Accounting firms generally are not who you think of when you
yet many firms
excel at innovation and there is a pattern
to their success. Innovation is directly
linked to growth and not an epiphany like many think; but rather a process that
combines hindsight, vision and insight. The accounting profession is going through
significant changes and I am often told by firm leaders they just don’t have
the next generation of leaders in their firms.
In many cases there is validity to their statement and a better
understanding of innovation and how firms get into this situation can help
firms take the necessary steps to balance between "discovery” and "delivery”
skills. Discovery skills focus on new
opportunities, trends and creativity while delivery focuses on execution. You need both, but the tendency is to focus
Mature and typically
declining firms are dominated by people with excellent delivery skills, but
often lack the proper balance of discovery skills. Typically one or more firm founders were
entrepreneurial and tended to hire people for their delivery skills and not their
discovery skills. As a result, many
partners and managers don’t know how to think about discovery or give enough
value to the importance of innovation.
Accounting programs teach people delivery skills while most experiences
and on-the-job training also focuses on delivery and execution. In fact, many of the discovery skills are
viewed as nonproductive – more about that later. I believe innovation or lack thereof can
explain some of the frustration and what firms must do in order to develop the
next generation of innovative leaders.
Let’s look at two
different types of innovation and then how the most successful firms are
modernizing their practices to meet the needs and wants of their clients.
Accounting majors are taught the rules and regulations of the profession in
school and throughout their careers.
This is not a negative, but rather a fact as their perception is often
different than those with different training and aptitudes. Upon graduation, most accountants going into
public practice start in audit and/or tax.
This has been the traditional approach and is the primary reason most
innovation in firms is directional
innovation. Directional innovation
tends to improve a service in fairly predictable steps with a well-defined
dimension or goal. The majority of
innovation is directional and is accomplished through increasing levels of
expertise and specialization (delivery skills).
This is a low risk approach and one with which many CPAs are comfortable.
There is nothing wrong with directional
innovation, yet it is limiting due to the fact most of the participants are
looking at the problem from the same perspective.
Darwin John, former
CIO at the FBI, once said "if two of you have the same opinion, then we don’t
need one of you”. This may be a bit
extreme, but the point is that for real innovation (discovery) to occur it
requires multiple perspectives. This is
often called intersectional
innovation where multiple disciplines meet in the attempt to solve a problem or
improve a solution. From my experience
in the CPA profession, two areas within firms that have been responsible for
innovation over the past 20 years are firm administration and technology. Leaders in these areas have been attempting
to bring the silos together and improve performance through improved communications,
efficiency and effectiveness.
One step in entrepreneurial innovation, and the one leadings firms
are focusing on, is intersectional innovation or client centric innovation. It not only involves the client, but his multi-discipline
advisors. This can be difficult due to
egos and personalities, but the CPA is the most trusted business advisor and
should take his or her role seriously by acting as the quarterback when it
comes to innovation and improved client services. While many CPAs were trained to be rugged
individualist (focus on delivery) and solve the client’s problems on their own
or with a small team, that approach no longer meets the needs of a majority of
Today, clients are
looking for faster, better, cheaper and easier solutions forcing firms to be
innovative and sensitive to clients’ wants and needs. The capturing of transactions is becoming a
commodity with new technology and the ability to aggregate and integrate
information via cloud based solutions.
In the past tax return preparation has involved a significant amount of
time (fee) in aggregating data while technology has automated the calculation
and processing of the return. In other
words, the CPA is now caught in a situation where the services they are
offering are diminishing in value (commoditization). Part of this is due to technological
innovation and part is due to the pricing strategies used by the majority of
firms (hours times dollars-labor theory of value).
