What happened during the early 1900s
within the power industry presents an excellent lesson for firms today about the
adoption of emerging technologies. It also reveals how existing IT strategies
may be inefficient, expensive and difficult to leverage into the future.
As a firm leader, you don’t have to know how to build
the watch, but you should at least know how to tell time. Timing is critical
when considering any trend or industry transformation, and each always has its early
adaptors, late adaptors and resistors. The
Gartner Group refers to this as the hype cycle with five distinct steps:
- Technology trigger – A new technology generates the interest
of the press.
- Peak of inflated expectations – The technology experiences
only marginal success.
- Trough of disillusionment –The technology fails to
deliver as expected, and the press starts to ignore it.
- Slope of enlightenment – Experimentation and practical
applications of the technology reignite interest.
- Plateau of productivity – The technology becomes stable
and evolves into the next generation.
The accounting profession has
typically operated in the later stages of this cycle, but I strongly recommend
that firms step to the front and become industry leaders.
Electricity and the Power Industry
In his book, The Big Switch – Rewiring the
World from Edison to Google, Nicholas Carr offers compelling insights into
the parallels between electricity and computing.
As an inventor, Thomas Edison first
imagined the whole and then built the necessary pieces. Many of you may not know that his accountant
and business manager, Samuel Insull (who joined him in 1881), was ultimately
responsible for the delivery and ubiquity of electricity. Like Edison, Insull was a systems thinker (business
rather than mechanical). In fact, he
often referred to his thinking as "the accountant’s way of viewing things” and was
responsible for keeping Edison’s cash-poor operation running.
In 1892 Insull became President of the
Chicago Edison Company for a third of the salary he was making at General
Electric. He immediately began to acquire
and develop power plants, incorporating them into a utility company from which
consumers could purchase electricity more cheaply than they could produce it
His biggest challenge was to
convince industrial businesses that they should stop producing power and
purchase it from central plants. With
the rotary converter and transformers he was able to incorporate all of his
plants into one system. The demand meter
also allowed him to change his pricing model because it offered a combination
of fixed and variable fees.
Insull was a master on both the
financial and technological levels. He
used marketing and advertising to convince businesses to switch to central
power. He focused first on streetcars
and elevated trains (which comprised the transportation industry at the time). In
1910, there were 50,000 private electric plants compared to 3,600 utilities
producing electricity in the US. By 1940,
90 percent of the electricity in the U.S. was produced by utilities. Industrial businesses reduced their fixed
costs, labor and capital requirements by switching to utility production. Today, few companies produce their own power (except
for backup and emergency purposes).
How does this relate to computing
and what’s happening today? The
accounting profession started to utilize computers in the 1960s with mainframe
service bureaus, expanded with mini-computers in the 1970s and introduced the
personal computer and networks in the 1980s. Throughout the 1980s and 1990s Microsoft and
IBM led in networking and client server computing. During this period Tim Berners-Lee developed
the World Wide Web (1989), and fiber optic cable was installed throughout the U.S.
and around the world. Software was
designed to run primarily on a desktop computer. Microsoft was the dominant player.
Ten years ago, few people would have
predicted that email would become a mission critical application and that
security would be a paramount concern. Apple
and Google have become the technology companies of this decade. Having gained
enormous popularity for its search engine, Google is now also a leading player
in SaaS (software as a service) technology. Apple has focused on the consumer
market, which is now driving business technology. iPhone and iPads are now prevalent in most
businesses and have changed the way end users think about technology and
especially applications – faster, better,
cheaper & easier!
The power of thousands of computers
located in a data center connected by enormous bandwidth will continue to impact
the accounting profession greatly over the next few years. Large firms that have built their own data
centers resisted initially, but smaller firms are embracing these more
efficient, secure and affordable solutions.
The transformation will parallel electricity, but happen at a much
faster rate. Larger, multiple office
firms will ultimately change for efficiency, improved integration and security
Tech Giants Following Suit
Think of Microsoft as Thomas Edison
and Google as Samuel Insull. Microsoft
has been, until recently, interested primarily in selling software in the
client server model. Interestingly, on October 30, 2005 Bill Gates sent a
message to the company’s top managers and engineers titled "Internet Software
Services”. The memo was intended as an
alarm to warn the company about utility computing and the threat to the
company’s traditional business.
Microsoft has responded to the competition and now offers MS Office
Live, SharePoint, CRM and other online applications.
Google’s model is all about sharing
resources. They built The Dalles Data Center
in Oregon close to inexpensive electricity and water for cooling. These centers house thousands of servers
comprised of components purchased directly from manufactures and were assembled
in metal racks using Velcro. The servers
are in clusters and virtualized. Oracle,
IBM, HP and others have done the same.
Microsoft also followed suit with a
data center in Quincy, Washington. Typically
these data centers are connected directly to an international Internet hub. The challenge for all of these companies is
to transform from the ‘Current’ company to the ‘Future’ company. Based on a model developed by economist
Joseph Schumpeter (1883-1950), they risk the downside of a cycle called Creative Destruction. Hanging on to an old business model too long
can result in destruction. No doubt they
could learn a great deal by studying how GE and Westinghouse reinvented
Rethink the future
What does this mean to a 5, 20, 50,
100, 500 or 1,000+ person accounting firm?
It means they should rethink the future and develop a technology plan
that integrates with the firm’s strategic plan, harnessing the ever-increasing
capabilities of the Internet. They should
also review the important lessons offered by the history of the electric
industry. Some of these lessons include:
- Expect resistance to change, especially from larger
firms that have built data centers and staff who may be threatened by a different
- The transition requires time and will progress through
Gartner’s hype cycle.
- Leadership, financial management and IT Governance are
imperative. They must work together.
- The pricing model will change.
- Effective marketing and advertising will be critical
during the transformation.
- Simultaneously managing the current and future firm
will be challenging.
- This requires leadership and different skills.
For some smaller firms, I see the
move to be relatively easy and rather quick.
For mid-sized and large firm the challenges will be greater due to
leadership, control, politics and resistance to change. This could very well be a 5 plus year shift for
many firms. The primary vendors to the
profession will also play a key role with regard to core applications such as
tax and audit software. The availability
of bandwidth and connectivity will also be an issue.
Under the current model the
requirements for an IT specialist in most firms are broader than any one person,
e.g., engineering, planning, communications, help desk/support, networking,
integration, application software and end-user training. In the SaaS model, the vendor will usually
supply engineering and communications specialists. Business analysts will bridge the gap between
the technology and the end user. The
need for a training and learning culture will continue to increase in most
The first applications to which firms typically
move under the utility model are email and document management. Microsoft Office Live is getting significant
attention. Microsoft will continue to be
an important vendor for most accounting firms.
CCH and Thomson Reuters are transitioning their applications. Once in the Cloud, there is better
integration, less friction, improved reporting and business intelligence,
improved aggregation of data and generally improved security. Does your firm have a roadmap? If not, now is the time to establish a
roadmap and budget to insure success.