Applying Six Sigma and Lean to professional advisory businesses – FIRST POSTED 20/6/2015

I like what people have been doing in business over recent (and not so recent) years – considering how business can be conducted more effectively and efficiently. Two areas of development are Six Sigma* and Lean**. Working in professional advisory businesses these are concepts you are likely to encounter sooner or later, and both have value. They are often applied together as they are not considered inconsistent, although they have distinct identities. I thought it worth sharing some personal thoughts about them.

It is important to say that Six Sigma developed in the manufacturing sector, and although Six Sigma practitioners will protest that it is equally relevant to the services sector, I have come to conclude that this requires a heavy caveat. In its purest form Six Sigma is a method for eradicating errors from a process by, amongst other things, applying statistical tests to elements of the process which, necessarily, require;

a) sample sizes that are statistically significant, and

b) processes which are largely replicable/similar. This may be true in areas such as banking, or the operation of volume processing centres. In my view it is never true of the kind of ‘full service’ practices that make up much of the professional advisory business market. That is not to say Six Sigma is of no value in these businesses; there are some elements of Six Sigma that can nevertheless be extremely useful in such businesses;

• The concept of mapping a process in order to understand, challenge and adapt the way things are done in some of the more standardised areas of work. This can extend to more sophisticated measures of ‘who does what’ in a process, and ’how much does each step cost/what value does it add’. Any serious process improvement project in a professional advisory firm will cover these elements.

• The twin concepts of ‘voice of the customer’ (VoC) and ‘voice of the business’ (VoB). The former is invaluable in informing the supplier what the customer needs and expects. The latter is the – sometimes challengingly different – view of what is good for the business, including with regard to profitability, and the people who work in it. Many professional advisers have structured (albeit poorly structured!) processes in place for the former. They very seldom deal with the voice of the business in anywhere near so systematic a way.

‘Lean’ is, in my view, a hugely valuable approach in professional advisory firms, and sits well with the elements of Six Sigma highlighted above, and does not require the detailed Six Sigma statistical analysis that I have dismissed for most professional advisory businesses. I set out below some of the key concepts of Lean, with some explanation which will hopefully show a self-evident relevance to the process improvement effort in an individual business;

• Muda (or waste); this must be eradicated and can arise by virtue of (amongst other things) correcting errors leading to re-work, inefficient processes, inappropriate transmission of work from one person to another, or poor control of the end-to-end process, which can lead to inefficient waiting time.

• Kaizen; a process of continual improvement, such that every process can and should be continually evaluated for improvements in time taken, quality and consistency of output, resources used, etc.

• Poke-yoke (or mistake proofing); simply put, identify what can go wrong with a process and put in place steps that will prevent it from occurring.

If a project starts with detailed mapping of the processes currently used in the business, and applies the concepts above, conclusions drawn may be;

1 there are steps that can be excluded as adding no value

2 there is work that can be done by another (cheaper or specialist) resource

3 there is poor end-to-end management of the process, leading to inefficiencies

4 there is too much retrospective (rather than real-time) checking and rework, causing delay and additional costs

5 there is a lack of standardisation of the repetitive elements of work

6 there is no process in place to ensure continuous improvement.

Putting these things in place needn’t take long and needn’t be expensive. Many people set out on process improvement projects however without a clear understanding of the processes in use in the business. They also start out with an assumption that the only things they need to address are resourcing and technology issues (“what is flavour of the month at the moment?”), and that will do. The problem with this approach is that they may be basing changes to the business on false assumptions, and their selected solutions are the most expensive and hardest to implement (and have the longest pay-back period in my view).

A project which is mindful of the ‘helpful’ aspects of Six Sigma and Lean, as above, can deliver real benefits to the business without the pain and cost of extensive IT implementations and resource reallocations…

Worth considering?

*Six Sigma “..is a disciplined, data-driven approach and methodology for eliminating defects (driving toward six standard deviations between the mean and the nearest specification limit) in any process – from manufacturing to transactional and from product to service.” [Source isixsimga.com]

**Lean “..means creating more value for customers with fewer resources. A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste.” [Source lean.org]. Note: much source material here arises from Japanese manufacturing, and is known by Japanese phrases.

Article in Project magazine, July 2014 – FIRST POSTED 11/7/2014

I just walked out of an Agile presentation. Not for the first time. This is getting tedious. Don’t get me wrong, I am enthusiastic about Agile as a potential technique for project managers to use. Sometimes, only an Agile approach will do. So I am certainly not against it. But why do people always feel they have to justify Agile by misrepresenting traditional (waterfall) approaches? The logic seems to be; “Some projects go badly…” …therefore “all projects using established approaches must go badly” …therefore “traditional project management must be ‘broken’”… …”Do you want to buy some Agile?” The way these events go the presenters seem to be evangelising for a completely new approach across the profession (reinventing all aspects of project management to fit in with their new belief system). It would be refreshing if they accepted the strengths of traditional methods, and the limitations of their own approach, and presented themselves as members of the project management profession, rather than as people who appear to want to overthrow it. In fact many projects using traditional project management methods go remarkably well. And in many areas performance is improving. Indeed many projects may not fare so well if Agile were used. So surely the message must be; “Project management is good but we need to continue to get better at it. One way to get better is to understand when an Agile (or other) approach may be appropriate, and know how to use it”. We may then start to look like one profession, and not a collection of competing methods with each new ‘brand’ seeking to undermine the rest.

