Reprinted with permission from Accounting Today.
Does your firm’s spreadsheet of current projects include anything along the lines of “Complete tech overhaul” or “Create innovation strategy?” If so, you may want to consider revising the document. It’s not that gaining sophistication in the area of technology is a bad idea. Quite the opposite. The problem is the notion that building technical skill and capacity is a “one and done”—an undertaking with a beginning and an end whose completion can be ticked off a checklist.
Overly simplified marketing and messaging around technology has contributed to this misconception. Depending on whom you talk to and what you read, it’s possible to get the idea that the “firm of the future” is just a few formulaic steps away. But the reality is far more complex.
Deep, wide, client-centric integration of technology is a journey, not a destination. It’s one that firm leaders will need to pursue with agility and passion to achieve growth in the short run, and sustainability over time. Unfortunately, too many firms are unprepared for this journey. Many have succumbed to the fear that they will never be able to successfully adopt and adapt. Others have no idea where to start.
The rewards are significant. Ongoing pursuit of innovation provides a tactical and strategic framework that we believe should be the impetus for a new business model to drive revenue and profitability. Yet if there’s so much to gain, why the reluctance? And how can you avoid falling prey?
There’s plenty of “doom and gloom” out there regarding the dire results of failing to embrace technology. We prefer to see the glass half-full, with an eye on the foundational benefits that accrue to firms that are open, agile and willing to embark on this journey.
Technophobia is Real
By now, firm leaders are well aware of the critical role technology plays in every aspect of growth and operations. Yet there is often significant resistance around investing and implementing the necessary systems. Organizations that successfully embrace the tech transformation acknowledge that change is no longer episodic, but has become a constant in our profession. By the time one new technology has achieved mass adoption, several more are making their way through the innovation pipeline.
The pace of this change is as relentless as it is permanent. Think back about 10 years ago to early discussions of cloud computing—or maybe it was called the cloud back then. Before long, what seemed amorphous and futuristic had made its way solidly down to earth. Today, accounting without the cloud is unimaginable.
Technophobia is real. When a new innovation is introduced, the initial hype regarding its potential impact is often exaggerated and can be panic-inducing. A construct known as the Gartner Hype Cycle offers a graphical representation of how a technology or innovation evolves over time. The cycle starts with an “innovation trigger” and typically hits a “peak of inflated expectations”. The usually unwarranted fear that a machine will replace or overwhelm us can be paralyzing and often serves as an excuse for inaction during this hype cycle. Once a technology enters the slope of enlightenment phase, it has begun to show its true value and it is here, that historically, the long-term impacts are underestimated.
Another factor is that many accounting firms constrain themselves by approaching technology in a piecemeal, rather than a holistic fashion. A firm may introduce bots to support healthcare clients, or may integrate artificial intelligence in its client service offering. What’s lacking in these one-off pursuits is recognition that in order for technology to truly move the dial, it must become intrinsic to a firm’s mission and business model. Hence, the need for an overarching innovation strategy that is highly aligned with the business and growth strategy.
Nurturing New Skills
In the Gartner model of reactive implementation, technology is integrally tied to talent. Considering that, 31% of new hires in firms are not accounting professionals; they are data analysts, marketers, technologists and business strategists. To fully realize the value of technology, we must become skilled at this type of hiring. According to renowned accounting profession leader Bob Bunting, the ability to make focused, strategic hires will be a key factor in firm success going forward.
Most important, these individuals must coalesce into a high-functioning team. In the past, accounting was an individual sport (think golf), with each contributor building his or her own book of business, relatively independent from firm colleagues. We were compliance- and checklist-driven. But all that has changed. Serving clients in a tech-driven practice is a team sport (think football) requiring high levels of collaboration and seamless boundaries between talent and technology—away from silos and toward inter-relatedness. In this dynamic model, technology is not viewed as a department, but is considered foundational to everything that happens within a firm. It transcends the single solution to both a client-centric mindset but also an overarching support model for the organization.
Implications for Growth
To realize this potential of technology, firms will require a fundamental shift in how we drive revenue and profitability. For decades, our business model has remained unquestioned and unchanged. Our formula for revenue has mostly been the product of hours X rate. The strategy for growing our individual book of business has been primarily through referrals, i.e. the proverbial banker breakfasts and lawyer lunches.
But now, with the potential to shift many routine transactions to AI, the construct of billable hours loses relevance. To put this into perspective, consider the fact that bots can turn out impressive bookkeeping, payroll and tax services for about $2 – 3 per hour!
The definition of success in the age of technology is rapidly—and radically—changing. Today’s environment demands that firms meet the market with a team approach that’s highly specialized by technology-based services and specific buyer groups, i.e. cyber security for manufacturing, or data analytics for nonprofits. The lone ranger (individual contributor) has been replaced by a talented team of technology-linked wranglers, all pulling in the same direction.
From Here to There
How then do you restructure a business model to align with and support your innovation strategy? It starts with the question to the leaders, “do you want to innovate and grow, and why?” Only after thoughtful discussion and consideration will the leaders buy into the vision of innovation and growth. Once that is accomplished, the next step is revenue segmentation—taking a deep dive into firm revenue to uncover opportunities to marry buyer groups with relevant technologies. Revenue segmentation transforms a loose collection of individual players into a focused team. It’s a math-driven exercise that seeks to tease out the specific business problems inherent in each industry and buyer group combination.
Imagine a spreadsheet with industries listed across the top, service lines down the side and, comprising the body of the spreadsheet, the revenue contribution of each of these rows and columns, with their totals representing firm-wide revenue.
Based on this data, industry and service line leaders conduct financial analyses, breaking down revenue and profitability in various strata. The data shows you where you’ve historically been in your markets as a starting point for understanding current market presence, as well as service concentration.
The results can be eye-opening. For one firm, studying the rows and columns for areas of intersection provided a revealing view of the revenue from orphan (stand-alone) 1040s—revenue likely to evaporate with technology. The data stimulated the firm to begin planning for ways to replace that revenue well before it disappeared. For example, they discovered a significant concentration of these 1040s in particular industries and geographies. This informed their potential RPA/bot strategy – where, when and how to deploy bots.
Armed with financial analysis, it’s time for segment leaders to interview likely buyers and others in each of their markets. Gale has coined the term “looking at the market from the outside in”. This enables you to discover market “hot spots” —identifying the most challenging use case/ business problems in each industry and report back. If, for example, you discover significant fraud and waste in the procurement department of a municipality, you’ve uncovered a data analytics opportunity. Or if you find that access of subcontractors to a construction general contractor’s system is an issue—that’s a job for a customized cyber security offering.
With this critical intelligence in hand, the next step is to develop and deploy early adopter programs to confirm sources of opportunity and gauge their commercialization potential. Early adopter initiatives are the best way we know to identify and test competitive differentiators as you bring your clients new, innovative services. The method for identifying early adopters is detailed in Gale’s article, Fuel Growth with an Early Adopter Program.
Shoulders Back, Face to the Wind
Turning away from the oncoming tsunami is no longer an option. It’s time to rally everyone in your firm around the fact that embracing technology is not a choice; it’s an imperative. It’s time to look at growth through a whole new filter. Embrace the cognitive diversity within your organization to focus on the limitless possibilities for growth and sustainability and firms can successfully embark on the journey that is technology.