Ron Baker has an interesting pair of articles in his guest spot at the [non]billable hour in which he presents the underlying problem that he has with inordinate focus on the billable hour at law firms: The Firm of the Past and The Firm of the Future. He talks about a problem that is familiar to anyone who uses efficiency as their primary measure: it severely inhibits growth. He also presents some good arguments on a path out of this situation.
Ron details the ill effects of using efficiency as a prime measure in law firms. It has similar ill effects everywhere else too. Resources, be they people or equipment, used to "full capacity" creates inflexible organizations that cannot respond effectively to changes in the marketplace or plain old Murphy. I also like that he mentions historical utilization numbers (another efficiency measure): the statistics have remained relatively flat over 50 years, even with the inclusion of computers and other technology.
A business doesn’t exist to be efficient. It exists to create wealth for customers. The relentless focus on efficiency is misplaced in a knowledge environment, where we do not even have proper metrics to measure the output of a knowledge worker, let alone to value it. Yet we cling to our 100+ year-old metrics––designed for manual laborers––because they give us a false sense of security.
From a Theory of Constraints perspective, Ron presents many of the arguments (assumptions) people use to measure success based on efficiency. All decisions for increasing revenue are based on hiring new intellectual capital (people) when the system hits the maximum efficiency that each member can reach. Ron suggests that very little thought it made around making the existing resources effective in what they are doing. (For some fun with this, have a look at Kelvyn Youngman's website with the classic P&Q example.)
Ron then move on to a suggestion for a better theory of management, based on effectiveness of the intellectual resources at hand. In manufacturing organizations, the change is to move towards effective utilization of the constraint. Effectiveness is measured by delivering what your customers want, when they want it. It has little to do with how many hours you spent on the project.
I'd like to see one more thing in Ron Baker's discussion: suggestions about how to move from "the firm of the past" to "the firm of the future." How do we cause this change? In manufacturing and supply chain management and project management, TOC creates a set of strategically-placed buffers and a mechanism for managing those buffers to ensure effective operations. These ideas apply equally to professional services.