There is a lot of talk about process mapping – but what does it all mean? – FIRST POSTED 22/7/2013

Process mapping seems to be a good idea, doesn’t it? In a world of sometimes anarchic client delivery, and wide variations in how services are delivered (even where the service is essentially the same) this would seem right. And of course with increased price competitiveness arising in the legal sector, process mapping must be a way to identify inefficiencies, mustn’t it? Well the above may well be true, and the writer believes it is, but this is only half of the story. Process mapping may be necessary for a business to reappraise how it does business, but it is not sufficient to effect the change that the business leaders are looking for. Process mapping is invariably the first step in a process review exercise, one that will lead to the re-engineering of various processes with the intention of;

i) removing redundant processes,

ii) removing excessive iterations and

iii) enhancing surviving processes.

The focus may be on reducing cost of delivery, but it may equally be on enhancing the client experience. The type of solutions arising may well be the creation of process guides and training for practitioners, standardisation of templates, systems solutions including implementation of workflow, and the adoption of alternative resourcing models (centres of excellence, outsourcing, etc). At TPM we have a history of conducting such exercises in the tax business, commencing over ten years ago now when working on the re-engineering of elements of the tax business at a ‘Big 4’ firm. We are finding the same dynamics at play now in the legal marketplace as were driving change in the tax market in the late ‘90s. We will look at three areas in turn;

1 What are the key elements in achieving ‘best practice’ process mapping?

2 If process mapping is an important starting point, what else do we need to focus on?

3 What benefits can the business expect from a change programme driven by process mapping?

What are the key elements in achieving ‘best practice’ process mapping?

I will not set out to give a blow-by-blow account of how to conduct a process mapping exercise here; there is plenty of public-domain information on this already. But it is worth pointing out some of the often overlooked elements that are key to a process mapping exercise.

a) The first decisions to be made are;

* Project scope: Do we restrict the review to a single practice area, or widen the impact of potential process enhancements by looking across multiple practice areas? If more than one area is selected we must make sure those areas can be grouped as having similar characteristics, to enable improvements to be shared across them. Most businesses select a single practice area, initially, although this does restrict their ability to roll out improvements more widely.

* Priority of practice area: Which area(s) should we focus on? In the main, the areas which are ‘hurting’ most, financially, are selected. In the main the exercise of looking at a particular practice area may take a few weeks, and strong indications of areas of focus for the next stage will emerge early on. This will enable quick wins to be identified to generate momentum for more complex changes.

b) Sponsorship: Securing strong sponsorship from the practice area leader, as well as the firm’s leadership, is absolutely critical to the success of such an initiative. Other active sponsors are likely to be functional heads (Knowledge, Finance, IT, HR).

c) Approach, methodology: The approach to take should have the following characteristics;

* Start with what practitioners are doing now. Often a process mapping exercise will start with a workshop-based approach to identify the best practice delivery model. This will produce useful output, but will be deficient in one respect. If you don’t know how matters are being delivered now – and this may be very different in practice from how the leaders of the business think they are being delivered – the ability to change the behaviour of practitioners when implementing the new process will be hampered. In short, if you don’t know what is happening now, you don’t have the starting point for your change programme. The results of current state process mapping never fail to provoke an interesting discussion. Additional benefits to this are that, when it comes to implementing changes, there is an empirical base behind all of the proposals which greatly assists practitioners who are being asked to adopt new processes.

* Obtain full financial records of the matters to be reviewed. It may be possible to closely map micro-processes to cost (time recorded), and thus identify the benefits of enhancements. In some cases very exciting enhancements may prove to be “not worth powder and shot”. In other cases mundane changes may yield impressive results. Again this information will help sell the subsequent changes.

* Be careful not to throw away high value-add processes, in the name of efficiency. Approaches such as Lean and Six Sigma are capable of making big changes to a business, and have been around in manufacturing for decades and so have a strong track record. But professional advisory businesses are not the same as manufacturing businesses. They have unique characteristics and a surprising amount of creativity employed within the service delivery. Consultants not used to legal services may not readily recognise where value is added (and may not know to leave well alone).

If process mapping is an important starting point, what else do we need to focus on?

