Knowing what the future may hold for you and your firm is tremendously valuable in these uncertain times. While I can't provide every answer, I can offer some tools that will improve your thinking and the accompanying results. 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. Steven Covey calls this the "See-Do-Get" paradigm.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 in order to maintain partner earnings" to "Our firm has decided not to participate in this recession."
In my opinion, the jury will remain out for months and maybe even years, but I believe that the accounting profession will change dramatically - and for the good. We will become more responsive to our client's dangers, opportunities and strengths, while structuring our firms to deliver valuable services in an efficient and effective manner.
Many of you are probably asking what caused this global recession, or perhaps you think you know the answer. Some blame corporate greed, the mortgage industry or government. I believe the primary cause is technology, specifically the microchip. Before I explain, first consider the history of a few other industries that transformed and discovered how to do more with less over the past 100 to 200 years.
In 1900, over 50 percent of the U.S. workforce was employed in agriculture. By 2000, less than 3 percent of U.S. workers were employed in agriculture, but production had increased over tenfold. Manufacturing in the U.S. today produces more gross domestic product than it did in the past, but the media's focus is invariably on the loss of jobs. Why are those in the media so interested in this issue? One reason is that the media industry is being commoditized rapidly, and technology has dramatically changed its business model.
Craigslist has significantly reduced revenue from classified ads, and the Internet is capturing more and more advertising revenue as a whole. The younger generation has quickly adopted the Internet and no longer wants to read yesterday's news in a newspaper. They also don't care as much for TV programming that lacks the interactivity offered by what they experience online. In fact, TV to this generation is "background noise," like radio is to Baby Boomers.
BLAME THE MICROCHIP
Let's explore the microchip's impact on the accounting industry. The following indicates some of the most prevalent areas of impact.
1. Many tasks and services that accountants used to offer have lost value. Time and effort is no longer a measure of value in the market (though many accountants are still caught in this paradigm).
2. Transparency has proliferated throughout the world, and global companies are calling for international standards.
3. Clients are more interested in the future than in historical data that often arrives too late to impact current decisions. Clients now demand real-time service and decision-making reports.
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. While this problem has been discussed for 15 years, little progress was made until recently with middleware 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. (Bureaucrats typically take resources to a lower value level.)
In my opinion, dramatic changes will occur over the next few years, and the opportunities are going to be extraordinary for those firms that can rapidly transform.
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 industry has participated in each one of these during the past 10 years.
Technology is a driving force in the depletion of an industry. Those who survive and thrive are committed to transformation. That requires visionary leadership; planning; coachable talent; committed unique-ability teams; passion and enthusiasm; unique processes; and the ability to integrate 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. Every firm employee 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 can be significantly expensive.
Specific issues that firms are struggling with today include:
* Paper, rather than digital, systems.
* E-mail management (portals, privacy and time spent on e-mail).
* Integration of applications (redundant data and databases).
* Tax return preparation processes (workflow).
* Time entry and billing (capturing and reporting irrelevant information).
* Managing a remote workforce that includes part-timers and Baby Boomers who are approaching retirement (often without a reasonable plan).
The big idea is that merely investing in hardware and software is not enough. Many firms are highly inefficient in deploying and training to technology. As a result, they do not receive the requisite return on it. Moreover, too many firms have simply not updated processes in order to leverage what technology can provide. In good times, firms can get by with bad practices; in challenging times, however, they are quickly exposed.
Do you have the right leaders for technology? Do they understand your firm's strategic plan and can they communicate the capabilities of new technology to end users and firm management? Will your management team listen? 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?
Just as in agriculture and manufacturing, there will be winners and losers. Firms that leverage technology to better serve clients will be the eventual winners (and survivors).
Managing a firm by revenue per full-time equivalent (FTE = 2,080 hours) is more relevant than simple realization and utilization.
Your firm can be a winner, but its leaders must be willing to foster a culture in which technology and training 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 you not only profits but also the capability to remain competitive.
Watching your competition is not the most relevant or important 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!
Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.
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