Ric Payne's Blog

Time-based pricing is the most common way professional service firms charge for their services.  A case can be made for this method of pricing but that is not my purpose in this post.  What I would like to share are my thoughts about are some of the challenges I see with this method of pricing and how it has negatively impacted firms more than their clients. Read more…

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For several years I have been expressing the view that outsourcing abroad some of the less valuable aspects of compliance services is (or should be) an inevitability.  I still firmly believe that will happen but I can’t help being amazed at the resistance that is being shown to it from (some) professional accounting bodies, governments and most firms. Read more…

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I’ve been working on the leadership component of the new Boot Camp program and have given it a major re-work because I believe that leadership is the principal success driver in any organization.  Anyway, one of the things I really want to emphasize is the need for people to focus on their strengths rather than their weaknesses.  This may seem counter-intuitive but it makes all the sense in the world. Read more…

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The Cherokee Indians, as is the case with all native people, use insightful stories to convey meaning and seek understanding of people and their behavior.  One such story that the elders tell their children is about fighting wolves.  They say that inside every person are two wolves constantly fighting.  One of these wolves is an evil character who is angry, jealous, lazy, impatient, self-centered, egotistical, negative, irresponsible and unforgiving.  The other wolf is loving, kind, generous, humble, caring, enterprising, positive and responsible.   Typically, a child when told about this will ask “which wolf wins?”  To which question the elder will answer “which ever one you feed.” Read more…

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I was talking with a young Australian Chartered Accountant recently and he told me he had just received his full CA qualification and was planning to leave the firm he’d been with for several years.  When I asked why, he said he was sick of working for a dictator!

I recall reading an excellent comment on this by Hans Finzel in his book, The Top Ten Mistakes Leaders Make.  I quote:

No one likes to live under dictators–they take all the fun out of life and work! Dictators in the business world hog all the decision-making. They feel that by virtue of their ownership, position, intelligence, or birthright, they are in charge of every key decision that will be made in the company or organization. These traditionalists do not see the value of facilitative leadership or the power of teams.  Needless to say, dictators attract weak workers and cannot create a positive, empowering workplace.

I often wonder how common this style of leadership is in professional service firms.  I believe it’s more common than many people think or are willing to acknowledge.  What a huge cost that is to the growth of the firm, its clients and especially its team members.

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This is about as close as it gets to describing the role of a managing partner.

What are your thoughts?

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The number one issue facing business today is finding, hiring and retaining productive team members.  According to Terri Kabachnick in I Quit, But Forgot to Tell You 75% of the demand for new employees is to replace departed ones rather than accommodate growth in the business.  She also mentions that disengagement amongst employees is rampant with nearly two thirds saying they are disengaged and a staggering 84% of executives, managers and associates stated that they like what they do but not where they do it.

Research done by Fred Reichheld and his team at Bain & Company indicates that high profit performing companies have two characteristics in common: Read more…

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What separates great firms from the rest of the pack is the quality of leadership and yet, with the notable exception of large firms, our profession pays little more than lip service to proactively encouraging leadership development.

I could spend time discussing why my thoughts on why this is so but I suspect we all know the root cause … training, developing, coaching, mentoring etc sound awfully like “time consuming” and in an environment where the general view is that “time is money” these activities don’t get much attention. Such an environment characterizes most small and mid sized (and therefore nearly all) firms.

In multi-owner professional service firms (PSFs) this is a particular problem because chargeable client work is generally considered to be a more valuable activity than running the business. Charging time yields immediate “financial” gratification whereas the payoff from leadership is not so visible in the short term. Leadership in such an environment is your night job.

More often than not lip service is paid to the role of Managing Partner and when push comes to shove critical decisions (both operational and strategic) are often made by a show of hands by the owner group with no one person having the time, interest, desire or the power to ensure successful execution. If things don’t work out everyone draws comfort from being part of the crowd rather than have the failure rest at the foot of one of them alone—there may be comfort in numbers but comfort does not equate to results and greatness does not emerge from comfort zones.