We are living in a connected world and someone is making those
connections. As the trusted business
advisor it should be you, the CPA, and your firm. The people making these connections tend to
be professionals who excelled in one field, but learned from others. This describes many CPAs and why they are the
most trusted business advisor. Formal
education increases the probability of attaining creative success to a point
and then actually reduces the odds. A
key to prolonged success throughout ones career is lifelong learning and
multiple experiences. It makes sense to
spend time on a variety of projects if you wish to develop fresh and
groundbreaking ideas. The value comes
from being able to spot trends and then integrate what you already know. This requires curiosity and an interest in a
variety of things. Innovators don’t
produce because they are successful, but they are successful because they
innovation while too much expertise can create barriers to innovation. Innovation requires a balance. More good ideas come when working in a group
than when working independently. The big
question becomes: what can and should firms do to promote innovation at the
intersection? As I said earlier in the
article, innovation occurs with vision, hindsight and insight. By looking at the current generation of great
firm leaders we see several characteristics that allowed them to be
innovative. Let’s looks at a list of the
most important discovery characteristics.
- The ability to connect and associate different perspectives
(clients, multiple advisors, trends, technology and etc.)
- The ability to question the status quo.
- The ability to hold
self and others accountable.
- The willingness to
participate in "safe haven” meetings with peer leaders.
- The ability to manage,
not avoid risk. The quantity of new
ideas improves the quality. Create the
environment to promote, not stifle innovation.
This list may not seem important to those who focus only on the delivery
side. Firms must be cautious not to
swing the pendulum too far toward the delivery or discovery skills. Both skills are required, important and
cannot be ignored. Success today
requires a team. The team should involve
younger members who are capable and expected to challenge the status quo or
strategy which has often been developed and implemented by senior leadership.
The fact is most
large organizations generally fail at disruptive innovation because top
management has been selected for their delivery skills. While it is the managing partner or CEOs role
to lead the innovation it is an extremely difficult assignment. Delivery executives do not like having the
strategy constantly challenged nor do they appreciate change. Does your firm reward and promote discovery
skills? If the answer is no, you have
your answer as to why you don’t have the innovative leaders for the future. Now is the time to identify and develop
leaders with the skills and willingness to focus on intersectional innovation. The future success of your firm depends upon
Here are five areas
where innovation will produce significant results. Granted they may not fit every firm, but most
firms will find three or more of these innovative ideas profitable.
- Billing and collection policies – use technology to improve cash
flow (ACH payments & Credit Cards).
This requires different thinking and change management. Too many firms are allowing clients to treat
them as interest free or "cheap” banks.
You can turn this around with improved engagement letters that specify
payment terms leveraging monthly bank drafts.
- Tax return
preparations processes – avoid loops and focus on one-way workflow. There are better ways to train than sending
work back to the preparer. You can use
technology to grade performance and report errors. Current workflow software has its roots with
outsourcing companies. If Federal
Express can track packages electronically, firms should be able to track work
in an efficient manner reducing cycle time.
- Client accounting in
the Cloud – firms can provide transactional as well as value added services
such as bill payment, payroll, controller, HR, IT and CFO related services on a
monthly basis. Private labeled software
that can be centrally updated and supported will allow firms to take back
control of accounting. It will also
allow your firm to become hardware agnostic.
It works the same on Mac as on a Windows based PC via a browser.
- Use portals to
aggregate client data for auditing and accounting as well as tax return
preparation. Avoid false starts and
wasted time. Portals provide security,
are inexpensive and clients like them.
Most of the resistance I see is within the firm.
- Conduct client focus
groups with marketing, tax and technology expertise present. This will provide innovation at the
intersection from multiple perspectives.
Listen to the client and provide the services he/she wants. Utilize firm leaders with discovery skills.
Innovation is part of
a firm’s culture and DNA. It requires
leadership and the willingness to manage risk.
Not every idea is a great idea, but the quantity of ideas determines
quality. Successful firms balance
discovery and delivery skills. Does your
firm have the discovery skills necessary to meet your clients’ demands in a
rapidly changing world? Provide your
people with the time and resources to innovate.
Based upon recent studies, most firms are less than 50 %
chargeable. What better use of the
non-chargeable time than innovation, training and new business development?