Can you implement a 4 day workweek in a billable hours environment?
By Jackson Kerchis (Winter 2022)
In the 30 minutes after my talk on the 4 day workweek’s place in the future of work I had 3 senior leaders come to me with the same question…
“We know we want to do this. Most people of the big agencies are already doing so called ‘summer fridays’ (lite Fridays with a mid afternoon exit). It’s going to be essential if we want to keep top talent from burning out or leaving…
But how do we do this when our model is all about billable hours?”
This article is meant to provide an introductory answer to that question with a business case justification and considerations for how to make it happen.
Two caveats…
First, this is an experiment. You’ll notice what employers across the globe are joining are 4 day workweek pilots (which you can learn more about at workfour.org). A pilot means - “hey we think this is a good idea, let’s try it and see.” So you should absolutely approach this with skepticism and scrutinize the results for your unique business case.
Second, to appreciate the business case for reduced work hours, we must be willing to honestly acknowledge the lack of a perfectly linear 1-to-1 relationship between hours and outcomes. This is particularly true for knowledge workers. If your job is to load boxes on a truck or enter customer orders into a program, it is going to be difficult (but in most cases still possible) to match previous productivity with reduced hours. It would require a corresponding increase in boxes per hour or orders per hour, etc. Of course this calculation depends on the specific situation. What’s far more likely is that there is a not-so-direct relationship between your hours and outcomes. If you’re running a marketing campaign, migrating a technology system, establishing a legal case, or articulating a strategy it becomes rather impossible to break this down into some tangible, discrete hourly unit: marketing ideas per hour? strategic thoughts per hour?
I won’t belabor this point. Andrew Barnes offers compelling research into knowledge worker productivity and reduced work hours in his TED talk. Suffice to say it may be impossible to generate the same outcomes with a 50% reduction in work, but it's not a stretch to imagine doing so with some reduction in work.
The Business Case:
That said, I see three levers through which the 4 day workweek has a positive impact (or even just net neutral impact) on financials.
1. Increase long-term profitability: Drive backend cost savings by not maximizing upfront revenues.
2. Increase effective hourly rate: Employees spend more of their time working billable hours.
3. Increase market share: Improve your value proposition to clients.
Lever 1 – Increase long-term profitability: Drive cost savings without necessarily maximizing upfront revenues.
Author Alex Soojung-Kim Pang offers this general example of how reduced work hours are an upfront sacrifice for longer term savings.
Imagine a law firm where a linchpin partner overseeing three of the biggest cases has a stress induced heart attack at 55 and has to spend 6 months in recovery. This throws the organization into chaos - it’s a scramble. Other partners are maxed out and don’t know the intricacies of the case; junior partners on the case are without direction, the remaining lawyers are already overworked to the max and are barely treading water. It’s a multi-month turmoil resulting in lost cases, lost clients, and organizational disarray.
Now imagine if this same organization had pushed a reduced work initiative and culture of improved work-life balance. Yes, this even resulted in them billing fewer hours on any giving month, which had a material impact on revenue. However, the partner remained engaged and highly effective well into his 60s. And the 6-month turmoil never happened?
Apply this same thought experiment to VP at an accounting firm overseeing several audits or a Creative Director at an advertising agency.
What is the financial consequence?
Frankly, it’s probably not possible to determine a definitive quantitative answer. But we can appreciate the implication. Each of these disasters would cost hundreds of thousands, maybe millions in direct costs and lost revenues. If the firms had reduced work hours, yes they would have failed to maximize revenues. But it begs the questions:
What are the long-term risks and costs associated with chronic over-work? When these long-term downside costs are weighed against the marginal increase in short-term revenue is it worth the risk?
Let’s consider a more concrete factor: retention.
Global HR strategist and former Deloitte principal, Josh Bersin, explains the total cost of losing an employee can range from tens of thousands of dollars to 1.5 to 2 times annual salary.
