Getting the know-how out of the heads of your staff

Warning: Steve Nye says professional services firms can’t compete if they continue pricing jobs on an hourly basis Jim Rice

If manufacturing can leave Australian shores for cheaper locations, so can professional services, Steve Nye warns.

Nye, engineering consultancy MWH’s managing director for government and infrastructure in the Asia-Pacific region, says businesses such as his have to change their way of operating beyond the current practice of quoting per hour for jobs.

“At some point, professional services are going to go the way of manufacturing and that’s a scary proposition,” he says.

“If we continue to compete on an hourly basis, it’s going to lead to the death of the engineering industry globally.”

At an average cost of $94,000, an Australian staff member is more expensive than one in MWH’s Colorado headquarters in the United States – where the figure is $90,000 – and much more so than in India, where Nye says the average staffer is paid just $10,000.

He says there is a way to do things differently. Firms need to record the intellectual property that is in the minds of the professionals they employ and store it in ways that can be used by others in their organisation. The problem, he says, is that many people in the industry – even some of his own colleagues – see such an initiative as a threat.

The trick for firms such as MWH, Nye says, is to codify the knowledge that now lives only in individuals’ heads and transform it into techniques or processes available to the company as a whole. As an example, he gives the calculations a process engineer might have developed over a period of time to apply to water treatment plants. “A lot of these guys have developed individual calculations, spreadsheets, to model how a treatment plant will perform,” he says.

“They’re tools they hold closely to themselves on their PC and they don’t share them widely. But if we want to be sustainable in this world, we’re going to have to leverage our intellectual capacity, not hoard it.”

By taking knowledge out of the heads of professionals and codifying it into a form that can be used by their colleagues, firms will be able to work more cheaply. They will benefit from the greater productivity that comes from not having to start each job from scratch, Nye says.

“In the future, there’ll be a consideration of space and a much more codified ability not just to start a job with sources cobbled together from around the world but there’ll be modules, signature pieces of that work, that are bundled into a solution, rather than engineering from scratch,” he says.

“If you’re able to start jobs at 30 per cent complete, you have a head start. If the 100 hours (that might be quoted for a job currently, for example) are turned into $100,000 [and] you’re able to start it 30 per cent complete, you might be able to bid at $95,000 because it only costs $70,000 to do the job.”

Of course, what sounds great to a manager may come across differently to a worker. Nye says he is simply trying to find a way to value his company’s intellectual property. He says it already values intellectual capacity – as demonstrated in the salaries he pays his staff – but not the intellectual property that would exist if those professionals codified their knowledge into tools, templates or signature designs that could be used by someone else in the organisation.

Every firm needs to protect its own intellectual property, “sometimes”, he says, “potentially from the individual who wants to hoard it”. Not surprisingly, the notion faces resistance.

“We grow up holding these professionals on a pedestal,” he says. “Their substance was predicated on their intellectual capacity. We’re saying: give it to us so we can find it, protect it, exploit it. That’s a huge threat to them.”

The implications of what Nye is advocating for MWH echo around the world, including in its Australian offices.

“It’s still not well understood,” he says. “Some folks in Melbourne and Sydney see all these initiatives as internal outsourcing. They say: ‘You want to maximise profit by shipping work to low-cost locations.’ That’s not our only motive.”

Nye says codification of intellectual property would free senior staff to work across a wider range of projects than they are able to do now. It also implies changes in the way young engineers are trained. If the lower level jobs on which entry-level engineers traditionally have cut their teeth as a prerequisite to learning advanced skills are all performed in a lower cost jurisdiction such as India, allowance will have to be made so that young Australians can still learn the basics.

“Maybe we’ll have to send graduates to India to learn lessons and skills that they can come back and apply in Australia,” he says.

MWH has opened a division in India, the Centre for Consulting Innovation, which functions solely for the purpose of helping anybody in the company capture and codify intellectual property.

While many people in the consulting industry will feel threatened by the changes, the profession has no choice, Nye says. Clients know how much projects cost and firms cannot compete on hourly costs alone. They, along with the firms themselves, will need to start doing things differently.

“We need to engage our clients and sales force in this,” he says. “Going in in a much more sophisticated way and getting clients used to the fact that we want to change the way they procure our services they can get a better result – a competitive outcome, effective outcome. That could translate into spending less or getting more for their buck.”

But it is not a strategy that can be resisted.

“This is a much smaller threat than doing nothing,” Nye says.

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