Accountancy firms are facing a time of unprecedented change, not least as a result of consolidations within the marketplace. Mergers are common, and firms that have gone down this route face the challenge of reaping the benefits of these mergers. Those that have not are faced with a similar task of equipping themselves to thrive in a competitive environment.
The complexity of this challenge is compounded by mounting pressure from clients. In line with trends in other professional services firms, accountancy clients are becoming more cost conscious, and their needs are increasingly complex and wide ranging. This creates an increasingly competitive market place, which demands more active marketing from accountancy firms (and, possibly marketing for the first time for many firms).
This poses two testing questions: what does the firm best suited to thrive in this dynamic environment look like, and how can firms make the necessary changes to today’s ways of working now?
The answer is for accountancy firms to refocus their business strategy on three key priorities – delivering value to their clients, to their people, and to the firm. And successful transition to this new way of working depends critically on achieving collective agreement, active input and ownership from the firm’s top management.
Value on demand
The value that clients demand from today’s accountancy firms is a complex mix of technical excellence, global consistency, problem-solving and leading edge technology. The ability to deliver both technical excellence and global consistency rests on the firm having in place mechanisms to share and deploy knowledge around the organisation. These must become a crucial part of the firm’s way of working, in order that all clients benefit from the most up-to-date, powerful and experienced insights, and that the same client in different countries receives a reliably first class service.
Increasingly clients want whole solutions to their business problems – where traditional accountancy plays a vital part, but may be supported by complementary services provided by a third party, such as a law firm or a management consultancy. Technology may also play a critical part in providing the service the client requires – not as a solution in itself, but as a powerful enabler. Other traditional professional services firms, such as law firms, are beginning to explore the benefits to clients of secure ‘e rooms’ that can provide instantaneous access to specific client account information. Providing these wide ranging solutions deepens, strengthens and lengthens the relationships between the accountancy firm and its key clients.
Given the increased range of services the new accountancy firm will now be offering its clients, it will also need a robust approach to delivering the services. An ‘engagement management’ process, supported by a powerful management information system, is required to support job managers in managing and delivering the range of complex client needs and expectations – on time, and in the way the client has asked for it. In essence, each new job in each client account must be seen as a project in its own right, and therefore project management must become a core competence within the accountancy firm. This will ensure that the firm has the right processes and infrastructure, and people have the right skills, to secure successful delivery of all client engagements.
People matters
The accountancy firm that wants to deliver this high degree of value to clients needs an excellent workforce. Across professional services firms, competition for the best people is increasing, and the firms that thrive need to work out a convincing way to recruit and retain them. Currently many top performing accountants move swiftly between their choice of first class firms, seeking advancement and increased rewards. This has created a common trend of people working for a number of employers, sometimes in rapid succession, but this practice does not create long term benefit for either employer or employee. From our experience, PA believes that for accountancy firms to deliver value to their people they must implement a ‘recruit to retire’ employment policy, where the best people want to stay because their own firm is the best place for them to be to develop their careers.
There are two main components to this ‘recruit to retire’ policy. The first is a performance management system designed to reward good performance through sharing profits and giving appropriate career opportunities. This tangible demonstration of the value the firm places on its best people will win loyalty, and because financially and in career development terms their needs are best served by staying within the firm, they will.
The second component is a new approach to resource management that encourages the effective deployment and development of all people. The right resource management system needs to balance two competing pressures: the clients’ immediate requirement to be serviced by the most appropriately experienced people and the accountants’ as well as the clients’ longer term expectation of a whole workforce rich in the skills needed to deliver value to the clients.
Such a resource management system will also facilitate fast career progression for high calibre people, who can be spotted very early in their careers and coached through their development. These people will gain immeasurably from this experience, and in turn the firm will be able to reap dividends from their contribution and loyal contributions.
The bottom line
Building value within the firm depends on exceptionally good commercial management. The key to this commercial management is the recognition of profit as the key driver of sustainability. In many accountancy firms, this will mean substantially rebuilding the firm’s business model to focus on profitability before anything else – including revenue.To ensure that this commercial management system is based on a realistic understanding of the marketplace, the firm must first know who its clients are – who are its most valuable clients; who are its clients with the greatest potential for lasting profitable relationships. Through tracking the profitability of each engagement and each client, the firm will be able to understand which contribute to the commercial health of the firm and which are a hidden burden. In some cases this may result in painful revelations – that long standing clients who keep a whole host of accountants busy may be providing a constant revenue stream, but their work is not overall profitable to the firm.
The responsibility for managing this commercial business model must rest with the leaders of the accountancy firm – with its partners. Divorcing the technical delivery of client work from its invoicing and commercial management simply does not make sense, because the greatest impact on profitability is how each piece of work is sold and managed. Therefore tracking the profitability of each partner and each individual accountant is essential to ensure that partners can take profit and loss responsibility on a job-by-job basis, thereby ensuring that the commercial management of the firm becomes far more transparent and robust. To make this practical, the firm must be supported by a comprehensive and up-to-date management information system, capable of analysing the contribution of each partner, each job, each accountant to the profitability of the firm.
Rewrite the rulebook
The logic of this business model which delivers value to clients, people and the firm may appear strong, but putting it into practice is not necessarily so straight forward, especially where the partnership model of accountancy firms creates such a strong imperative to operate by consensus. The firms that take the difficult but essential decision to re-write the rulebook of their business model will need their top management to champion the initiative. PA’s experience is that devoting significant effort at the outset to agreeing and documenting a new set of commercial principles to underpin the business is the first and most crucial step, and one from which the rest of the work flows.
For the accountancy firms that thrive, the three priorities of clients, people and firm form a strong virtuous circle – delivering real value to clients provides the challenging and developmental work for the best accountants, and the profit stream on which the firm’s long term future depends. For the firms that fail, a vicious circle will form, with a dwindling client base, escalating recruitment and retention difficulties, and falling profitability. That all firms must make this shift to thrive seems inevitable – what remains to be seen is how far those that make the move first will exploit their competitive advantage.
BDO Stoy Hayward – a case in point
In 1998 BDO Stoy Hayward, like many firms in both the accounting and broader professional services sector, was considering its strategy to address the Year 2000 issues. After a series of workshops run by PA the management executive decided that Year 2000 presented an opportunity to reshape the manner in which business was conducted as opposed to merely solving a complex but mundane technical problem.
Tthe firm in the South East in developing and implementing an ambitious two-year business change programme that had an impact on every area of operation.
The approach to managing engagements was changed to enable greater analysis of individual engagements and client profitability. The resulting visibility of these engagements encouraged a team approach to account management and up-to-date facts about the client accounts enhanced the decision-making.
The Knowledge Management facilities that were implemented facilitated engagement resourcing. Far from limiting themselves to their immediate teams, partners were able to resource their work from the broad range and depth of talent across the firm. Further firm wide knowledge of major clients ensured that there was an even more co-ordinated approach to every forthcoming engagement.
BDO Stoy Hayward continues to be a forward thinking accountancy organisation and is always looking for new ways to exploit the knowledge framework that it has developed. In the mean time, BDO has achieved recognition as the best advisers to growing businesses by the CBI, and in the Sunday Times Rainmaker league as expert advisers to mergers and buy outs. The firm continues to grow and recently announced that it achieved a national fee income of £200m in 2000/01. |