The major cost factors embedded within turnover cost include:
a. Recruiting costs to hire a replacement (advertising, interviewing, onboarding)
b. Onboarding costs
c. Lost productivity
d. Training costs
e. Cultural impact (e.g., teammates discouraged by loss)
These figures vary based on industry, firm size, and region. Some useful figures come from a research report by online tech community Built-In. Their data suggests turnover costs include $1,500 for hourly employees, 100 to 150% of salary for technical positions, and up to 213% of salary for C-suite positions. Think of it this way: when a $400,000 VP leaves for better work-life balance, it costs the company about $850,000 (and even more if they take clients with them).
The above is from the chapter – “The Business Case for Happiness” in Beyond Profit & Productivity: Putting Positive Workplace Culture to Work. This chapter is available free here.
Beyond retention, there are other financial implications: stress and overwork can have a negative impact on mental health. According to Gallup nearly 20% of US workers rate their mental health as fair or poor – these workers report an average of 12 unplanned absences per year compared to 2.5 for their healthy counterparts. Generalized across the US workforce that amounts to over $47 billion per year in lost productivity.
Chronic stress is not just mental. It taxes the HPA axis which mediates the body’s physiological response to stress. This is known as allostatic load - the cumulative burden of chronic stress on physical health.
Would a 15% reduction in work hours to cut attrition in half be financially worthwhile?
Would a 4 day workweek to improve employees’ mental and physical health increase returns to human capital (HCROI) that outweighed the impact on revenue?
Would a short-term sacrifice be covered with long-term savings?
It’s impossible to say with 100% certainty, but in light of the above points, a long-term increase in profitability is likely.
Lever 2 - Increase effective hourly rate.
My friend Arthur was an Oliver Wyman strategy consultant now working at a top boutique consulting firm. I asked him what his standard week looks like. He says he works about 55 hours - 45 of which are billable.
A few thought experiments here: what if he instead worked 45 hours with 40 of them billable? While you decreased work hours nearly 20%, you only decreased billed hours by 11%. Before, 82% of your hours were billable. Now 89% are billable. From a revenue generation perspective, I’d call that increased efficiency.
Now let’s bring money into it.
Let’s say his firm bills clients $200 per hour for his work (a fairly standard rate in strategy consulting).
In the present state, he works 55 hours of which 45 are billable, generating $9,000 in employer revenue ($200 x 45 billable hours). What is Arthur’s effective hourly rate (EHR)? Well he works a total of 55 hours to generate $9,000 which works out to an EHR of $163.63.
In the future state, he works 45 hours of which 40 are billable, generating $8,000 in employer revenue ($200 x 40 billable hours). His EHR is $8,000 divided by 45 equals $177.78.
Effectively, he is generating $14.15 more per hour - an 8.7% increase.
Now, this all assumes no material changes in client terms. But there is a provocative extension of this point to gravitate towards value-centric fees.
Lever 3 - Increase market share: improve value proposition to clients.
What if, starting from the above context, you were to propose the following to a client: We are piloting a reduced work initiative, we will reduce your current fees 5%, and deliver the same outcomes. How does that sound? A 5% discount for the same value? Okay…
This takes our future state to: remember, the current weekly fee is $9,000 less 5% equals $8,550. But this is now generated through 45 total working hours bringing the EHR to $190.00 from $163.63 – a 16.1% increase.
This is the de facto win-win: increased earning efficiency and a discount to the client. Now, it’s important to point out that this may elicit pushback from clients who are stubbornly used to paying for inputs (time) rather than outputs (value creation). But with that is a valuable opportunity to transform from selling time (an undifferentiated commodity) to value.
But what if there is a persistently stubborn client who cannot tolerate a discount that is not in direct proportion to the reduction in billable hours?
This is where the increased value proposition comes in. What happens if you continue under the same agreement, generate the same outcomes, and bill for a fee of 40 hours instead of 45.
Well you just became 12.5% more valuable to the client. Yes, in the short term revenue for this customer decreased. But the value of the services to the client increased. This makes you more attractive and they are more likely to refer you to others. Competitors are billing 45 hours of fees for what you do in 40. You’re positioned to increase market share and future work.
