Most small businesses and CPAs are talking about innovation as the COVID-19 pandemic has driven the accounting profession forward. Firms went from having the majority of their employees in physical offices to having most of their workforce working remotely, all within a 48-hour timeframe. Is this innovation or optimization?
I am confident there are those willing to debate, but the purpose of this article is to guide the accounting profession to become more innovative and less focused on optimization. It primarily requires an adjustment in mindset, as the toolsets and skill sets are already available. The accounting profession often underutilizes these tools and skills. I have always looked outside the profession to see what innovation others are employing and how our profession can leverage that innovation to create value.
Innovation efforts at most firms, including the Top 100, often lack a clear mission and framework. It is not unusual to have multiple groups working on innovation at the service level while competing internally for resources and duplicating each other’s efforts. This happens in well-managed firms and can generate an environment that is hostile to innovation. Short-term goals, existing metrics and an inward focus can also be obstacles to innovation.
This is why many large firms and businesses have utilized a chief innovation officer to counterbalance the natural killing instinct in a firm’s business units and develop a more innovation-friendly environment. It is a difficult job, and requires leadership, talent, technology, processes and a growth mindset. These are the five pillars. I will explain their importance, but before we talk about them, let’s address some of the challenges within firms and the different roles the chief innovation officer, or CINO, must fill.
According to a 2014 article in the “Harvard Business Review” by Alessandro Di Fiore, innovation requires the support of best practices (internal and external), developing skills, supporting service line initiatives, identifying new markets, generating ideas, funding, and sheltering promising projects. As you think about these requirements, they are dynamic and must work together in the innovation process. At times they are sequential; at other times, they operate in parallel. Without ideas, it is impossible to innovate. With too many ideas, they must be filtered and prioritized. Di Fiore graphically plots these as a spider web that expands and contracts depending upon the situation.
This is where the five pillars come into play.
Leadership
Without supporting leadership, it is difficult (if not impossible) to focus and get the required resources. The vision and strategic plan should act as the guiding star for your innovation projects. Leadership goes beyond the C-suite and is required at all levels. Some of the more important leadership characteristics are:
- The ability to connect and associate different perspectives (clients, multiple advisors, trends, technology, etc.);
- The ability and willingness to question the status quo;
- The ability and willingness to hold one’s self and others accountable;
- The willingness to participate in “safe haven” meetings with peer leaders; and,
- The ability to manage, not avoid risk. The quantity of new ideas improves quality. Create the environment to promote, not stifle, innovation.
Technology
In my discussions with leading CINOs, they all say their technology skills are critical to the innovation process. In fact, many were chief information officers before becoming chief innovation officers. There is an old saying about technology, “You don’t have to know how to build the watch, but you do need to know how to tell time.” Technology is an enabler, not a disrupter, depending upon your mindset.
One word of caution: People often view technology as the primary component of innovation. In reality, innovation requires all five pillars. People tend to ignore process and avoid change in order to support personal preferences. This reduces the rate of return on their technology investment and negatively impacts the client experience. More on process later, but you should not employ technology without process and vice versa.
The cloud has been a major advantage in integration, workflow, security and the elimination of redundant data. Technology is also an area where peer communities can provide hindsight, insight and foresight and reduce project time and investment. Avoid the temptation to “get high on your own supply.” Look outside your firm and even outside the profession.
Talent
People with delivery skills dominate mature and typically declining firms, but they often lack discovery skills. Typically, one or more of the firm’s founders were entrepreneurial and tended to hire people for their delivery skills, rather than discovery skills. As a result, many partners and managers don’t know how to think about discovery or give enough value to innovation’s importance. Accounting programs teach people delivery skills, as do most of the on-the-job training and mandated CPE requirements.
There are basically two types of innovation: directional and intersectional. Directional innovation tends to improve a service in fairly predictable steps with a well-defined dimension or goal. The majority of directional innovation is accomplished through increasing levels of expertise and specialization (delivery skills). Some would call this optimization, rather than innovation. This is a low-risk approach and one with which many CPA leaders are comfortable. There is nothing wrong with directional innovation. However, it is limiting because most of the participants are looking at the problem from the same perspective.
The entrepreneurial step-up in innovation and the one leading firms focus on is intersectional or client-centric innovation. It not only involves the client but multidiscipline 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.
This is also where firms often lack the skills and required talent. Implementation requires facilitation skills, technology, marketing and selling of ideas/services, project management and data analytics. These skills can be employed or sourced depending on the situation.
Processes
Innovation requires multiple processes, but the most important is the innovation process itself. Innovation involves disruption, often to the incumbent. For that reason, it is generally impossible for the person generating the idea to prove it and ultimately scale throughout the organization. This typically requires a process manager. Other important processes are generating ideas, filtering ideas, funding projects, and protecting projects while they are being proven and brought to scale. This involves governance, policies and especially leadership to ensure that innovation is a priority and happens.
Growth
Without growth in capabilities and capacity, firms become stagnant and services are commoditized. Growth goes well beyond revenue. In fact, increased revenue is a result, and the way accountants keep score. Traditional audit and tax practices are being commoditized by disruptive technology. Innovation enables firms to package and price these compliance services with advisory and consulting services in the short term.
If independence issues are holding your firm hostage, you must evaluate your ability to sustain success and remain relevant. It is a difficult decision for many, but simply a risk management and opportunity assessment decision for others. Much of the public accounting profession’s growth in the past few years has been through mergers and acquisitions, with organic growth hovering around 5 percent. Do these mergers bring innovation? Or do they bring the ability to optimize on a larger scale while still focusing on traditional services? I want to think both, but the can has simply been kicked down the road in many cases.
Growth is necessary to attract and retain quality talent as well as better clients. Do you have the right clients to allow you to grow capacity, capability and revenue, or are you trapped in creative destruction? In 1942, Joseph Schumpeter defined creative destruction as the incessant product and process innovation mechanism by which new production and service units replace outdated ones. I believe that all of these factors contribute and factor into a firm’s ability to grow.
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? Do you provide your leaders and people with the time and resources to innovate? Based on recent studies, most firms are less than 50 percent chargeable. What better use of the nonchargeable time than innovation, training and new business development? Think — plan — grow!
