraSage Institute Twitter @ronaldbaker
The Firm of the Future: A Radical Business Model for Professional Firms
“Creative destruction is the essential fact about capitalism. Stabilized capitalism is a contradiction in terms. [Responsible businesspeople] “Prices and quantities only change as the result of know they are standing on ground human action. Where in the world can a new that crumbling beneath price comeisfrom if not a human biddingtheir or asking above or below thefeet.” market price? Supply and
demand curves give us a rough picture of market behavior as an effect of human action, and certainly not the cause of it. No one acts with the into balance.”
1
“Disruptive threats come inherently not from new technology but from new business models.”
Andy Grove, Founder, Intel
What is a Business Model? How your company creates value for customers, and how you capture that value.
From PSF to PKF
2
The Firm of the Past Revenue
=
People Hours
x
Efficiency
x
Hourly Rate
We sell time
Can You Risk a Business Model Developed in 1919??
Reginald Heber Smith, father of the billable hour and timesheet, 1919
3
Four Assertions Growth without profit is perilous
The Market Share Myth
Richard Miniter
Baker’s Law Bad customers drive out good customers
4
Physical Capacity > Emotional Capacity Less customers = More profit
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets
The World Bank: 2006 and 2010
5
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets Effectiveness creates competitive advantage; efficiency is a table stake
6
The Problem with Efficiency
Why?
The Problem with Efficiency
7
The Antithesis of Efficiency • Continuing education • Knowledge management/CKO • Total Quality Service (RitzCarlton) • Mentoring and coaching • Social media • Pricing on Purpose
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets Effectiveness creates competitive advantage; efficiency is a table stake Value Pricing is superior to hourly billing for capturing value
A 1% increase change in, yields 11.0%
12.0% 10.0% 7.3%
8.0% 6.0% 4.0% 2.0%
2.7% 1.5%
7.1%
4.6%
3.7% 2.5%
0.0% - Fixed Costs
+ Revenue McKinsey
- Variable costs
+ Price
AT Kearny
8
1% Increase Price = Increase Operating Profits
1% of revenue = 1%Windfall Current profit
The default purpose of marketing is not to increase sales.
It’s to increase profits.
Innovate for growth.
Price for profit.
9
Warren Buffet
“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets Effectiveness creates competitive advantage; efficiency is a table stake Value Pricing is superior to hourly billing for capturing value
The Firm of the Future Profit
=
Intellectual Capital
x
Effectiveness
x
Value Price
Our customers buy intellectual capital
10
Confusing Cause and Effect
The First Law of Pricing: All Value is Subjective
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Value Price Cost
11
Cost-Plus Pricing
Service
Cost
Price
Customer Value
Value
Price
Customer
Cost
Service
Value-Based Pricing
Eight Steps to Implementing Value Pricing
Implementing Value Pricing Eight Steps at a Glance 1. Conversation with Customer 2. Pricing the customer, not the services (CVO/Value Council) 3. Developing and pricing options 4. Effectively present options to customer 5. Option selected codified into an FPA 6. Proper Project Management 7. Scope creep, utilize Change Requests & Change Orders 8. Conduct Pricing After Action Review
12
Implementing Value Pricing 1. Conversation with customer
Not: “What do you need?” But rather: “What are you trying to accomplish?”
“Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.”
Eric Hoffer, Longshoreman Philosopher
Implementing Value Pricing 1. Conversation with customer
Listen > Talk Opening: “Mr. Customer, we will only undertake this engagement if we can agree, to our mutual satisfaction, that the value we are creating is greater than the price we are charging you. Is that acceptable?”
13
Spiritual Value u Specialist expertise/knowledge u Unique social capital u Brand/reputation u Unique result—creativity & innovation u Reducing risk (Guarantee) u Pleasant experience (MOTs) u Make the Customer “look good” u Relationship u Knowledge elicitation u What else?