By improving the value proposition to sell more work to current clients and competitors’ clients; increasing efficiency (effective hourly rate); and mitigating major cost risks to support long-term profitability - there is a strong business case for adopting the 4 day workweek (or reduced working hours generally) in a billable hours environment.
Case Studies: Advertising and Law
Let’s examine a case study – Praytell is a marketing and communications agency with about 200 employees. In 2021 they piloted a 4 day workweek and have stuck with it ever since. They published an eBook case study which I’ll discuss below.
Problems and Solutions
Client service – Praytell leaders point out that the service industry is still the service industry. They realized that while they don’t want to create an “always on” culture - it was important for employees to be reachable in the event of a client emergency.
Team structure and coverage - They elected to rotate the on-call schedule for each team so there would always be employees available on off-days. They suggest reviewing org charts and team dynamics to set clear expectations around availability and coverage.
Imbalance work hours - A final reality is that different clients, and even different projects, will have different demands. Some employees may clock more hours on days in (and on days off). So it is important to create channels and forums to share realities of the pilot’s progress.
Communication and sync – One of the early failures was trying to set up staggered schedules. Praytell leaders found company schedules to be uniform. Instead of a staggered (i.e., 70% of employees working Monday-Thursday and 30% working Tuesday-Friday), have all employees work the same days with certain “always on” functions to ensure adequate client coverage.
Setting expectations with clients - Of course, a major challenge with this is the nuance of expectation setting with clients. Praytell advocates transparency and framing the relationship as a partnership as opposed to a transaction. Get their buy-in early, communicate on-call schedule and availability expectations, and check-in regularly to test how they’re feeling.
Results
Following the first five months of the pilot, 98% of Praytell employees wanted to see the 4DWW become a permanent offering at the agency.
92% of Praytell employees agree that the 4DWW has not negatively impacted the development of their professional skills.
4.7 / 5 Praytell parents strongly agree that the 4DWW improved their ability to balance work and care for their children.
The firm reported no major financial impacts.
An additional case study comes from YLaw - a small law practice in Canada. They shifted to reduced work hours - a caveat being that for lawyers a “4 day week” is really going from like 6 or 7 to 5. They found that after three months, profits were up 30%. That’s due not only to increased performance during the “on hours” but the human capital impact. They were able to immediately improve retention and attract a pipeline of top talent who value the work-life benefits. Here is the report from the CEO, Leena Yousefi.
Considerations and Ideas
Can you implement a 4 day week in a billable hours environment?
Well first, it may be better to frame it as “can you implement reduced work initiatives” in a billable hours environment? Most of the consultants, accountants, agency employees, lawyers, etc. that I know are amongst the most overworked. So it maybe be going from 6 days to 5 or from 60 hours to 50, and so on.
That being said - yes, yes you can.
There are several levers that can drive overall financial benefit through reduced work hours. And there are more case studies every quarter of firms who have tried it successfully. That being said - it is a pilot. So like any process of innovation it should be treating as a genuine experiment in rethinking work.
As we wrap this up, here are a few final notes.
Test everything and have the attitude of an experimenter. It may turn out that the cost savings from reduced burnout and increased employee engagement do not cover the lost revenue. It may be that some unforeseen factor makes it a tremendously positive financial decision. You won’t know until you try - that’s the spirit of innovation and continuous improvement.
Get clear on defining productivity expectations internally and externally at the outset.
Consider switching to fixed fee or value based pricing - are your clients paying for outcomes or your time?
Consider flexible scheduling and the ability to rotate shifts for maximum coverage.
Try educating clients about this decision - a surprising amount may admire such a bold initiative assuming it will not impact your service levels. If applicable, explain how it will actually increase your value proposition (viz. same results, less time).
Monitor how this impacts human capital costs – Are you getting more talent? Are you lowering attrition?
Finally, if you’re an owner or senior leader, how does this impact you and your people personally?