Current growth in larger accounting firms is primarily driven by mergers and acquisitions plus consulting services. The M&A portion of the growth is also changing. Firms are not just acquiring more accounting and tax practices, but looking for technology and consulting capabilities needed by their best clients. What is your firm’s plan to stay relevant and grow in order to attract and retain quality clients and talent?
Tax and audit are still core services in most firms, but disruption from the convergence of technology, changing laws and regulations, and competition for talent are commoditizing existing services while clients ask for new advisory and consulting services. Firms that continue to focus on commoditized services will be limited by capacity as margins are reduced. Firms that focus on advisory and consulting services will be limited by capabilities. Capabilities are more important than capacity with regard to higher-value services.
Given these facts, how should your firm plan for the future to sustain success and remain relevant? The answer isn’t easy and differs from firm to firm based upon several factors:
- The firm vision;
- Age of the partners;
- Age of clients and niche markets; and,
- Diversity of skills and service opportunities.
Let’s review the difference between capacity and capability. Capacity is normally associated with services at the lower level on the continuum of value and is generally transactional and compliance-related. These services are being disrupted and changed by the convergence of multiple technologies such as artificial intelligence, robotics, machine learning, networks and sensors, and blockchain.
The good news from this disruption is the fact that CPAs can now focus on moving up the continuum of value to advisory and consulting services. The accuracy and timing of the data are much improved, while clients want services that are more focused on performance and strategy. The bad news is that this requires change, and the professionals must give up some services to focus on more relevant and higher-value services. Automation is creating capacity, but not necessarily capabilities in some firms. While this sounds logical and relatively easy, it is difficult for most accountants and firms to make the necessary changes on a timely basis. The lack of economic pain often causes procrastination.
More regulations and changes in the tax laws are not the answer to the demands of the market. These regulations and law changes may provide more advisory opportunities, but they won’t increase the value of compliance services. The good news is that firms can and should package and price services along the continuum of value to meet clients’ needs and wants. Taking this approach will improve the client experience, increase the number of services provided to the best clients, and improve cash flow and margins. This strategy requires a collaborative approach and more communication upfront with clients for assessing, scoping and pricing services. It will also require new skills and capabilities in most firms.
Before we identify these skills, think of the skills in your firm and where you may have gaps. Where is your firm with regard to the following skills?
- Data analytics;
- Technology vision and strategy;
- Project management;
- Lean processes;
- Sales; and,
- Talent development.
An honest self-assessment will generally disclose that the firm has adequate accounting and compliance skills but lacks in many of the above areas. In other words, is your firm too busy doing compliance work to focus on advisory and consulting services? Often the firm’s strategy has been to utilize accountants rather than professionals with unique abilities on their collaborative teams. This is to be expected due to the fact that accounting firms are experienced at hiring accountants, but not so much those with other skills. The change in strategy requires a change in mindsets, skill sets and toolsets.
Some of the primary changes in mindset revolve around:
- Being a life-long learner;
- Willingness to change;
- Being a collaborative team member;
- The desire to grow and provide opportunities for others;
- Improving processes to increase value; and,
- Leveraging technology.
Conventional success doesn’t necessarily require these mindsets, so don’t be surprised if you have members of your firm who resist and don’t desire to be game-changers. Leadership is essential and will determine your firm’s ability to sustain success and remain relevant. It requires balancing the revenues of the current firm with the investments in future opportunities. The most successful firms are those where the partners and members have made the decision and commitment to be led and managed. They are willing to hold themselves and others accountable. Accountability is the quickest way to move from current results to improved results.
Now, let’s address the game. The game is becoming more complex and diversified. I previously mentioned the continuum of value starting with transactional, compliance, performance, strategic and consulting services. To break the ceiling of complexity, it is often necessary to simplify and think exponentially rather than incrementally. Don’t think 10 percent — think 10X and the strategy will appear. There are many opportunities available to firms, but it requires vision, discipline and a plan to succeed. Some of the more important options are:
- Packaging multiple services;
- Filtering clients who do not meet target criteria;
- Hiring or developing talent with new skills;
- Improving processes; and,
- Investing in new technology that positively impacts the client’s experience.
As you go through this process, you will also find it naturally increases your capacity as well as your capabilities. Change is difficult for most people. It requires courage, commitment, capabilities and confidence. Most accountants want to start with confidence and avoid risk. Confidence will come, but it comes after having the courage to change, making the commitment, and developing the capability. Remember, “who” is more important than “how.” This is not a do-it-yourself strategy. Don’t be afraid to invest in non-accounting talent and technology.