Perception is real, so how you perceive the current situation determines your reaction and behavior (good or bad), and that reaction will greatly influence the results. Stephen Covey, the well-known author of “The 7 Habits of Highly Effective People,” calls this the See-Do-Get Paradigm. How you perceive a challenge or opportunity impacts your reaction and the results.
Over the past several months, I have witnessed leaders at numerous firms present varying tones when meeting with employees. These range from, “We must cut every possible cost to maintain partner earnings” to “Our firm has decided to invest in the future and remaining relevant.” In my opinion, the jury will remain out for months and maybe even years, but I believe the accounting profession is changing dramatically — and for the good. In fact, it is more than just change; it is transformation. Firms are becoming more responsive to client dangers, opportunities and strengths, while structuring their firms to deliver valuable services in an efficient and effective manner. Pricing and the new business model remain challenging for most firm leaders.
Some may ask, what is causing this disruption? I believe the primary cause is technology, specifically the convergence of multiple technologies like robotics, machine learning and artificial intelligence. All professions are being disrupted, so don’t think accounting is alone.
Let’s explore the microchip’s impact on the accounting profession. Some of the most prevalent areas of impact are:
1. Many tasks and services that accountants used to offer have lost value, been eliminated, or are no longer necessary. Spreadsheets alone changed the profession. Time and effort are no longer a measure of value in the market.
2. Transparency has proliferated throughout the world, and global companies are calling for international standards.
3. Clients are more interested in the future than historical data that often arrives too late to impact current decisions. Clients now demand real-time service and decision-making reports because technology has made them both possible and affordable.
4. Data should flow from the transaction to the decision-making point without re-entering and increasing the potential for errors. Most accounting firms operate with multiple systems and applications that contain redundant data, which results in a considerable amount of time spent on review and reconciliation. The profession has been discussing this problem for 25 years, but little progress was made until recently with software (data connectors) and web services.
5. Government intervention has increased without improving processes or results. Entrepreneurs must rise to meet this challenge and take resources from current values to a higher level.
In my opinion, dramatic changes will occur over the next few years, and opportunities are going to be extraordinary for those firms that can rapidly transform (learn and unlearn mindsets). Economist Joseph Schumpeter (1883-1950) first proposed the idea of “creative destruction.” Every industry has a life cycle of emergence, growth, status and depletion. Some characteristics of a depleted industry are commoditization, little or no new value creation, an inward focus with increased rules and regulations, outsider intervention, increased litigation, and consolidation. The accounting profession has participated in each one of these during the past 10 years.
Technology is a driving force in the depletion of an industry or profession. Those who survive and thrive are committed to transformation. That requires:
- Visionary leadership.
- Planning.
- Accountability.
- Coachable talent.
- Committed, unique-ability teams.
- Passion and enthusiasm.
- Unique processes.
- The ability to integrate and leverage technology.
Firms that ignore technology’s impact and reduce investments in it will suffer significant losses. Let me clarify, however, that orthodox investments in technology (i.e., hardware and software) are not enough. Most firms are maintaining their core systems, but a few are innovating by leveraging the available technology. In the worst case, firms are hoping for a merger to upgrade their technology. According to recent metrics, it costs approximately $12,000 per employee to integrate merged employees.
Every firm employee and client requires training to standards, policies and procedures. Firms must also eliminate “wizards” who are unreasonably committed to retaining old systems that foster low productivity. Resistance to change is expensive. Some refer to this as RONI — the risk of not investing. Some specific issues firms are struggling with today:
- Finding and developing the right talent and skills for the future.
- Integration of data among various applications and digital systems.
- Email management and unified communication systems.
- Onboarding workflow and processes (employees and clients).
- Too many small clients — typically only 1040 clients.
- Time entry and billing (workflow, processes and mindsets).
- Managing a remote workforce that includes part-timers and multiple generations.
The big idea is that merely investing in hardware and software is not enough. Many firms are highly inefficient in deploying and training in processes and technology. They tend to resist change and miss innovative opportunities. As a result, they do not receive the requisite return on their investment. Moreover, too many firms have simply not updated processes to leverage what technology can provide. This is especially true in the transaction and compliance services.
Do you have the right leaders for technology, or are you outsourcing? Do they understand your firm’s strategic plan, and can they communicate the capabilities of new technology to end users and firm management? Does your management team listen to technology leaders? Are they part of your management team? Are they focused on innovation and increasing revenues, or do they simply manage costs and stay within a budget?
Firms that leverage technology to better serve clients will be the eventual winners (and survivors). Managing a firm by revenue per full-time equivalent (an FTE = 2,080 hours) is more relevant than simply realization and utilization.
Your firm can be a winner, but its leaders must be willing to foster a culture in which technology and training (talent development) are paramount. Reducing investments in either is too high a risk. In uncertain times, it is what you don’t know you don’t know that can cost not only profits but also the capability to remain competitive and relevant.
Watching your competition is not the most relevant strategy; consolidation and globalization attest that any firm’s competition will likely change as time goes on. Firms committed to transformation can maximize cash flow from current services while developing new services and people for the future.
I encourage you to continue this discussion with clients who are industry transformers as well as people outside your firm. Think — plan — grow!
