Development or growth - what is the difference? Has your firm been growing at a rapid pace? Many firms just completed their best years by financial measurements, but they're still challenged with finding quality staff and increasing their capacity to handle market opportunities. Because of financial results, it's often difficult to convince partners that they need to change for the firm's long-term development.Authors David Norton and Robert Kaplan suggest four perspectives in their writings about the Balanced Scorecard and strategy maps. Most companies focus on the financial perspective. Professional service firms are no different.
The four perspectives are:
* 1. Internal (processes);
* 2. Learning and growth;
* 3. Client or customer; and,
* 4. Financial.
While many firm leaders are familiar with these, most do not invest adequate resources in any of them aside from the financial perspective.
Firms are struggling with internal processes, as well as learning and growth. Let's look at examples in these two areas before moving on to client satisfaction and financial measures. The purpose of this article is to make you think and follow up by taking action steps to develop your firm from all four perspectives.
1: INTERNAL PROCESSES
Internal processes include operations management, innovation, client relationship management and compliance management. There are literally hundreds of processes within a firm that fit one of these areas. The challenge for firm leaders is to identify the critical few that are most important in delivering distinctive client service. Once these are identified, firms should commit resources to re-engineer and train to each process.
From experience, let me suggest four critical processes that have a significant return on investment for most firms.
* Financial statement preparation: A fully integrated system eliminates redundant steps and the use of spreadsheets.
* Tax return preparation: This should be re-engineered to take advantage of new technology (scanning, digital content management and portals).
* Client relationship management: You need systems that track e-mail and client contacts via an easily accessible interface.
* Billing and collections: You need electronic systems that utilize improved (scope) engagement letters, electronic bill presentment and collection.
Firms that focus on these critical processes improve the client experience, as well as reducing cycle and production times. This is all about change management. Resistance to change is normal, but the absence of precise skills and training exacerbates the problem. It is what you don't know you don't know in this area that can cost the firm a lot of money.
The old saying, "If you are in the process, it is hard to change the process," is descriptive of most firms. Process management is often overlooked, and leadership does not always allocate the proper resources and is often unaware of helpful new advances in technology. Internal and external resources should be utilized for process improvement.
2: LEARNING AND GROWTH
Firms are facing increased requirements for learning and growth, and often don't have adequate resources to address employee needs. Basic human capital requirements - employee skills, talent and knowledge - are provided, but informational and firm capital needs must also be addressed. Informational capital includes databases, systems and technology infrastructure. Firm capital includes culture, leadership management, teamwork and knowledge management.
The learning and growth landscape is vast and requires planning, people and processes to accelerate the performance of the firm and its employees. Firms often only think of continuing professional education requirements with respect to learning and growth, but it is critical that technology and soft skills also be addressed. Only then will a firm achieve proper balance.
3: CLIENTS AND CUSTOMERS
Firms must create value in order to maintain client satisfaction. Clients are interested in more than just price.
Focusing on leadership, relationships and creativity will reduce or eliminate commoditization. Leadership offers direction. Relationships instill confidence, and creativity results in new capabilities. Taken as a whole, these components provide sustainable value. In today's world, clients desire to belong. As a result, your firm's challenge is to create a community based upon value. By doing so, your firm will differentiate itself.
4: FINANCIAL
Most firms focus on the financial perspective because it's simple. A firm's financial strategies are fairly straightforward: Sell more and reduce expenses.
A firm's financial performance will improve through two basic approaches - revenue growth and productivity. These can be achieved organically or through mergers and acquisitions. Both strategies require investments.
In my opinion, leaders in merged firms are starting to focus on development, rather than just revenue growth. While revenue may increase, merged firms do not always achieve the anticipated synergy for two main reasons - culture and technology. Firms with multiple mergers typically attempt to standardize technology. But combining different cultures also creates issues, and the focus on innovation and productivity can be lost.
The complexity of technology becomes far greater with multiple offices, as well as communications and technology departments that are understaffed and lack the skills required to meet the needs of a much larger firm. Some examples of areas that merged firms struggle with are content management, fully integrated financial reporting systems, tax preparation systems, and billing and collections.
In defense of firms in this position, these are significant projects that require more than just engineering skills. Technology management and the chief information officer or technology director's job is much more complicated today than in the past. Expectations are high, but the best firms manage technology as a strategic asset, rather than as overhead. Scalability in hardware and software is much easier than scaling human capital and firm capital.
One of the biggest challenges is for partners at merged firms to think like partners at a large firm. The same can be said for technology people. Some are eager to learn and grow, while others resist change. Project management skills are generally more important than technical skills. Do you have an effective team with the necessary skills?
Firms that want to focus on development, rather than just growth in revenue, should take the following steps:
* Take time to think.
* Develop or update the firm's strategic plan.
* Identify leaders and task forces that focus on all perspectives, not just the financial.
* Develop budgets that support your plan.
* Implement a system of accountability at all levels - including partners.
The challenge for firms is the same as it is in public companies: How do you balance short-term and long-term goals? The tendency is to maximize short-term profits, yet the stated goal is often to maximize owner value. Balancing these strategies requires strong leadership, management and discipline from the owner group. Ask yourself this key question: Are you developing or depreciating your firm?
Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.
