Chief value officer: no firm should be without one.

• Author: Baker, Ron
• Position: PRACTICE MANAGEMENT

Who's in charge of value in your firm? My VeraSage Institute colleagues and I have posed this question to thousands of accountants around the world. We are usually met with a momentary staring ovation, and then someone will inevitably shout, "Everyone!"

Really? What about the economists' "tragedy of the commons:" if everyone owns something, no one does. Therefore, no one has an incentive to protect and maintain the value of the asset in question.

GRADING YOUR PRICERS

Engage in this experiment: Grade the individuals in your firm on their pricing skill as excellent, mediocre or wimps.

Given that pricing is the No. 1 driver of profitability in a professional service firm, why are people who are mediocre--or wimpy--allowed to price? Just because they're partners? If I'm a lousy auditor, you wouldn't let me near an audit engagement. So, why let your sub-optimal pricers continue to handicap your firm's profitability with bad pricing?

Pricing is a policy, and for it to be effective someone needs to own the value and pricing functions, taking responsibility for creating and capturing value. Who is in charge of these functions in your firm?

THE WORLD'S FIRST CVO

If you worked at Ward Wilson, a four-office, 10 partner, 100-team member firm in Invercargill, New Zealand, your answer would be Brendon Harrex, who recently was appointed chief value officer and made responsible for creating and capturing value across the firm.

Harrex, 31, is the youngest partner in the firm and a visionary, who brings leadership to his firm and to our profession. He understands the significance of his appointment and realizes it will change the way accountants think of value and pricing for posterity.

A recent McKinsey study demonstrated that a 1 percent improvement in pricing results in a nearly 12 percent increase in net income, dwarfing what can be achieved with a similar 1 percent improvement in reducing fixed or variable costs, or increasing volume (you can excel at rain-making, but if you bring in that additional work at the wrong price you are simply adding layers of mediocrity to your firm). Other studies put this 12 percent at a 20 percent to 50 percent increase in the bottom line, depending on the industry.

Many Fortune 500 companies understand this and have a director of pricing who oversees a pricing department. UPS has approximately 200 pricers, while Honeywell has 150. These organizations realize they can only cut costs, re-engineer and implement TQM and...