Summary of Ronald J. Baker's Implementing Value Pricing

By IRB Media

Please note: This is a companion version & not the original book. Book Preview:

#1 The dominant theory of professional firms is that they are built on the foundation of leveraging people power. The theory is that since the two main drivers of profitability are leverage and the hourly rate realization, if each partner could oversee a group of professionals, this would provide the firm with additional capacity to generate top-line revenue.

#2 The We sell time mentality is not simply a wrong pricing strategy, but a flawed business model. It is a valuable accomplishment to point out defects in a theory, but it is also important to propose a better theory, a new business model for the future.

#3 The old business model is suboptimal. I am not arguing that it is not profitable, but rather that it is not the best solution relative to a set of objectives, constraints, and assumptions.

#4 The correspondence principle is what scientists use when comparing two theories. The new theory should be able to replicate the successes of the old theory, explain where it fails, and offer new insights.

• Language: English
• Publisher: IRB Media
• Release date: Jun 2, 2022
• ISBN: 9798822526655

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Insights on Ronald J. Baker's Implementing Value Pricing

Contents

Insights from Chapter 1

Insights from Chapter 1

#1

The dominant theory of professional firms is that they are built on the foundation of leveraging people power. The theory is that since the two main drivers of profitability are leverage and the hourly rate realization, if each partner could oversee a group of professionals, this would provide the firm with additional capacity to generate top-line revenue.

#2

The We sell time mentality is not simply a wrong pricing strategy, but a flawed business model. It is a valuable accomplishment to point out defects in a theory, but it is also important to propose a better theory, a new business model for the future.

#3

The old business model is suboptimal. I am not arguing that it is not profitable, but rather that it is not the best solution relative to a set of objectives, constraints, and assumptions.

#4

The correspondence principle is what scientists use when comparing two theories. The new theory should be able to replicate the successes of the old theory, explain where it fails, and offer new insights.

#5

Selecting the right customers is crucial for profitability. You must be selective about whom you do business with, even though that marginal business may be profitable by conventional accounting standards. Very often the most important costs and benefits do not show up on a profit-and-loss statement.

#6

The billable hour violates the basic economic law that customers buy time upfront, not efforts. Value pricing can be defined as the maximum amount a given customer is willing to pay for a particular service, before the work begins.

#7

Intellectual capital is the knowledge that can be converted into profits. It is the chief driver of wealth, as economists have argued since the term human capital was first coined in 1961. Wealth does not reside in tangible assets or money; it resides in the IC that exists in the human spirit.

#8

Human capital is owned by the knowledge worker, structural capital is owned by the firm, and social capital is owned by no one, though it can be leveraged and monetized.

#9

There is such a thing as negative human capital, negative structural capital, and negative social capital. Not everything we know is beneficial. Think of the IC a thief possesses, which is knowledge in the sense he knows how to perform his craft. But that does not make the knowledge valuable.

#10

Efficiency focuses on costs, while effectiveness focuses on opportunities to produce revenue and change the economic characteristics of existing products and markets. It asks not how to do something better, but which products produce extraordinary economic results.

#11

Efficiency is about doing things right. Effectiveness is about doing the right things. Productivity is about doing both at the same time. There are few, if any, examples of a firm increasing effectiveness by increasing efficiency.

#12

The ratio of output to input is always a measurement of productivity and efficiency. However, it is a conundrum in an intellectual capital economy. We do not know how to measure the efficiency of a knowledge worker, because we do not know how to measure the benefits of their work.

#13

Efficiency is not the same as output per man-hour. It is inextricably linked to what people want and how much they are willing to pay for it. Efficiency is a table stake —the minimum you need to be in the game.

#14

The quest for increased efficiency, especially through inward-looking tactics such as Lean and Six Sigma, has led to a moral hazard. It is encouraging behavior from firm leaders that is driving out creativity, innovation, dynamism, and customer service.

#15

The three factors of production in an economy are land, labor, and capital. Where do profits come from. From