The American Interest
Analysis by Walter Russell Mead & Staff
How to Think Outside The Blue Box

shutterstock_46470016

Anyone interested in the breakdown of the Fordist model of American productivity and the ideas jostling to replace it should read Adam Davidson’s piece in the New York Times Magazine, “What’s an Idea Worth?” It demonstrates something that we’ve long been observing here at Via Meadia: the industrial conception of how to organize and evaluate work has become obsolete in every service profession from teaching to medicine and law, and new ideas are needed.

The article profiles Jason Blumer, a young accountant who noticed that the factory work template that still shapes his profession is costing both accountants and their clients too much time and money. Among other things, his firm has done away with the hallowed billable hour, which he sees as a hindrance and artifact from an economic age long gone:

Just as Apple doesn’t want to be in the generic MP3-player business, Blumer didn’t want to be just one more guy competing to charge a few hundred dollars an hour to do your taxes. A few years ago, he said, he realized that the billable hour was undercutting his value — it was his profession’s commodity, suggesting to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem, though, was that billing by the hour incentivized long, boring projects rather than those that required specialized, valuable insight that couldn’t (and shouldn’t) be measured in time. Paradoxically, the billable hour encouraged Blumer and his colleagues to spend more time than necessary on routine work rather than on the more nuanced jobs.

But those complex problems were the ones that Blumer wanted to solve, and he also knew his insights were more valuable than the time it took him to conjure them. So he identified a niche — creative professionals who struggled to manage their finances as their start-ups became mature businesses — and he endeavored to help his clients make (and save) enough money that they would gladly pay a significant fee without asking about the hours it took him to figure out what to do. Blumer has been so successful in his approach that he has become a leading voice among a national band of accountants who call themselves the Cliff Jumpers. Many Cliff Jumpers have abandoned the traditional bill-by-the-hour approach to focus on noncommodity accounting solutions for specific client groups. One focuses on entrepreneurs hoping to sell their new businesses; several work with people who are terrified about starting a small business.

As the article notes, the “billable hour” is a concept that came from a 1950s economy where service professionals charged fees by simple, predictable units of time, allowing productivity to be organized and measured “as mechanically as a conveyor belt managed its throughput,” as Davidson puts it.

This is no longer the economy we have—many of these jobs are being done more efficiently and cheaply by computers—yet it’s still the way many of our service professionals think of work. Creative thinkers like Mr. Blumer and others like him will eventually lead us out of the crumbling blue model. A more dynamic, efficient, and prosperous economy awaits.

Read the whole thing here.

[Image of blue box courtesy of Shutterstock]

Published on July 30, 2013 3:20 pm
  • larryj8

    Interesting article. It reminds me of the old story about a retired engineer who’d spent his career at the same powerplant. A year after he retired, there was a major problem that no one could solve, so they hired him as a consultant. He went to the plant, studied the situation for 10 minutes and walked to the control panel. Once there, he flipped a single switch and the problem was solved. A day later, he sent his bill: $1,000. The plant management asked how he could justify $1,000 for 10 minutes of work. He replied, “$10 of the bill was for the 10 minutes. $990 was for knowing which switch to flip.”
    Where applicable, negotiated fees for services make a lot of sense. If I hire a contractor to do a job, after he analyzes what I want done, he comes up with his price. Once we agree on the price, I don’t care if it takes him one hour or one week so long as he does what we agreed and meets my quality expectations. I hired him for a particular service and a fixed price gives him an incentive to work efficiently. Of course, this won’t work for things where the requirements aren’t known or where the results are less tangible but nothing works for every possible situation.

  • SouthwesternSongDog

    This is not a new revelation as far as professionals go but coming up with a substitute that is fair to everybody is not easy. Piece work seems to be OK in medicine, but it doesn’t work in law. Lump sum bids have been tried in law but they amount to a shot in the dark until the work is well under way, especially if you have an adversary. And, expenses seem to be correlated with time rather than productivity.

    The rent, the secretary’s salary, malpractice insurance, are all billed based upon units of time. It’s much easier to match up units of revenue and units of expense when they are both time based.

    Mark me down as a skeptic.

  • kriskanya

    So where does the TARDIS factor into all of this?

  • MichaelKennedy

    After I retired from surgery, I spent a year getting another degree in what may be called health care evaluation. Dartmouth was the pioneer in such studies. After getting that degree, which mostly involved learning methods, I tried to develop another career in measuring medical quality. I figured out some useful criteria but found no one interested. The organizations were all fearful that quality would cost more. I tried to convince them otherwise but finally gave up.

  • aloysiusmiller

    Good luck with this. Most managers are such mediocrities that they are unable to discern quality.