It is not much different for the sole practitioner. For the most part, the owner is the major rainmaker and fee earner. To make a living doing technical work is the name of the game and once again, leadership is the night job. It’s little wonder most sole practitioners find it incredibly hard to break free of the shackles of the small firm with 3-4 people.

BUT, here’s the really interesting thing. THE MOST PROFITABLE accounting firms on the planet are sole practitioners! These people represent less that 1% of all firms and they are making more than $1 million for themselves every year. How so you might ask? The answer is simple: these people have learnt how to lead, they understand the power of leverage and have built an organization of 20+ people who do the work that accounting firms do with a management group in place so that they can get on with the work that business builders do.

I believe it was David Maister who said “most firms are over managed and under led.” I agree with that. Management is essentially about the short term, it’s about this year’s income and this year’s problems. Leadership is about the long term, it’s about the growth of the firm and its people, it’s about seeing and seizing opportunities, it’s about innovation and going places others have not thought about.

Being a leader is a lonely role and in both multi-owner firms and sole practitioners leaders have no one there to give them a frank assessment of their performance. That being the case they should consider asking themselves some serious questions.

In the January 2007 edition of the Harvard Business Review, Bob Kaplan published a great article on leadership called, What to Ask the Person in the Mirror (you can buy the article for $US6.50 from the Harvard Online site.) It’s an article that I would recommend to any person in a leadership position (or aspiring to such a position) in any organization but especially one where there is no-one else there willing or able to give you candid feedback and challenge the way you’re running your business.

Kaplan poses a series of questions that relate to seven leadership challenges. Here is a summary:

Challenge 1: Vision and priorities

How often do I communicate our vision and our key priorities to achieve that vision?

Employees want and need to know where the business is going and how it is going to get there. It is not enough to pontificate a view of the world and the hopes and aspirations of the organization at the annual retreat and then check that task off the list as you move on to the next item on your agenda.

Challenge 2: Managing time

Does the way I spend my time match my key priorities?

When your team see you spending your time on matters that do not seem to connect with your stated top priorities they become confused and disorientated. Too often leaders find themselves dealing with operational problems rather than seeking and exploiting opportunities.

In professional service firms (PSFs) many so-called leaders focus on doing chargeable work. For technical specialists that is totally acceptable but that being the case, these people should not be expected to assume a leadership role other than in their technical area. The serious challenge is that in many (and I’d suggest most) of these firms there is pressure for all the senior people to be chargeable with the result that the business is not being led and instead is drifting aimlessly in the sea of mediocrity.

Challenge 3: Giving feedback

Do I give people timely and direct feedback they can act on?

Trust is critical for team member engagement and productivity. And the key requirement for a trusting relationship is regular, timely and candid feedback on performance. It’s a lot easier to avoid confrontation and put aside what might appear to be minor performance failures but that does not solve the problem. Instead, it implicitly endorses an acceptance of sub par performance which ultimately becomes serious under-performance. At that point, feedback is resented, trust is eroded and an effective working relationship breaks down. On the issue of trust, one of the best books I’ve read this year is Patrick Lencioni’s The Five Dysfunctions of a Team. I strongly recommend you buy a copy, it’s highly readable and not too long!

Challenge 4: Succession planning

Have I identified potential successors?

One of the most important criteria of a leader’s success is the quality of the management team he leaves behind after he leaves the job. If you can’t honestly say that you have picked at least one potential successor you are not doing you job.. Kaplan makes the point that people who do not think about their successors are generally not good delegators and this cascades down through the organization. As a result of this younger talent is not challenged and developed and is likely top leave for better opportunities.

This is a particular problem in PSFs because so much store is placed on the value of chargeable work resulting in the mistaken (in my view) belief that “leading from the front” means doing lots of chargeable work and being seen to put in lots of hours, working hard and fast—note there’s no mention here of working smart.