Implementing Value Pricing 3. Developing and Pricing Options
14
The Second Law of Pricing: All Prices are Contextual
Behavioral Economics
15
1 Yr Sub
Price
Mkt Share
Web only
$59
Print only
$125
0%
Print & Web
$125
84%
1 Yr Sub Web only Print & Web
Microwave
Price
16%
Mkt Share
$59
68%
$125
32%
Price
Mkt Share
Panasonic I
$179.99
43%
Emerson
$109.99
57%
Microwave
Price
42.8%
Mkt Share
Panasonic II
$199.99
13%
Panasonic I
$179.99
60%
Emerson
$109.99
27%
16.8%
Anchoring
16
$1,000 Omelette
Framing
Behavioral Economics: A new strategic imperative for agencies
Rory Sutherland, President Institute of Advertising Practitioners (IPA), Vice Chairman, Ogilvy, London
17
Implementing Value Pricing 7. Change Orders
www.journalofaccountancy.com June, 2009 Pricing on Purpose: How to Implement Value Pricing in Your Firm November, 2008 The Firm of the Future April, 2010 Project Management for Accountants, by Ed Kless Simon Sinek, www.TED.com
Firms of the Future ¢ Have a clear purpose, strategy, and position ¢ Have made pricing a core competency ¢ Have excellent project management skills ¢ Understand they sell intellectual capital, not time ¢ Only work with customers who value them ¢ Routinely fire low-value customers ¢ Maintain minimum prices ¢ Don’t treat all customers equally ¢ Have appointed a value council and/or a CVO ¢ Have replaced timesheets with Key Predictive Indicators, PM, AARs
18
If you just copy, you will always be behind.
At least 84% of us are copying, not innovating.
Where do profits come from? Land Labor Capital ➽
Profits?
Don’t solve problems; pursue opportunities.
Peter Drucker
19
Thank You! VeraSage website/blog www.verasage.com (707) 769-0965
[email protected] Twitter @ronaldbaker
20
The Firm of the Future: A Radical Business Model for Professional Firms
“Creative destruction is the essential fact about capitalism. Stabilized capitalism is a contradiction in terms. [Responsible businesspeople] “Prices and quantities only change as the result of know they are standing on ground human action. Where in the world can a new that crumbling beneath price comeisfrom if not a human biddingtheir or asking above or below thefeet.” market price? Supply and
demand curves give us a rough picture of market behavior as an effect of human action, and certainly not the cause of it. No one acts with the into balance.”
1
“Disruptive threats come inherently not from new technology but from new business models.”
Andy Grove, Founder, Intel
What is a Business Model? How your company creates value for customers, and how you capture that value.
From PSF to PKF
2
The Firm of the Past Revenue
=
People Hours
x
Efficiency
x
Hourly Rate
We sell time
Can You Risk a Business Model Developed in 1919??
Reginald Heber Smith, father of the billable hour and timesheet, 1919
3
Four Assertions Growth without profit is perilous
The Market Share Myth
Richard Miniter
Baker’s Law Bad customers drive out good customers
4
Physical Capacity > Emotional Capacity Less customers = More profit
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets
The World Bank: 2006 and 2010
5
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets Effectiveness creates competitive advantage; efficiency is a table stake
6
The Problem with Efficiency
Why?
The Problem with Efficiency
7
The Antithesis of Efficiency • Continuing education • Knowledge management/CKO • Total Quality Service (RitzCarlton) • Mentoring and coaching • Social media • Pricing on Purpose
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets Effectiveness creates competitive advantage; efficiency is a table stake Value Pricing is superior to hourly billing for capturing value
A 1% increase change in, yields 11.0%
12.0% 10.0% 7.3%
8.0% 6.0% 4.0% 2.0%
2.7% 1.5%
7.1%
4.6%
3.7% 2.5%
0.0% - Fixed Costs
+ Revenue McKinsey
- Variable costs
+ Price
AT Kearny
8
1% Increase Price = Increase Operating Profits
1% of revenue = 1%Windfall Current profit
The default purpose of marketing is not to increase sales.