Once the “as-is” exercise is complete there will inevitably be workshops to identify the areas subject to enhancement, the overall “to-be” process, and those enhancements that are chosen for implementation. That is just the start of what will be a long and complex set of activities. Although a detailed project plan will be prepared, no doubt covering phases such as; design, implementation and benefits measurement, there is another and more important piece of work that needs to be done at this stage. Law firms have a distinctive culture. Lawyers are shaped by their work, as we all are, and equally, the way things have always been done in the past. But it is this ‘past’ that we are seeking to change. So a crucial element of implementation will be to have an effective change management plan, by which we can be assured the behaviour of the practitioners will adapt, and the culture of the firm can be worked with, to ensure the changes implemented are lasting and not undermined by underlying cultural and behavioural issues.

Another area that may need to be considered in this context is the metrics by which the business is managed. If there is an excessive focus on, eg utilisation, and an inadequate understanding of profitability, then changes with regard to resource profiling may not get anywhere, despite the best efforts of the implementation team. It is for this reason that there needs to be a strong senior executive sponsor for the change project.

Other areas critical to implementation will be communication, and the engagement of business champions, or early adopters. These are standard implementation components, but all too often absent in the typical law firm ‘just do it’ culture (this is all too soft and fluffy for many lawyers!). It is also important to bear in mind the importance of any change being partner-led. It is not enough for a partner to say to staff “this is a good thing – do it…”. The rest of the fee-earners need to see partners practicing what they preach.

What benefits can the business expect from a change programme driven by process mapping?

If implemented well, process improvements can make a significant difference to matter profitability, speed of delivery (and therefore client satisfaction), and also employee satisfaction. But implemented well means doing the hard yards of keeping the whole business focussed on the change over an extended period of time, monitoring performance and making adjustments to keep the change happening. This may be a multi-year rather than a multi-month activity.

There is a further benefit that can arise to a business when it embarks on such a programme, however, and this is one that is hardly ever spoken about. This benefit is one we saw in the large accounting/consulting firms in the ‘90s onwards. Once the fee-earner population gets used to a more standardised approach to engagement/matter delivery, and also gets over the significant hurdles of mobilising specialist units and third party suppliers in delivering services to clients, they start to look very different in the client’s eyes. The (legal) supplier will start to look like an increasingly credible support to the client in implementing large and complex projects and programmes of their own. So rather than the legal supplier’s horizons going no further than the legal support the client needs on their, eg, transaction, the client may increasingly view the law firm as a credible alternative to the large consultancies who will routinely set up a project office at the client site to deliver major implementations for the client. And at that stage the scope and therefore the fees can be significantly larger than on the typical engagement.

So the process review, and the process mapping exercise that kicks it off, may just be the start of a transformation of the law firm, and the way its fee-earners present themselves to the client. This may lead to a different sort of offering, and a significant increase in fee potential. Now that must be the Holy Grail of legal services…

Questions for Margaret Hodge – FIRST POSTED 22/5/2013

In the light of the completely unsatisfactory PAC hearings which have resumed over the last week;

1. Do you really expect CEOs of businesses to understand the tax structures put in place in their companies? How much time have you dedicated to getting evidence from Tax Directors of those companies?

2. If it is reported to that the Big 4 are predominantly focussed on compliance, being tax return preparation and compliance support, what basis to do you have for telling them you don’t believe them?

a. If you really believe that the primary reason clients go to Big 4 firms is for avoidance ideas, and otherwise they would go to a local accountant to prepare tax returns, do you understand the complexity of large company corporation tax returns? Do you know any local firms who employ surveyors to assist with capital allowance claims, or engineers to assist with R&D claims, or specialists in financial instruments, banking tax, insurance tax, petroleum revenue tax, etc, etc.

b. Why have you not spoken to other ‘boutique’ suppliers of tax services which are arguably responsible for more ‘racy’ behaviour than the Big 4, and in some cases sell ‘products’ on a near-industrial scale?

3. Do you understand that if a client asks about ‘tax mitigation’ strategies, and has an appetite to take an aggressive stance, that is its decision. Its advisers may reasonably provide examples of avoidance ideas; that is their job. To say an idea has a ‘25% chance of success’ is not to sell to a client an illegal tax structure. It is not illegal until a court determines it is (which it may never do). This is the way legal advice operates, in any area of the law.

4. Have you considered that the primary problem may NOT be the legislation, but the ability of the Revenue authorities to deal with the poor implementation of the intended tax structures? Why do you ask Lin Homer whether she has enough resources to tackle tax avoidance? She was responsible for implementing ‘efficiencies’; what do you expect her to say? Who else in the Revenue have you spoken to? (Surely it is this point that the PAC should really be focussing on).

5. Do you know (in detail) the OECD guidelines, and DT treaty network the UK is signatory to, to enable you to form a reasonable impression of what may and what may not reasonably be done by international groups to comply with tax legislation? And have you considered seriously their obligations to their shareholders?

