The Profession and Change

I read a lot. I generally don’t have the time to read whole books, but I read magazine and newspaper articles all the time on a diverse set of subjects from science & technology to philosophy & politics with the usual general business reading thrown in for good measure. As I was scanning the Wall Street Journal this morning, I read a brief editorial about how Apple, Inc. has been caught by two macro trends of business which are “the Cheap Revolution” (drastic price reductions of computer processing power as a result of “Moore’s Law”) and “global capitalism”. I believe the author of the article is most likely correct, as these apply to Apple and I believe that these two things are affecting the accounting industry in general and my current firm specifically.

When I started in public accounting, the firm I was with did almost everything manually. They prepared all business tax returns by hand and all audit work was done with pencil, paper, and a ten-key calculator. They worked 12 hour days, 5 days a week, 45 weeks a year. Keep in mind that this was not that long ago and that most local firms worked in a similar fashion. It was low value manual labor for the most part. (I think my time was billed out between $30 and $40 an hour.) There wasn’t time for high value projects. Those were left to the national and international firms. They could afford the overhead and the time.

My goodness, times have certainly changed. The decrease in cost of computing power (There are wrist watches today that have more computing power than PCs of that era.) has revolutionized what we can get done. Communications technology has shrunk the world to the point were some small firms routinely outsource data entry to foreign countries. Soon the concept of data entry will, itself, be foreign. In this environment, what will happen to an organization that is still in the “manual mindset”? I can’t say in all cases what will happen, but I know that the firm I first worked with doesn’t exist any more and the one partner still around is at another firm and is not a partner.

“Change is the law of life. And those who look only to the past or present are certain to miss the future”. — John F. Kennedy

Some years ago (1998?) the AICPA presented its vision project to the accounting community. The purpose of the project was to help provide a rough road map to the future of the accounting profession. The project was met with a pronounced yawn from the practitioners of the time, who seemed to feel as though the predictions made by the project weren’t going to have an impact on their careers. Those practitioners may have been correct in the near term. In the years since the project was presented, very little has changed in the way the average professional does his/her job. However in the long term, the practitioners who have ignored what the vision project highlighted will be disastrously wrong for their firms and the profession. Radical changes in what is expected of us are coming and they are coming soon.

Most of the changes that have come in the 10 or so years since the presentation of the project have been fairly subtle. The internet was utilized to some degree then. Email was available to most professionals and used in some way shape or form then. Tax software had already migrated from DOS to Windows. Spreadsheets had long since replaced “green bar” paper. These were the same tools that we had always used; we just use them a little differently now. The nature of what we did, converting disorganized client information into some proscribed form, hadn’t changed in decades and didn’t seem as if it would.

Following is the vision statement produced by the project –

CPAs are the trusted professionals who enable people and organizations to shape their future. Combining insight with integrity, CPAs deliver value by …

Communicating the total picture with clarity and objectivity,
Translating complex information into critical knowledge,
Anticipating and creating opportunities, and
Designing pathways that transform vision into reality.

Recognize that the typical small firm practitioner, 10 years ago, didn’t perform any detailed analysis of the data that ran through their office. Sure the occasional projection of income may have occurred for purposes of tax planning and there may have been the infrequent preparation of pro-forma financial information, but this rarely if ever involved detailed analysis. It was simplistic, used canned responses and no brain cells. Can you imagine what the response to the above vision was from professionals who were 75% of the way through their career? When they saw or heard this they just as well have been Charlie Brown listening to any adult, wa-wa.

Let me pause for a moment…I recognize that, while I believe all of the above to be true for the typical accounting firm/practitioner, this may not be the case for the large national and international accounting firms. I believe the pressures that these firms have been under for sometime forced them to be more forward looking. This is clearly evidenced by the fact that all of the “Big 4” have some form of consulting practice and that these practices have been and continue to be a very significant source of revenue. These large firms are the exception in the accounting world. They are not the norm.

