Think CPA Firms Aren't Innovative? Think Again!

In the view of many managing partners and top industry consultants, CPA firms have seen few innovations in the past 20 or so years. With the exception of technology, change has been slow to come to a profession that is widely perceived as resistant to it.

"CPA firms tend to be reactive, late adopters and risk-averse," according to Chris Frederiksen, chairman and chief executive officer of 2020Group USA. "As Shakespeare said, 'Some are born innovative, some achieve innovation and others have innovation thrust upon them.' CPA firms are clearly in the last group," he said, taking liberties with Twelfth Night.

This lack of innovation may be inherent to the CPA firm partner mindset, hinted Kessler Orleans and Silver MP Jeff Arnol: "In many ways, our industry is somewhat archaic. We tend to do things as our predecessors have and assume that each successive generation will figure out what it takes to develop business and become a partner," he stated.

Yet, upon examination of an impressive list of innovations that indeed have occurred in the past 20 years or so, one can't help but acknowledge that the CPA profession has experienced and embraced a fair amount of change. "Innovation has been much more prevalent than some will say," asserted Barry Melancon, president and CEO of the American Institute of CPAs. "I truly believe the CPA profession gets a bad rap on innovation. Don't let anyone tell you that CPAs don't innovate. I'd argue not only that they do it, but they do it in a reasoned and thoughtful way."

TECHNOLOGY

Clearly, technology is the major area of innovation for CPA firms, paralleling advances in computers. CPAs have been quick to embrace technology. Among the major innovations, according to leading technology expert Roman Kepczyk of Xcentric, are the Internet; e-mail; the Windows graphical interface and word processing software (which together eliminated the typing pool); multiple screen/monitor displays (which made possible a huge jump in individual productivity); smartphones and tablets, including the touch screen; the cloud and Software-as-a-Service; workflow tools, including paperless audit and other software and scanning technology; knowledge management; and social networking (though it's more an emerging technology because it has yet to have a big impact for CPA firms).

Beyond technology, though, there are a number of areas where CPA firms have been innovative in shifting how they do business.

DIVERSITY OF SERVICES

1. Business consulting. Tagline of the old days: ABC Firm CPAs. Today: ABC Firm CPAs and Consultants. CPA firms are now major providers of services beyond traditional audit, accounting and tax, and not only national firms are leading the way.

2. Wealth management. In the 1990s, CPA firms woke up and realized that they were their clients' most trusted advisors. Firms have tapped into this trust by providing wealth management services and related iterations of selling investments, insurance and mortgages.

3. One-stop shop. CPA firms have expanded their portfolio of services to satisfy client needs, and communicated an attitude that if the firm doesn't do it, they will refer you to someone who does.

FIRM MANAGEMENT

4. Chief operating officers, marketing and hr directors. These positions are being created to manage the firm's day-to-day affairs. Partners are now expected to do "partner work," delegating day-to day management to those with expertise in it. Bye-bye, partner committees.

5. Value billing. The notion that CPAs should be billing clients based on the value of their services, not by how many hours it takes to do the work, this represents a very radical change from traditional billing methods that are practiced by some firms.

6. Sophisticated systems for rewarding partners. Systems for allocating partner income moved toward the compensation committee and away from formulas, the latter of which rely almost totally on book of business and billable hours. This shift acknowledges the importance of intangible performance attributes like firm management, helping staff learn and grow, and teamwork. Herein lies another radical notion: that partners' non-billable time is worth more than their billable time.

MARKETING

7. Marketing of our services. Although the bates case in 1977 freed cpas to solicit, cpas selling their services, commonly called practice development, didn't begin in earnest until the 1990s. Some might justifiably argue that marketing and selling of cpa services is still an oxymoron. Nonetheless, according to rich rinehart of grant partners llc, "the level of practice development at many firms dwarfs what it was 20 years ago."

8. Specialization and niche marketing. The win-win of marketing CPA services: People value expertise and will reach out to those who have it, and in the process, reduce the need for CPAs to sell, something that most dislike. As specialists, CPAs get to practice their favorite form of marketing: sitting at their desk and waiting for the phone to ring. Added bonus: If you are perceived as one of the top providers in your niche, you no longer compete on price.

MERGERS

9. M&A for growth. Regional firms are merging across traditional geographic borders, pointing toward the gradual creation of a whole new generation of national firms. Today, mergers are seen as the best way to grow and add talent. Virtually every firm today is at least "talking" about mergers, whether it's up, down or sideways.

10. The consolidator movement. This swept through the profession from the mid-1990s to the early 2000s, combining scores of firms across the country.

The previous points are just some innovation highlights. The AICPA's Melancon suggested numerous others: "We've also introduced new techniques such as tax outsourcing and risk-based approach to auditing. Firm branding is a growing trend. And CPA firms' self-imposed practice of peer review is unmatched by any other profession."

Marc Rosenberg, CPA, is a management consultant to CPA firms nationwide with Wilmette, Ill.-based The Rosenberg Associates. His articles are widely published, and he is the author of the new "Monograph" series of publications dedicated to key CPA practice management topics. Reach him at (847) 251-7100 and at marc@rosenbergassoc.com.