6. Do you understand the business model of Starbucks, Google, etc? Do you recognise that understanding the business model is fundamental to being able to understand the adequacy of the tax paid in the UK (under current legislation/international protocols)? Did you look at the amount of tax paid by Starbucks franchisees in the UK?

7. Were you not in the House when much of the recent tax legislation was enacted? Were you not paying any attention? If legislators don’t understand legislation, it is a bit rich of them to challenge others on their interpretation of it.

8. The issue of morality in tax (invoked frequently by the PAC) is a matter for the politicians in framing legislation, not a matter for lawyers/advisers in interpreting it.

9. Why criticise advisers who second staff into HMRC to assist with patent box, and who then help clients make use of that legislation. Presumably this is viewed positively by the Treasury in helping attract overseas investors – a key policy issue. The UK is reducing tax rates and trying to attract overseas investment. Much of the criticism of the use of overseas ‘low-tax’ jurisdictions is perplexing in the context of the drift of UK policy to attract increasing amounts of overseas investment. Why not get Treasury ministers to speak to the PAC about policy?

10. If the remit for the PAC is to establish the appropriate use of funds allocated to public bodies, what remit has the PAC to consider the voracity of UK tax legislation? (A point raised by others on a LinkedIn discussion forum, and based on information from the PAC’s own website).

In short, the real issue is about implementation/enforcement, not about morality/avoidance. The current media reports around Google seem to confirm that.

Legal Process Mapping – A Particular Approach FIRST POSTED 20/2/2013

1 Process mapping is taking hold in the legal profession.  And quite rightly.  As competition in the profession increases, and clients become more demanding, as new entrants arrive in the market, so the existing providers need to make sure they deliver services as efficiently and effectively as they can.  The starting point for any process improvement initiative will be process mapping.

2 So what is process mapping?  In short it is a technique to find out how the business operates; what people do, in what order, how they do it and to what end, to ultimately deliver a service.  The service under review may be an internal one (an IT function, HR, or whatever), or it may be front-office – the direct delivery of a service to clients.  My focus is on the latter, but the same conclusions can be applied to all aspects of a business.

3 Traditionally consultancies which operate a process mapping service will normally provide this in conjunction with the promotion and sale of a service; a workflow tool, an ‘e-environment’ tool, an outsourced service, or similar.  Buying a process mapping service only, and taking responsibility in-house for the development of enhancements and solutions to benefit the business, is less common.

4 Consultancies which offer process mapping services will often use a workshop approach to identify processes applied in the business.  In professional services this can prove problematic for the following reasons;

a. The staff who attend the workshops may tell you what they think they do, or what they want others to hear that they do, but not actually what they do!

b. Those staff will be under many client pressures, and may not attend all or any part of the workshop, diluting its output and therefore credibility.

5 An alternative is to suspend discussions with practitioners and focus on file reviews of a small number of representative, recently closed engagements.  These reviews will tell you what actually happens in the business.  This will frequently (usually?) differ from the process which may be presented in internal guidance manuals.  It is also likely to differ from what you would be told in a workshop.  So this approach will enable two conclusions;

a. How different is the work that is actually done from that which is laid out in internal guidelines?

b. How different is the work that is actually done from what may be considered industry best practice? Both are critical to then following up with an appropriate and effective process improvement programme.

6 Process maps are usually presented in linear diagrams which represent activities at nodes, and the input of various players along ‘swimlanes’.  The more detailed engagement review enables a correspondingly detailed process map, with huge amounts of meta-data attaching to the map.  This can show very clearly to business leaders;

a. Those areas of multiple iterations, representing potential inefficiencies, b. Those ‘micro-processes’ that may benefit from standardisation, templatisation, commoditisation, etc,

c. Those areas which may be replaced or significantly enhanced by technology solutions,

d. Those areas which may be ripe for being conducted by a specialist in-house low-cost unit, or an outsource provider,

e. Those areas where it may be appropriate to reinforce training within the business.

7 There are many variants to process improvement techniques, often used elsewhere in business, such as ‘lean’, Six Sigma’, etc.  These are all highly relevant, well established and effective, and have a role to play.  They all arose originally in manufacturing and have in some cases been applied to the service sector very effectively.  I do not consider anything stated above is at odds with the principles behind these techniques.  However some health warnings are appropriate; a. Such techniques have often been developed with clear, repetitive processes in mind.  The processes can be enhanced, but they are established processes nonetheless. b. Professional services are, however, best viewed as a largely creative area of business activity.  Certainly there are repetitive, and therefore ‘commoditisable’, aspects to them.  But they also include a rich element of new solution development; creativity in short.

8 The risk of manufacturing-sourced process improvement techniques is therefore that they are prone to accidentally eradicating the high value elements.  Great care is needed to preserve these elements, even though they stand out on process maps as seemingly inefficient.