Challenge 5: Evaluation and alignment

Am I attuned to changes in the business environment that may require shifts in how we organize and run the firm?

Both the external and the internal environment of the business is changing. Clients needs generally as well as at the individual level will be changing as will the firm’s. For example, the position of the firm in its own lifecycle (this applies to your clients as well) will mandate a different set on priorities and organization structure. In a rapid growth phase, introducing new services is unlikely to be on the top of your mind but cash flow, hiring talent and workflow management probably are. On the other hand when your business moves into a mature phase and growth slows, your mind will need to shift to marketing, mergers and acquisitions, new service lines, talent development and profit management.

This idea reminds us of the relevance of the phrase: your past success is no guarantee to your future success. In fact, past success often leads to complacency which explains why so many firms stagnate and why Jim Collins is so right when he says good is the enemy of great.

Challenge 6: Leading under pressure

How do I behave under pressure and what signals do I send?

People react to different situations in different ways and what may cause you a lot of anxiety may not worry someone else. But the way you, as a leader, behave in response to different situations sets the tone for the whole organization.

Things don’t always work out the way you’d like and if you become agitated and look for people to blame rather than take responsibility yourself this will encourage everyone in the organization to (a) share your anxiety and (b) to look for someone else to blame. This leads to a very defensive, negatively focused, “keep your head low, protect your backside” culture which is not the stuff great organizations are made of. Highly anxious and expressive leaders do not encourage candid feedback from their subordinates relating to business challenges. As a consequence a situation may be allowed to develop which becomes much harder to manage later on and in turn leads to an even more serious challenge.

This is another reason why some people draw comfort from the “partnership” management model in which everyone can seek the shelter of the group . If you subscribe to the view that the “group” must take responsibility then your organization is effectively leaderless. The only responsibility a group has is to appoint and then support a leader. If the leader is not performing then the “group” should put someone else in the role but until that point the “group” should support the person and the position. In my opinion there is a need to separate ownership from leadership.

Challenge 7: Staying true to yourself

Does my leadership style reflect who I am?

Abraham Lincoln said “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.” Kaplan notes that a career in business is a marathon not a sprint and you try to be what you aren’t by nature you will have a serious challenge.

Different people have different natural leadership styles each of which are better suited to different situations. It is possible to observe and adopt behaviors that you have seen to be successful but you can’t change who you are. At the end of the day you must create your own unique style that fits with your personality and skills.

In responding to this question you should be asking yourself some additional questions such as: am I assertive enough or have I become tentative? Am I too politically correct? Am I too worried about getting on with or second-guessing my boss (or my peers) to cause me to hold back rather than express my views candidly?

One of the most important things you’ll learn when you read Lencioni’s book is that fear of conflict is one of the most important and debilitating dysfunctions of a team. Positive conflict is a necessary condition for trust. Teams that engage in productive conflict understand that its purpose to achieve the best possible result in the shortest possible time by drawing out the best in each other and finding solutions to challenges. This is the basis upon which all great businesses are built.

Challenge 8: Passion

Am I really passionate about this business and my role in it?

This is not one of Kaplan’s questions but I believe it should be asked. If you are not genuinely passionate about the business and the leadership role how can you possible expect your team to display any passion. Is this really what you want to be doing at this stage of your life then you are in the right place but you may need to change some of your behaviors to make the most of your opportunity.

Here’s how you can make some use of these ideas

Get a copy of Kaplan’s article and give it to each person in your partner group (and senior managers if you wish.) Have each person score himself or herself on a scale of 1 to 5 (where 5 is great) in relation to each of the challenges and then have each person anonymously do likewise for the other partners. The peer assessment should then be given to the person being assessed who will then review the feedback and compare it with his/her self-assessment.

Before the next step you might want to read The 5 Dysfunctions of a Team by Patrick Lencioni. You can start this by reading the summary that starts on page 191 and is a quick 28 page read – there’s a Team Assessment questionnaire on page 192 that will enable you to determine if you have a dysfunctional team. You might also want to visit Lencioni’s website www.tablegroup.com.