In the not so distant future, data will be more organized than we can hardly imagine. We are already seeing the consistent use of programs like QuickBooks, Quicken, and Peachtree by the small business community and its entrepreneurs. These programs are taking the “shoe box” of receipts and paper that we used to receive and organizing it in a manner that is more useable by everybody. These programs already integrate with some tax and planning software and in the future that integration will be even greater. We have a habit of turning our nose up at such things, but we have to come to the realization that these types of programs (and their availability) have changed and will continue to change what we do. The programs I mentioned above are constantly improving and encroaching on territory that used to be the exclusive realm of small public accounting firms. Traditional write-up services are a thing of the past. Getting accurate and timely financial information from clients is a thing of the (oh so) near future. How will we adapt when our clients are providing us complete and accurate information, no adjustment necessary, to use in preparing their tax returns, financial statements, etc.? Are they going to come to us for such services, when they have them available at the push of a button or click of a mouse?

How are they going to do these things themselves? What we deal with is so complicated and every time congress gets in session it becomes more complex there is no way that our clients will be able to do these things on their own.

I hear you. Keep in mind, before the “simple” programs I mentioned were around, many small businesses had to have a full time accountants to manage the transactions that any normal business has. Some relatively small businesses needed full accounting departments in order to maintain their records, create invoices, and make payments. These programs have eliminated much of this for the smaller businesses that are the majority of our clients. If the positions haven’t been eliminated altogether, their staffing requirements have been greatly diminished. These positions required the detailed knowledge of accounting principles and they have been replaced by “simple” software. As these “simple” pieces of software become more and more capable, what else will they replace?

There will be a necessity for an accounting profession, always, but in order for any individual or firm to maintain its viability in the market place they will have to adapt to the changing realities. We will not be the data entry profession of the past. Circumstances will not allow it. We will have to be the analysts of the future. We will communicate. We will educate. We will connect. We will actively guide our clients toward their future.

I don’t argue that the accounting profession is going away. To the contrary, I argue that we can and will be a vibrant profession. I just believe that the nature of what we do and how we do it will be radically different tomorrow than it is today. I believe that the vision as projected by the AICPA 10 years ago will come to pass. They set a date for the vision to be realized of 2011. That may be just about right.

The Cycle of Suck

I was forwarded this article (Bad bosses get promoted, not punished? - Yahoo! News http://news.yahoo.com/s/nm/20070803/od_nm/work_bosses_dc) to which I relayed the following thoughts.

Clearly we have all seen evidence of this and there is a very clear reason for it. Most people get promoted because they were good (?) at the job they were doing, not because they have shown an aptitude for what will be required at the next level. How many partners do you know who, while being a partner, do "good" "staff" level work? (almost all of them) How many partners do you know who are really good at managing the business of a firm? (almost none of them). This is similar to a great Widget maker with decades worth of experience making Widgets deciding to own / run a Widget business and making a mess of it. While the two functions (producing / managing) are not mutually exclusive they are not at all similar and require very different skill sets that are not commonly held by the same individual. The first self-help / business book I'm going to write is "Know Your Role - Identify What Your Talent Is, Do It, And Quit Doing The Stuff You Suck At" or something to that effect.

People promote others who are similar to themselves (a.k.a - "The Cycle of Suck").

We all fall prey to the "Cycle". The Cycle is why good companies / businesses go bad and why good relationships go bad. If we would just consider what roles we need to fill and go about finding people with talents for those roles and understand that no one person is going to magically transform themselves into something / someone they are not, we would be moving in a positive direction. Some of the roles that immediately come to mind are:

• Employee
• Employer
• Manager
• Owner
• Breadwinner
• Care Giver
• Finder
• Minder
• Grinder

What do you think? What other roles can you think of that people in your life play?

Shift Happens

I recently read this article (Why the Rich Get Richer - Robert Kiyosaki) and thought that he offered some interesting observations. Not that what he was saying was “rocket science”, but that he was offering his opinion on a path to success that reflected some of my thoughts on the issue. I wouldn’t even bother to mention the article except for the comments that are written below it by some of its readers. Many are very illuminating to the mindset of the writers. In general, the commentators who “slam” the article seem to be upset that somebody is questioning their paradigm (let’s see how much cheesy business consultant lingo I can spew.). They, the slammers, seem to have an incredibly narrow minded focus-“Workers of the world unite.” All of these business gurus can sound simple and they are certainly repetitive, but this doesn’t negate the useful information that their articles/books/CDs/etc. contain. In this article, the useful thought is that ideas should have an expiration date. “Shift Happens” Do you want to be ahead of the shift or behind the shift? Many of the negative commentators seem to be behind the shift and know it. They just don’t want anybody pointing it out.