It’s to increase profits.
Innovate for growth.
Price for profit.
9
Warren Buffet
“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
Four Assertions Growth without profit is perilous Nonrival assets = more leverage than rival assets Effectiveness creates competitive advantage; efficiency is a table stake Value Pricing is superior to hourly billing for capturing value
The Firm of the Future Profit
=
Intellectual Capital
x
Effectiveness
x
Value Price
Our customers buy intellectual capital
10
Confusing Cause and Effect
The First Law of Pricing: All Value is Subjective
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Value Price Cost
11
Cost-Plus Pricing
Service
Cost
Price
Customer Value
Value
Price
Customer
Cost
Service
Value-Based Pricing
Eight Steps to Implementing Value Pricing
Implementing Value Pricing Eight Steps at a Glance 1. Conversation with Customer 2. Pricing the customer, not the services (CVO/Value Council) 3. Developing and pricing options 4. Effectively present options to customer 5. Option selected codified into an FPA 6. Proper Project Management 7. Scope creep, utilize Change Requests & Change Orders 8. Conduct Pricing After Action Review
12
Implementing Value Pricing 1. Conversation with customer
Not: “What do you need?” But rather: “What are you trying to accomplish?”
“Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.”
Eric Hoffer, Longshoreman Philosopher
Implementing Value Pricing 1. Conversation with customer
Listen > Talk Opening: “Mr. Customer, we will only undertake this engagement if we can agree, to our mutual satisfaction, that the value we are creating is greater than the price we are charging you. Is that acceptable?”
13
Spiritual Value u Specialist expertise/knowledge u Unique social capital u Brand/reputation u Unique result—creativity & innovation u Reducing risk (Guarantee) u Pleasant experience (MOTs) u Make the Customer “look good” u Relationship u Knowledge elicitation u What else?
Implementing Value Pricing 3. Developing and Pricing Options
14
The Second Law of Pricing: All Prices are Contextual
Behavioral Economics
15
1 Yr Sub
Price
Mkt Share
Web only
$59
Print only
$125
0%
Print & Web
$125
84%
1 Yr Sub Web only Print & Web
Microwave
Price
16%
Mkt Share
$59
68%
$125
32%
Price
Mkt Share
Panasonic I
$179.99
43%
Emerson
$109.99
57%
Microwave
Price
42.8%
Mkt Share
Panasonic II
$199.99
13%
Panasonic I
$179.99
60%
Emerson
$109.99
27%
16.8%
Anchoring
16
$1,000 Omelette
Framing
Behavioral Economics: A new strategic imperative for agencies
Rory Sutherland, President Institute of Advertising Practitioners (IPA), Vice Chairman, Ogilvy, London
17
Implementing Value Pricing 7. Change Orders
www.journalofaccountancy.com June, 2009 Pricing on Purpose: How to Implement Value Pricing in Your Firm November, 2008 The Firm of the Future April, 2010 Project Management for Accountants, by Ed Kless Simon Sinek, www.TED.com
Firms of the Future ¢ Have a clear purpose, strategy, and position ¢ Have made pricing a core competency ¢ Have excellent project management skills ¢ Understand they sell intellectual capital, not time ¢ Only work with customers who value them ¢ Routinely fire low-value customers ¢ Maintain minimum prices ¢ Don’t treat all customers equally ¢ Have appointed a value council and/or a CVO ¢ Have replaced timesheets with Key Predictive Indicators, PM, AARs
18
If you just copy, you will always be behind.
At least 84% of us are copying, not innovating.
Where do profits come from? Land Labor Capital ➽
Profits?
Don’t solve problems; pursue opportunities.
Peter Drucker
19
Thank You! VeraSage website/blog www.verasage.com (707) 769-0965
[email protected] Twitter @ronaldbaker
20