9 Here are some simple rules;

a. Use ’process-mapping only’ services where you have capability in-house to develop, source and implement solutions.  Make sure you have strong skills available with regard to change management, implementation methodology, etc, however.

b. Use third parties to bring knowledge of industry (or other-industry) best practice, and process mapping skills.  But don’t take process mapping skills where they are presented only as a means to the supplier then selling you other solutions.

c. Apply detailed, matter-specific, process maps and treat workshop-based approaches with caution.  Workshops can and should be used as a source of subsequent validation and clarification, but not as a first and only step to preparing process maps.

d. Consider established process improvement methods carefully; will they risk destroying the essential value-add elements of your business?

Setting Up A ‘Tax Process Outsourcing Centre’ (“TPO”) – FIRST POSTED 19/2/2013

1 In the mid 2000’s the possibility of providing a tax compliance (tax return preparation) service using ‘business process outsourcing’ (“BPO”) experience was gaining traction.  A more commoditised approach to tax compliance had been on the agenda in the UK tax profession for some years, and had been developed extensively in the USA.

2 The large consulting/accounting firms (‘Big 4’) were interested in this as it would enable them to continue to provide such services to clients, where an increasing trend to fully resource this work in-house was taking hold.  Consultancies wished to keep this work as it provided a strong relationship platform with clients, from which to win higher value advisory work.  A ‘BPO’ type operation appeared to be the answer…

3 My experience was in setting up such a unit for one of the consultancies in the UK in 2007/8.  A BPO organisation may have been the answer but questions remained, however;

a. How to gel the local (UK) front-office with a BPO operation that may be thousands of miles – and several time-zones – away?

b. How to re-orient local (UK) resources away from processing work?

c. Whether to go;

i. third-party, white label, or;

ii. set up a captive unit in-house?

d. Whether to go where the skills were established (eg India), or try a near-shore (and likely higher cost) solution?

e. How to deal with client communications and deal with issues such as benefit-sharing and data protection worries.

4 The decision was made to go third-party, in India.  This was informed by the following factors;

a. An existing arrangement in the US arm of the firm with an Indian supplier

b. A strong desire not to ‘go captive’, with the years of teething problems that this would entail.

5 The presence of likely service organisations in the market (eg in India) was not an issue.  But rather than automatically go for the existing supplier to the US firm, an invaluable ‘supplier-selection’ visit to India was held.  As well as anointing the US-firm supplier, whose scores stood out from the rest, this had the effect of educating some very senior stakeholders, who went on the trip, on “what outsourcing is all about.”

6 Some very significant decisions were made early on;

a. To model, in exhaustive detail, the existing cost of the work

b. To create with the supplier very detailed process maps, showing clearly the interactions of the BPO with the UK client-facing staff

c. To simultaneously implement outsourced corporation tax returns, personal tax returns and expatriate tax returns, to achieve scale in the Indian unit as soon as possible

d. To mandate the use of the unit to all relevant UK client relationships e. To communicate the arrangement to client (with important caveats).

7 The initial ‘mandation’ was limited in the types of clients to be included, and allowed for exemptions where work done in India was unacceptable (because of the nature of the client’s business, concerns about data protection, etc).  The second and third years involved the broadening of the mandated client groups.

8 The communication to clients was decided early on to be open; if a proportion of their work was to be done in India, they should be told.  And if they had a valid objection, they effectively had a veto.  But if there was not a valid objection (there was an uninformed objection about data security, for example) the partner would be encouraged to spend time explaining the position to them.  Given the inevitable challenge “you will be getting it done cheaper so I would like a reduction in my fee”, the partner was advised;

a. Not to reduce price

b. To explain that the UK compliance marketplace was becoming competitive to the point of margins disappearing

c. Not all of the activities would be put into India (only the compiling of the tax return, which leaves much still to be done in the UK)

d. The decision to use a low cost provider effectively just puts the firm back into the position of being able to stay competitive in the compliance business. There were further messages about providing assurance on quality and data security.

9 The issue of security of data is an interesting one.  The security operated by most specialist BPO organisations would put most non-BPO businesses to shame.   Standard practice is to have secure offices (with security cameras and security guards on the door), paperless offices (really paperless!), and to oblige employees to check in mobile phones (which have cameras of course) at the door, leaving them in a locker.  Also the computers used have disc drives removed and USB ports deactivated.  Website access is restricted.  The only way to take data out of the facility would be by having a photographic memory.

10 Staff quality was a critical concern for many.  However, having spoken to staff in BPO organisations during the supplier-selection visit the quality of the Indian recruits was not in doubt; all have degrees, mostly work-relevant, and many have MBAs.  Given a narrow brief the work produced was of a very high quality within a short period of them joining the business.  However our ambition went even further.  All the Indian recruits were brought to London for a few months to train at the firm’s business school up to ‘Chartered Tax Adviser’ level.  This also gave them and their UK colleagues the invaluable opportunity to get to know each other.  This was an expensive option, but paid dividends once operations started.