In my business (I’m an employee working to be an owner), the real threat to employees is not jobs moving overseas, although some of that has happened, but technology. When reading industry literature, you notice that there are a lot of smart people working to take the mundane tasks that employees spend a lot of time on and automate them. When your business model is built on billing hours and those hours evaporate, you are in trouble. The savvy people that see this coming will be able to effectively redefine what they do with their clients and may ultimately be more successful than before. Those that don’t see it coming will disappear. These are interesting times. What do you think?

Quote from Sun Tzu

“Opportunities multiply as they are seized.”

I believe this to be a true statement. In that, you have to act upon the opportunities that are presented to you and as you do so more opportunities will be revealed. Two factors hold us back from this action. The first is recognition. We frequently don’t recognize when opportunities are presented to us. We see events as set backs or obstacles to our success, not the educational opportunities they are, that can contribute to our future success. Secondly, we tend to be fearful of change/failure. Many who are very successful, by whatever definition you choose, have failed. Many of those have failed multiple times. Failure is not a problem. It is the response to failure that is a problem.

Live for today, Plan for tomorrow, Learn from yesterday then let it go

I've been saying something similar to this to my aquaintences for many years. Recently heard something similar in an advertisment (don't remember for what product / service). Would be interested in knowing who originally said / wrote it.

Recent Exchange Re: Public Accounting

Hope all is going well. Been thinking about the usual stuff recently. Decided that my passion lies in being a forward thinking, future oriented, visionary / strategist. I get giddy at the prospect of effecting real change. Yet, here I am a backward looking, history based, minutiae dispenser. This being the paradox of my existence. I know I will not be happy as long as I'm doing what I'm doing the way I'm doing it, but I don't really move toward changing. The rut. SSDD What does that say about the strength of my convictions?

Another quandary. I truly believe that the profession I'm in can and must change in order to be truly viable 10 years from now. Yet there are no, zero, nada real change agents moving in the profession. It, the public accounting profession, seems to me to be very much like what the American auto industry was like 60 (+ ) years ago. Many players dominated by a few large ones, but reasonably competitive amongst themselves and egocentric enough to believe that there was no way they would ever be realistically be challenged for market dominance. "We invented the assembly line for cryn' out loud." Yet slowly forces were afoot that would devastate the industry. The American auto industry ceased to meaningfully innovate at sometime in the late 1950's or early 1960's. They failed to listen to the creator of JIT manufacturing / supply chain theory, an American (Drucker). His impact was on the Japanese auto industry 20 - 30 years before the Americans started listening. They were forced to start using aluminum and materials other than steel by the U.S. Gov't (emissions standards). They are a full decade (at least) behind foreign auto makers in alternative fuel vehicles and are only beginning to move in that direction at government demand (emissions standards). Waiting for the government to regulate and dictate your innovation is a poor, at best, survival strategy.

What are the similarities in the accounting industry? The local / regional accounting firms have ceased to innovate at all. The basic processes, procedures, and output have not changed one iota since these firms put a PC on every desk (about 15 years ago). The local / regional firms are not following the lead of the innovators (the big 4) and are in no position to take advantage of opportunities that present themselves when the large firms falter. The local / regional firms rely on a complex government regulatory environment to preserve their market. That in and of itself is an incredibly vulnerable position. They notice not. There seems to be a lack of understanding as to what the basic nature of the business is - information vs. product delivery (tax returns / financial statements). Because of this lack of understanding, the profession as a whole is not adapting to the dramatically changing environment.

70% of individual tax filers can file their taxes for free - shrinking market. Most, if not all, small business owners have access to accounting software that can effectively produce their own financial documents accurately and timely. An entire service area is disappearing - write-up. None of the local / regional firms are staffed with people who can use the data they have about their business clients to sit down with them and reasonably produce and explain projections / forecasts for those business that would actually add value to their client relationship. The "old guard" is hoping that the business can survive until they retire. All the while, the core of their business is being hollowed out to the extent that they may have no value left when they want to sell.