While CPA firms recognize they must change to be competitive, the urgency of that shift is greater in firms that have embraced new technology, according to a new CPA.com survey on innovation.
Early adopter CPA firms are more likely to undergo faster and deeper changes to their business models than their peers, according to the findings of the CPA.com Innovation in Public Accounting Survey. Innovation expert Amy Radin, who helped conduct the survey, announced the results during her keynote at CPA.com’s Digital CPA conference.
The survey of 409 firms found that 65 percent of the 178 “early majority firms”—firms that have launched a cloud-based accounting practice or are actively advancing advisory services initiatives—say it is imperative to implement changes in the next 12 months. The 231 firms outside of that early majority group were more cautious about changing.
While early majority firms were also more likely to say the necessary change must be “to a great degree,” both categories of firms agreed on the top innovation priority for the next year. All firms said developing new services to provide more value for existing clients was at the top of their list. While the rest of the list tended to generally align between both early adopter firms and those from the general group, the general group was more concerned about potential obstacles because of leadership and culture issues.
All survey respondents were asked to choose their top three priorities. According to those responses, the top innovation priorities over the next 12 to 18 months for early majority firms are:
1. Developing new offerings that expand the value we provide to our existing clients (62 percent)
2. Implementing a new offering for a specific market segment we believe has growth (50 percent)
3. Developing new offerings or approaches to the market that attract new clients (46 percent)
4. Realizing value to the firm from existing innovation investments (41 percent)
5. Updating current offerings to be more competitive (37 percent)
6. Deciding and moving forward on what our innovation priorities should be (35 percent)
7. Implementing a cloud-based accounting system (32 percent)
“One interesting finding of the survey is that CPA firms, early majority or not, don’t really see a competitive threat from specific challengers,” stated Erik Asgeirsson, president and CEO of CPA.com. “Only a small percentage of firms said it was a priority to respond to ‘a competitor who is outpacing us.’ The problem is tomorrow’s competitor might be invisible today, and if you aren’t paying attention to client expectations, it can take you by surprise. That’s why we’ve created programs like Digital CPA – to help prepare CPA firms for challenges that may still lie over the horizon.”
While presented the survey results, Radin clarified what she and CPA.com meant by the term innovation, using author Geoffrey Moore’s definition: “Any type of differentiation in your practice that drives preference.”
She also explained that innovation happens either as a disruption or incrementally, adding that “few are truly disruptive, changing the game and destroying what came before,” such as the inventions of the printing press or Model T.
Instead, 90 percent of innovations are incremental, a model that cash-strapped and competitive start-up companies have no choice but to embrace. Start-ups have “a whole different mindset of getting something to market,” acting on “MVPs,” or minimally viable products that enable them to continually iterate and “fail forward.”
Though start-ups differ from CPA firms in more ways than their agility, Radin emphasized the value in studying other industries. Specifically, she cited the case of LegalZoom, the online legal document preparation service that disrupted the legal industry with “a different way of looking at a market opportunity.” While providing legal services, the company is not a law firm but a technology and marketing company offering the specific value-adds of: automating services, empowering clients, using innovative pricing, providing digital and phone delivery, and reframing law as a business.
“Accounting is a profession, but there is room for successful players to think of it as a business with new opportunities for innovation,” Radin said. The future of accounting, she explained, is in multi-channel relationships and pursuing emergent knowledge—analyzing big data in strategic ways. Data, along with technology and speed, almost outweigh cash as the most important currencies for an innovative firm.
Innovation also requires discipline, Radin explained, advising firms to allocate time to think about it and how to apply it to their practice.
She also offered some best practices by presiding over an innovation panel of three tech-savvy accountants, including CPA.com’s Innovative Practitioner of the Year Natalie Hoffmann, partner with CPA firm Honkamp Krueger & Co. and co-developer of the firm’s business development app. Joining her were The Shared Economy CPA Derek Davis, owner of a virtual accounting practice that serves independent contractors like Uber drivers, and Carolyn Hall, leader of CPA firm Wiss’s outsourced accounting FWRD practice.
All panelists acknowledged obstacles in developing their practices or products, though perseverance and collaboration were key.
“My role is more of a product manager than a CPA,” Davis explained of his shared economy clientele, “bridging the gap between my tax background and technology.”
“Find an area of passion,” he advised. “It’s easy to go on auto-pilot as a CPA. Being innovative takes a lot of mental strength & personal energy.”
While Hoffmann explained her biggest challenge has been a lack of resources, demonstrating successes to firm leadership along the way has helped her gain the ones necessary for innovation.
Hall recommended tapping into the resources in that room as the panel addressed the Digital CPA attendees.
“Take a risk,” Hall advised. “There are so many people in this community to help you out in making educated decisions.”
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