11 There is much discussion in BPO circles about cultural issues.  It is observed by many – including those in India – that Indian employees are more compliant, and have lower expectations.  They challenge less, and are inclined to work to completion of a phase of work without ensuring that they have a comprehensive grasp of the brief.  We found all of these observations to be valid.  Once aware, of course, you can;

a. Ensure that the brief given is very clear (much more than you would do for a UK employee, for example), and encourage questioning before work starts.  Much work should be supported by comprehensive guidance of course.

b. Enjoy the fact that the staff in India are likely to be much less needy/demanding than those at home, and will not require higher level work and wider experience.  The quality of the work done will be higher!

12 We found that this process was enhanced by having UK secondees in situ in India to act as local technical/service ‘interpreters’, dealing with queries on both sides, and supporting local managers.  Again this increased the cost but made a real difference to the effectiveness of the service.

13 A comment that is often made is that staff churn is very high in India, leading to higher costs and variability in quality.  This may be generally true but was not our experience.  Our supplier believed in developing staff, through grades to manager level, providing a career incentive to stay (rather than shop in the market).  They set up in Bangalore which was at the time arguably less competitive than Delhi, but by the time we engaged with them this was already changing.  Nevertheless we took some comfort from the fact the supplier’s churn was less than ours in London!

14 A final, but important, point should be made about implementation.  I was at the time running a specialist implementation team and we decided to take control of the implementation process ourselves.  This bucked the trend as in most cases the supplier will be responsible for implementation.  We planned comprehensively and policed implementation hard.  We managed full implementation over a period of several months, as planned.  The supplier was very happy with their subservient role in implementation, and – given the likely alternative implementation managers – we did not regret our decision.

Tax Outsourcing – Some Recollections – FIRST POSTED 18/2/2013

1 These recollections arise from the early ‘90s – at which time there was very little outsourcing experience in the sector.  (By this I mean long-term ‘handover of responsibilities’ to a supplier, rather than annual return preparation support, which was the norm).  They have been prompted by a number of discussions on the same topic, to which these experiences are still relevant.

2 There were possibly only two major tax outsourcing jobs in the UK at the time; both with large ‘utility’ clients.  Big 4 firms (as they would be now) providing the services in both cases.

3 This was considered at the time to be the ‘next big thing’, and the provider firms were very keen to invest in this area.  However the trend did not come to pass for a long time…

4 The jobs were keenly priced, but in fact still seem to be quite optimistic by today’s standards.  They tended to be negotiated for 3-5, years in duration.  The clients were keen to see the contracts limited to the lower end.

5 The focus was on corporation tax return outsourcing, but my experience involved a contract which extended also to some limited corporation tax advice (via a helpline), CT61 preparation, PAYE returns and (helpline) advice, VAT (helpline) advice and support with Intrastat returns.  Also annual tax training for client personnel was included (some organisational self-interest here as it reduced the ‘garbage-in, garbage-out’ principle applying to source data for the returns).

6 It is difficult to appreciate now but the technology issues were both very exciting but also very new and primitively implemented.  Examples are;

a. Establishing a secure (fixed) link to client accounting systems for accounting data mining

b. Establishing an internal client telephone link for the Helpline services

c. Establishing a direct client email link (very innovative in the early ‘90s, and done via a cable ‘X400’ connection)

d. All team members provided with a laptop with remote access given their increased mobility between client and home offices e. Starting the process of developing a ‘bridging tool’ to establish automated return preparation from source data.

7 This latter point is interesting, and sucked in lots of internal ‘consulting’ time to develop the tool.  The technical specialists were extraordinarily committed and helpful, and the solution reasonably effective given the constraints of technology at the time (and some ‘smoke & mirror’ presentation, hiding rather more manual intervention than was admitted).  But the firm was not minded to view their input as development time for the business generally, thus impacting recoveries; a short-term view, as it impacted the perceptions of the viability of outsourced work as an income stream.

8 The risk issues arising with regard to the technology are also interesting.  Not only was direct access to client systems either foolhardy or representative of a courageous faith in the firm’s own security, but helpline (and particularly email) contact cut across existing internal risk processes and scared the ‘risk’ community to bits.  Strange to say, in those days one did not communicate with a client on substantive issues other than in writing with several sets of initials on the file copy.  But we worked through the concerns and developed a protocol which was no doubt subsequently followed by others.

9 This takes us on to ‘risk transfer’.  It is not possible to provide a profitable ‘processing’ service without taking some risk.  If there were no risk it would simply constitute a data transfer by means of technology with no human intervention and complete client control over the system logic – the kind of thing that would be developed in-house.  But where there is a provider they will be expected to underwrite their system and provide judgement (effectively advice).  Professional service providers give advice that is frequently (usually?) ‘gold-plated’ and comes at a great cost because of the people used and the quality assurance processes required.  We chose to use existing tax staff for the contract (rather than hire in para-professionals), and to not seriously challenge our internal quality processes.  We therefore suffered a high risk of cost overruns against the contractual fixed price work.

