Remember strolling through the aisles of Blockbuster Video to find just the right movie on Friday night? At its peak, Blockbuster owned over 9,000 video-rental stores throughout the United States and had 65 million customers. Today, aside from the lone Blockbuster storefront in Bend, Oregon, Blockbuster has essentially disappeared. Why?
With Netflix nipping at its heels, Blockbuster was well aware of the future trend of streaming video. However, it underestimated how quickly the future would come. Once it decided to prioritize the change, it was too late. As people have begun to talk about "Accounting 4.0," the change in our industry is now.
Accounting 4.0
As a result of increasing technology and automation, accounting firms are finding themselves at a crossroads where they will need to shift their primary focus from compliance to a more balanced approach including value-based consulting services.
Compliance work will always be needed, but the question is who will provide it? As this work gets more commoditized and automated with technology, firms are already feeling competitive pressure from new tech-forward services offered online. To use the Blockbuster reference, people didn’t stop watching movies; they just shifted to a new delivery model when they struggled to see the value in the old one.
Thankfully, CPA and accounting firms have an ace in the hole: the client relationships they maintain. But how can they best leverage them? And how long will that edge last if clients don’t see value for cost?
In the face of navigating this wave of change, firms are finding it increasingly difficult to grow their top line, get and keep great talent, and stay relevant in a rapidly changing world.
So, if you see the giant block of yellow writing on the blue wall and you are ready to adapt to ensure your firm does not go the way of Blockbuster, what can be done? Well, for starters, firms must:
- Get comfortable buying technology that drives efficiency;
- Focus on value versus effort; and,
- Rethink organizational design to retain talent.
Technology
Let’s be honest. CPA firms struggle to buy new technology. We’re even worse at building it. And that huge spreadsheet that crashes each time it opens does not count.
Buying technology is hard. To do it well means knowing how to effectively research options, prioritize investments, negotiate pricing and ensure client security is safeguarded.
And let’s say we do all this right. We still have the formidable task of getting adoption within our own firm. Training and encouragement are necessary to wean our own people off their beloved crashing spreadsheets.
Also, good software would allow us to do more in less time, but this works against our billable hour mental model. More hours equal more fees and more revenue, right? Which leads us to the next point.
Value and simplicity mindset
As smart consumers, we care about the quality, price and the value a product brings to our lives. When we buy something, we tend to care less about the hours it took to create it.
For years we’ve espoused the belief that volume of effort equates to value delivered. But technology has flipped the script on this as the “intelligence” required for many compliance tasks can now be supplied by software.
We’ve also hidden behind a veil of complexity — the work we perform for our clients is somehow too complicated for them to understand or care about. Accounting 4.0 forces us to rethink these beliefs as clients shift their perception of value.
Clients now reward trusted advisors who articulate value within a relevant business context and demystify the problems they solve and why. This may manifest itself in new pricing models that move away from billable hours including fixed fees, and flexible or value-based billing.
Value can also be delivered in the form of trust. Remember the ace in the hole? Clients value partners who can apply higher-level judgement because they really know and care about them. And so far, computers haven’t figured that one out.
Talent
The struggle for talent is real.
The good news is that the newest generation of accounting professionals is more educated, more tech savvy, and more capable of higher-level problem-solving than any before.
The bad news is that it is now your job to channel their energy. They have good ideas and want an outlet to bring them to life. They may be too impatient with current career tracks and unwilling to work sweatshop hours in exchange for a promise of making partner years down the road.
Young professionals are technology consumers and know its power. They don’t mind working hard, as long as they can also work smart. They will quickly grow impatient with manual processes that could be done better and faster with technology.
Many within this workforce are products of business schools that employed a case- and team-based curriculum. They hunger to collaborate with each other and with clients. Their tolerance of working alone on repetitive, rudimentary tasks is low.
This is both a challenge and an opportunity. They are a potential goldmine of new ideas. But we might need to face the sobering reality that we need to change to take advantage and that change will be significant.
So, what should I do?
It can feel overwhelming. Our traditional operating model is ingrained in generations of firms. Making the shift can feel like steering the Titanic. But starting somewhere is the best thing to do. So, once you’re ready:
- Pick one thing.
- Pick a leader.
- Set it up for success — really.
Pick one thing
Your goal may be firmwide change, but this can feel daunting. Rome was not built in a day. Changing mindsets that may exist in your firm may take longer. Practice with something small, create a win that people can see, then rinse and repeat.
When making your selection, consider picking something with the following characteristics:
- Self-contained: Create some physical and organizational separation from your core business to create a low-risk “sandbox” for experimentation.
- High value: Draw a direct line from your work to the impact for the client. This will also create some flexibility to experiment with alternative billing models.
- Technology: The work can be significantly optimized with technology, where high value can then create high margin.
Good candidates for this change may be a specialty tax area, like R&D tax credits, cost segregation, or sales and use tax. These are areas where solid technology solutions exist or are continuing to emerge.
The need for these services may already exist in your client base. You just may be referring them out to other providers. Bringing them in-house can provide a shorter path to getting started and the opportunity to tie value to your firm.
Pick your leader
Chances are you know who this is already. They are the ones already beating down your door with ideas and hungry for an opportunity. They are the go-getters with the entrepreneurial spirit, and the high-potential people you desperately don’t want to lose.
Technical expertise will be critical. But a common mistake is to select technical expertise over leadership potential and drive. It may be difficult or near impossible to find this in one person. You are better off selecting the go-getter who is passionate, curious and tech-savvy and then supplementing for the other skills.
Set it up for success
Sadly, most experiments fail due to a lack of commitment. Half measures are often doomed for failure.
Picking the right sandbox will help and allow some latitude to do things differently. Consider setting it up with a profit/loss structure and reward the leader appropriately with a performance-based bonus or variable compensation plan.
Allow the leader proper autonomy to experiment with alternative billing and invoicing methods.
Invest meaningfully in the proper technology solution, and provide dedicated resources that are not borrowed from other practices and controlled by others. Leadership needs to sponsor it and protect it from your firm’s politics like the baby bird that it is.
Celebrate wins and tolerate some failure. Much of the value is in the shared experiment in making it work and germinate seeds for more future change.
A Blockbuster opportunity
Blockbuster was a victim of technology changing the world around it. It saw the change coming, but failed to move fast enough to keep their edge
Accounting 4.0 offers a more comprehensive and holistic approach to accounting. It connects physical with digital, and allows for better collaboration and access between CPAs and their clients. Accounting 4.0 empowers firms to better control and understand clients, leverage data to boost productivity, improve processes and drive growth. Let’s embrace it as the opportunity that it is.
