Getting payback from the 'soft stuff'

OPINION: It's 2003, five years after the worldwide merger between Price Waterhouse and Coopers & Lybrand, and we do some client research.

And what's coming out of the market is: "You're great at all of the left-brain-oriented kinds of areas and skills but we'd rather like you to be a bit more user-friendly. We'd like you to give a bit more of yourself as people and, by the way, we're not actually sure that a human capital model that relies on turning over 23 per cent of your people every year is sustainable."

So there we had it: we have succeeded with a potentially difficult merger a lot of mergers don't work, particularly in professional services, because there are a lot of egos around, but my predecessor Robin Hill put all that aside and it worked. But we have this research showing clients like our work, but don't particularly enjoy the experience of coming to see us. And there was another issue the merged firm was exactly the same size as the two component parts had been when they came together five years before. We weren't growing we were staying very much within our comfort zone.

So we embarked on a strategy of redefining the PricewaterhouseCoopers persona. And the only way we could do that was to elevate more of the qualitative, rather than the quantitative elements of client service. We sought to increase the importance of skills such as proactivity, responsiveness, and holding people accountable for the way in which they related to each other. We wanted people to assess their own impact in a meeting not by how quickly they reached a technical solution, but by how good other people felt about that interaction.

It is hard to measure, but the funny thing is that the more research we did and the more we explored the area, the more it became apparent to us that's what our clients wanted. Basically, we discovered that senior businessmen actually expect you to be able to do your job properly; to get things right. But what will make them come back to you and value you, is how they have found the experience. 

For a two-year period we ran a series of personally focused development courses for every person in the organisation. (At that point we had 850 staff, but now we have 1350 a 70 per cent increase in five years.) We had a lot of doubters mainly among our more senior partners when we first kicked this off. 

We started with incredibly simple things, such as personal resilience because everyone who works in the broader client environment gets put under stress and you get on the treadmill and it can be a fairly unrewarding place to be. So we went to a fellow called Sven Hansen. He's a South African who moved to New Zealand and set up The Resilience Institute, which was focused on the combination of medical science and business economics and its relationship with personal effectiveness.

We started the programme just looking at personal wellbeing teaching people about looking after themselves; for example, how to sleep and how to eat.  Most people would say that is a personal responsibility but we took the view if we could persuade each person to become more personally effective, then collectively the organisation's overall capability was going to lift substantially.

It sounds incredibly basic, but the goal was to move progressively from the physical wellbeing of staff to teaching multi-tasking-based work disciplines and then moving into a stage of equipping people to handle the inevitable ups and downs you get in professional and personal life. All of these things had the effect of not only lifting morale within the organisation, but lifting the way people felt about each other and the organisation itself, and the way they treated each other. Our turnover went from 23 per cent when we started, to about 16 per cent now, lower than the industry typically. The best firm within PwC is the British one, where the figure is 14 per cent.

Actually, the figures are even better if you take new graduates out of the mix. We bring in about 200 people fresh from university each year and, of those 200, only about 50 will stay and work their way to more senior levels. But our turnover at more senior levels, people who have been with the firm five years or more, dropped from about 15 per cent to 6-7 per cent. 

At the same time we started growing. Growth depends on several factors and a fairly buoyant market at the time helped a great deal. But we took the firm from 69 to 110 partners in the space of five years. At times we were admitting 12 partners a year, which is quite substantial. (We've just admitted five, which by the standards of the market is something.)

The recession has tested us in the people space. The firm has had to stand up and say "we are going to be different". Coming back to the concept of sustainability, I think when the market turned down about 15 months ago, every business person in New Zealand looked pretty hard and said: "The workforce is going to be too large for the conditions that are coming and we'll have to take some action." You have this conventional wisdom out there that has been largely derived from supply-chain and manufacturing-based organisations to cut early and cut deep and you'll come out in better shape.

We looked at all the work we had done in the people area and came to the view we held a covenant with our people and we would cut back only as an absolute last resort. And that we were actually going to invest  and we are doing this as a practice right now  in our capacity not only because that would equip us for when the upturn did come, but because we had simply invested too much in the good faith and in the sustainability of the organisation to do anything else.

That meant our primary strategic response in the downturn in the people area has been redeployment. When you examine an organisation like ours, we recruit people who generally select a particular discipline: tax, audit or corporate finance, for example. These people, particularly once they have been through the personal development training we have been talking about, are similarly motivated. So the view we have come to  and this would have been much harder with the mindsets within this organisation five years ago  has been we can take someone who is a tax specialist and, with retraining and reinvestment, in six to nine months we can produce someone who can operate competently within corporate finance. Or we can take a transaction specialist, who may have been dealing with mergers and acquisitions, and within six to 12 months of training you can end up with a business restructuring specialist  because essentially they are the two sides of the same coin. But one is in demand in a recession and one is not. It is about managing your portfolio of available skills in an intelligent manner, but doing so in a way that is consistent with the values of the organisation.

Of 1350 people in the firm, we have redeployed about 125 over the last 18 months predominantly in the mergers and acquisitions area and that has included several partners. We have taken partners and staff out of, say, the corporate tax, transaction and audit environment in Auckland and redeployed them into what we see as a growth area in the Waikato, the small to medium-sized enterprise tax environment.

We have also taken a respected and long-standing audit specialist out of our Wellington practice and given him the chance to lead our South Island operation, which has been a challenge for him personally but one he has stepped up to. 

The important thing is we have not made a single person redundant and we have no intention of doing so.  We have not wavered once in terms of this strategy, although we recognise this could see profits go down.

I wouldn't like the headline written around that, but it is one of those things you have to be realistic about. You only have to look at the change from a compound annual growth rate of 12 per cent for the last five years, to growth that is a lot slower this year   about 4 per cent. But it's still growth. Some of our more previously sceptical partners have looked at it and said (and I don't like the term) "this soft stuff works".

*Warwick Hunt is PWC's New Zealand chief executive.

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