10 The other failing of professional advisers is to give away services (freebies, designed to impress and tie-in the client, but which rarely achieve anything of the sort).  We were guilty of this and started the engagement with some of these costs which had the result of demoralising the team as the initial recovery projections against budget were poor.

11 Given the combined impact of the technology investment, the freebies, and the inevitable quality premium, the ultimate impact on the 3-year budget was not so significant as it might have been.  The contract was profitable (just), and many such jobs will have been priced since at a rate similar to that which we achieved.  And without having all of the investment time we had.  There are some significant points here; a. The team stuck together (in adversity) and suffered little churn, which would have been expensive, and worked enormously hard to make it work b. We had initially broken down the work done in great detail and done very complex budgeting of each task in advance (and monitored accurately and frequently against budget) c. We had the foresight to re-budget half way through and were able to show motivational improvements in the second half d. We enjoyed add-on advisory work at higher rates which helped prop up the ‘commodity’ contract work.

12 Was it a success?  In terms of development of skills and capability, of the firm and individual within it, it was.  For the client?  I think it was; they were able to in-source a service at the end of the contract which was both slimmed down, semi-automated and much easier to manage as a large number of issues had been resolved.  This of course has a downside for the supplier firm, who may be expected normally to look to the contract renewal to establish a firmer margin/profit to pay for the inevitable first contract investment costs.

13 This was, in hindsight, a great and career enhancing experience.  Much of what we learned then had a huge impact on our ability to respond to future business challenges, including managing client projects and establishing processing centres for clients and in-house.  What is fascinating to reflect on is how other areas of professional services are still at a very early stage on a similar journey (the legal profession springs to mind)…

UK corporation tax debate (post-Starbucks ‘revelations’, October/November 2012) – FIRST POSTED 13/11/2012

“Why can’t journalists and politicians be bothered to find out the facts?”

  1. UK business taxes (income tax, corporation tax) are based on profits not turnover.
  2. ‘Profit’ and ‘turnover’ are very different, guided by standard accountancy practice and principles. A measure of profits depends on many things, including the deduction of expenses arising.
  3. Profits for accounting purposes are different from profits for tax purposes (there are thousands of pages of tax statute and precedent dictating ‘adjustments’ to be made to accounting profits to arrive at profits for tax purposes). That is why there is a huge industry of tax specialists, most of whom are focussed on compliance activities.
  4. Where companies choose to put their valuable intangible assets (eg brand, image, copyright, intellectual property or whatever) in a subsidiary in a particular country, the trading entities elsewhere need to pay for the use of that asset.
  5. Where a company is funded by a group company in another country (instead of by a bank) it may pay interest to that company.
  6. All developed countries have statute which determines a commercial level of payment that may be made cross-border for, eg use of intellectual property, or interest. Fiscal authorities liaise closely on these issues.
  7. Where a company states that its activities in a country are profitable it may be ‘attaching’ to that measure of profit those profits paid out to other subsidiaries for use of brand, by way of interest, etc (ie. that ‘profitability’ may not survive to the bottom line of the particular subsidiary).
  8. Companies have an obligation to maximise value for their shareholders. Companies do not have a moral obligation to pay more tax than they believe is due.
  9. Companies have a right under long established case law to arrange their affairs so as to minimise the tax they have to pay.
  10. There is no clear definition or description of the distinction between ‘tax evasion’ and ‘tax avoidance’. HMRC’s attempts to develop concepts such as ‘unacceptable’ or ‘aggressive’ tax avoidance have not moved things forward.
  11. The press has focussed on the moral issue relating to tax payments (particularly related to large foreign owned groups). The only way the issue can be resolved is by returning to the legal aspects.
  12. The frustration of the public (and press and politicians) about the low level of tax paid in the UK by some groups is almost certainly mirrored by frustration of senior HMRC officials that they are not given the tools to deal with the issues arising. They want to increase the tax take from foreign owned companies. It is their job.
  13. The tools they need include resources (people), and tighter legislation. They will undoubtedly provide the Treasury with recommendations on the latter in advance of each Budget. The political judgement may be to not follow these recommendations.
  14. It is surprising to hear politicians calling to account officials from HMRC and from large companies to explain their implied poor performance in providing tax revenues to the public coffers. The answer to this poor performance should lead to a reflection by government on what legislative programme it wishes to support. Conveniently for government, journalists have chosen to stay in the politically convenient ‘moral’ space.
  15. Companies do themselves no credit by defending their tax ‘performance’ on the basis of taxes they merely collect for government and are not a real cost to themselves (VAT, payroll).
  16. The ultimate conundrum in a global economy is;
    1. If we tighten our tax regime we may get it wrong and drive commercial activity away from our shores.
    2. Our alternative is to create a low-tax economy that attracts the intellectual property to this country, and leaves the hand-wringing to those in other high tax countries (ie a chase to the bottom in terms of tax rates).
  17. The real issue is whether politicians can elevate this debate and explain their policy choices in terms of a. or b. above.

