Innovation by the Hour

While I enjoy performing research, one of the most rewarding parts of my job is finding interesting solutions to business problems that the research uncovers. The process itself can be at once both stimulating and tedious. You have to enjoy the process, though, because you're not always going to be able to apply solutions you might dream of because budgets, timelines, and narrow-minded thinking might prohibit it.

Here's the dilemma: Agencies typically bill at an hourly rate, not at the rate of innovation. So if in the process of developing and selling a solution that is workable within the scope of the project, you happen to make a highly innovative but simple connection of two disparate ideas that will help you more quickly solve a different problem you might encounter on another project, for another client, to whom does that idea belong, and what can you charge for it?

The Client Owns the Idea
You could make the argument that the company that you billed the time to while you made the discovery owns the idea, but in some cases it was never even presented -- it was just one of the paths you went down when you were looking for something else.

The Agency Owns the Idea
And you can also say that the agency owns the idea, except many times key stakeholders aren't really aware that the idea exists. All they are aware of is the final outcome, which they may or may not be satisfied with, either of which they can usually live with if the client is happy and pays their bills on time.

Plus, since the innovation initially occurred on someone else's dime, the apparent cost may be disproportionate to the time billed on it. Since the idea is far more valuable than the time spent on it (for this project), how can the company in good conscience bill another for an idea when they have agreed to pay based on time spent? (Answer: They can't.)

The Employee Owns the Idea
Companies provide resources and create an environment where connections can be made, but ideas are not promulgated apart from people.

If the idea is that innovative and the employee recognize it, the enterprising employee may look to advance himself by assuming the risks, breaking off to form his own company and sell the idea on the open marketplace.

Or he may use the idea to advance the company for which he works (and his own status within it). This is especially attractive if

1. The person is confident that his company will sufficiently reward him for the innovation and
2. More risk is entailed in launching the idea than he is willing to assume.

Learn, Practice, Practice
Lewis Green includes this anecdote in his email signature. It represents an exchange that allegedly occurred between Pablo Picasso and a patron who commissioned Picasso for a sketch that Picasso quickly executed:

And what do I owe you?" she asked.

"Five thousand francs," he answered.

"But it only took you three minutes," she politely reminded him.

"No," Picasso said, "It took me all my life."

Reflecting on this recently, I started to wonder: In a marketplace where ideas, not time spent, are the chief source of prosperity, why do we bill hour time hourly?

Rather than measure our success by number of hours billed and the rate at which we can bill it, a more telling metric would be to measure the number of useful ideas generated and cataloged per project.

I suspect that the company that established a way to catalog, recognize, reward, and recall such ideas as needed would eventually build a surplus of useful innovations in the course of a project that would benefit them and their clients tremendously.

The Copycat Web
The truth is that ideas are promiscuous anyway, so claiming exclusive ownership of them is problematic. The guy who first called the home page the home page is not living a life of luxury because he collects trademark fees from everyone who has a home page.

Ideas aren't spread because you spent a lot of time on them.

They aren't spread because you bill a high hourly rate.

Ideas spread because they're useful.

So why do we continue to bill by the hour? Maybe because that's the most reasonable accord clients and vendors can reach.

Or maybe it's because we lack the imagination to think of something better. - Cam Beck

Comments

[Lisa Braithwaite]

Cam, Alan Weiss writes and speaks about value-based fees, which I agree make the most sense for those of us who are in coaching and consulting, and I'm working my way there. His book "Value-Based Fees" is on my list. http://tinyurl.com/463yec

[Lewis Green]

Cam,

Excellent! Great questions. I stopped billing hourly about a year ago because I was being dishonest with myself and my clients. I don't offer my ideas or my work in ways that can be measured by an hourly rate, because my clients are getting much more (sometimes less) than an hourly rate commits.

Instead, I sell my integrity, experiences and ideas. Sometimes I would make more charging an hourly rate, sometimes less. And that's because the overall values has everything to do with my client's wants, needs and expectations, which determine value.

In other words, maybe I can meet or exceed their expectations in an hour but the value to them results in thousands of dollars. Sometimes the solution may take hour after hour, but the value of that solution is worth far less to the client than an invoice measured in hours times hourly rate. Shouldn't we measure value based on goods and services (solutions) delivered instead of how long it takes to deliver them?

[Gannon Beck]

Another way around it is if you can productize your ideas. Steve Jobs does this. So did Disney, and Edison.

[Cam Beck]

Lisa - Thank you for the tip on Alan Weiss. I've now added two of his books to my wish list. From what I've seen so far, I'm very impressed.

Lewis - It's an interesting paradox, isn't it? I agree. It's far more beneficial to measure value by results rather than by how long it takes to deliver them, but that takes considerably more thought and work.

Gannon - Yes. That's kinda what I was getting at when I broached the topic of risk. Launching a product requires capital, which must be raised, and could potentially (if it flops) damage a person's reputation, which may impact future earnings potential. This is why I admire entrepreneurs so much -- even the ones (especially the ones!) who fail several times (without defaulting on their loans) before finding the winning combination.

It takes a lot to put it all out on the line like that.

Thank you all for your comments!

[Gavin Heaton]

Cool, this could well be my AoC2 chapter on business models. This is indeed a very useful post, thanks Cam ;)

Seriously though, I don't think it is lack of imagination. I think it is lack of daring. Changing a business model -- especially one that still feeds a business is very risky. That is the dilemma but also the potential.

[Jon Burg]

Wow. What a post! And having played, at times, many of the roles you're suggesting... I would have to side with loyalty.

The bonds between an agency and their client, or an employee and an agency, or even an individual to their own integrity (web 2.0 plagiarists) - are only as strong as the loyalty each party feels towards the other.

In an on demand, at will employment industry, that loyalty is hard to cultivate. And this blurs the lines of trust and ownership.

[Doug Meacham]

Cam, great post! While I can't speak for innovations in the agency world, I can share the view of one the world's largest technology companies. Their position is that innovations created by their employees belong to the company, even if the innovation was created for the client and on the client's dime. Contracts with customers typically call this out althought the client can negotiate joint or total ownership. Employeement agreements also claim ownership for employees' ideas although employees can get their names on patents. These innovations are considered to be company assets which can be charged for at other clients

[Cam Beck]

Gavin - Check it, though. I think it would flunk the word-count test. :)

Jon - Loyalty should always play a role, but we have divided loyalties, and it must go both ways. It's most natural for people to be loyal to themselves only. Self-love is a hard habit to break.

Doug - That is a great perspective. Here's the question I have, though: In that industry, how can anyone prove when or why an idea was developed? I'm sure there are situations where it's easily provable and others where it isn't.

[Jim Stroup]

Cam,

I join the chorus in praising this post.

You cover the ground brilliantly, concluding, as most of us dispiritedly do, that hourly billing seems to be the best meeting ground for price for the parties.

But in doing so you raise the questions in a way that won't let them go away.

Who values the service, or the innovation?
Who is compensated for them?
What if value isn't even clear until later - even much later?
Should we agree, somehow, on attaching relative percentage-value takes to each party regarding such innovations, to be paid for a fixed period of time after the first revenue is realized?
Should contracts include after-the-fact clauses to negotiate such agreements should one entity believe that an innovation falls within the time period of a contract to which it was a party?

Great stuff - thanks!