Legal Process Reviews – FIRST POSTED 15/10/2012

Legal Process Review:

There is an extraordinary amount of interest in legal processes at the moment. Law firms are anxious to protect/enhance their competitiveness and profitability by ensuring they are at or close to best practice across their businesses. Here is a checklist to see whether you need to do more work in this area;

1                     Have you conducted a review of back office (supporting or enabling) processes in your business; eg risk, file opening, knowledge.

2                     Have you conducted process reviews to identify processes employed in key practice areas? If yes, have you then embarked on process enhancement projects?

3                     Have you considered ‘matter management’ and generic developments you can make to up-skill your lawyer population?

4                     Have you identified software support in the areas of collaborative working and workflow?

5                     Have you identified processes that are suitable for outsourcing to specialist providers, or to put into a captive processing centre? Have you then implemented an LPO/captive strategy?

6                     Have you implemented a process-oriented continuous improvement programme?

7                     Have you moved your business to the next stage of process improvement; the development of client offerings to reflect the greater capability/capacity in your organisation as a result of the above?

If you haven’t started or contemplated all of the above, you may be falling behind your peers.

TPM

October 2012

Project Management Truths – FIRST POSTED 19/7/2012

Sponsors Never underestimate the ability of senior management to buy a bad idea and fail to buy a good idea. Nothing is impossible for the person who doesn’t have to do it.

The project manager Everyone asks for a strong project manager – when they get him they don’t want him.

The most successful project managers have perfected the skill of being comfortable being uncomfortable.

The most valuable and least used PHRASE in a project manager’s vocabulary is “I don’t know”. The most valuable and least used WORD in a project manager’s vocabulary is “NO”.

There are no good project managers – only lucky ones. The more you plan the luckier you get.

Successful project management is spotting the projects that will succeed and shouting “Mine” and for the rest ducking and shouting “Yours”.

Definition At some point in the project you’re going to have to break down and finally define the requirements.

If you don’t know where you’re going, any road will take you there. Scope (creep)

At the heart of every large project is a small project trying to get out.

There is no such thing as scope creep, only scope gallop.

Planning

If you fail to plan you are planning to fail.

The nice thing about not planning is that failure comes as a complete surprise rather than being preceded by a period of worry and depression.

A badly planned project will take three times longer than expected – a well planned project only twice as long as expected.

People make a plan work; a plan alone seldom makes people work.

Planning is an unnatural process, doing something is much more fun.

Planning without action is futile, action without planning is fatal.

Estimating

Any project can be estimated accurately (once it’s completed).

Estimators do it in groups – bottom up and top down.

Good estimators aren’t modest: if it’s huge they say so.

The person who says it will take the longest and cost the most is the only one with a clue how to do the job.

The same work under the same conditions will be estimated differently by ten different estimators or by one estimator at ten different times.

Budgets & costs

The more ridiculous the deadline the more money will be wasted trying to meet it.

Change Control

A change freeze is like the abominable snowman: it is a myth and would anyway melt when heat is applied.

Anything that can be changed will be changed until there is no time left to change anything.

If project content is allowed to change freely the rate of change will exceed the rate of progress.

No project has ever finished without a variation to schedule, budget, or the requirements and yours won’t be the first to.

Resources It takes one woman nine months to have a baby. It cannot be done in one month by impregnating nine women (although it is more fun trying). It’s not the hours that count, it’s what you do in those hours.

Risk Management

A little risk management saves a lot of fan cleaning.

If you don’t attack the risks, the risks will attack you. Quality

Why plan? The bitterness of poor quality lingers long after the sweetness of meeting the date is forgotten.

Fast – cheap – good: you can have only two (one for lovers of the ‘magic triangle’).

Stakeholders A user is somebody who tells you what they want the day you give them what they asked for. A user will tell you anything you ask about, but nothing more.

The user does not know what he wants until he gets it. Then he knows what he does NOT want.

Communication A problem shared is a buck passed.

Bad news does not improve with age (act on it immediately).

A verbal contract isn’t worth the paper it’s written on.

What is not on paper has not been said.

“I know that you believe that you understand what you think I said but I am not sure you realise that what you heard is not what I meant!”

Of several possible interpretations of a communication, the least convenient is the correct one.

The conditions attached to a promise are forgotten, only the promise is remembered.

When all’s said and done a lot more is said than done.

Metrics & data If you can interpret project status data in several different ways, only the most painful interpretation will be correct. Metrics are learned men’s excuses.

Some things that don’t count are counted, many things that do count aren’t counted.