Now, the next step would be to get together for half a day as a group and talk about the impact the different leadership styles might be having on the organization and what you each plan to do about it. You never know, you might end up electing a new Managing Partner. If you are a sole practitioner do the same thing and have one or more of your team members assess you.  Click here to download the self assessment questionnaire from our site.

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Joe Calloway, author of Becoming a Category of One, makes the point that your past success can be the enemy of future success. This is an interesting thought and is consistent with the suggestion I made in a previous post that complacency tends to sneak into the management style of businesses that have been around for a while and are giving their owners a “reasonable” and “acceptable” return on their investment of money and time.

The accounting service industry is one of many (I’d suggest, most) industries that are caught in what Calloway calls a commodity trap. Customers see parity everywhere they look and when they ask the question “why should I do business with you?” what’s your response? Are you really different from other firms, are you doing things differently to the way you were doing them 5 to 10 years ago?

Much of what you do places you in the commodity business and that’s perfectly OK. You don’t need to fight it, embrace it with open arms. Why? Because as long as your competitors continue to do what they’ve always done you have a fantastic opportunity to break clear of the pack not by pretending to do something different or better or cheaper but by consciously working on the experience your customers have when they deal with you. You may not be able to easily and significantly differentiate your product but you certainly can differentiate the process by which it is created and delivered together with it’s usefulness (read “ultimate value”) to your clients.

Irrespective of whether you’re just starting out or you have an established firm, ask yourself the following question: “If we were starting from a zero base what would I want my firm to look like?” In other words, “what vision do I have for my firm? How big and challenging is that vision?” Remember, the size of your vision will determine the size of your accomplishments! Read The Magic of Thinking Big by David Schwartz to understand the importance of those words.

This will get you thinking about things like …

1. The clients you would like to have – this will lead to consideration being given to your client communication (read marketing!) processes and to your business value proposition
2. The products/services you’d offer – this also touches on your business value proposition and pricing decision as well as your team sales and technical training processes
3. The prices you’d charge – see above – your profit starts and largely ends with this decision. Know your costs but price on perceived value delivered.
4. The team you’d employ – see above – excite them give them purpose and get them closer to your clients
5. The office facility you’d have – what your office looks like defines in the minds of team members, clients and prospects how you see yourself, they won’t see you as a leading edge firm if you don’t look like one and your pricing decision needs to be consistent with your public image.
6. The management processes you’d have in place.

Every firm should have a makeover every 3-5 years. Here are some thoughts as to what you could do:

1. Start with a big office clean out e.g. get files off the floor and now that you can actually see most of your carpet, why not get it shampooed.
2. Re-design your branding and logo. Take a critical look at your firm brochure—does it pass the WIIFM test or is it a recital about who you are, what you do and where you are located? Here’s the real test question: Does your brochure tell your client or prospective client how s/he will benefit from working with your firm? As a Principa Alliance member you have access to a bunch of brochures that are print ready. Use them, they’re part of the re-positioning process! By the way, if you click on links in this post that go to our website, you you will need to be logged in at the appropriate membership level to access the document or page.
3. Revamp your website – if you’re a Principa Member get your web people to install your FREE co-branded member website and make a statement to the world about the business development services you could be offering. If you don’t know what I’m talking about call your Principa PDA now.
4. Do you have messages on hold or do your callers have to listen to the news, other firm’s advertisments or silence. As an Alliance Member you can use messages on hold for free. This is one way to advise your callers of services that they probably do not know you can offer.
5. Refurbish your reception area e.g. re-paint, re-carpet, replace stained and threadbare upholstery, replace hard uncomfortable waiting chairs, rid the area of horrible dated and dusty artwork and artificial plants/flowers.
6. Install a flat screen monitor in your reception area and hook it up to an old computer to run a PowerPoint slide deck promoting the value-adding services you offer, client testimonials and/or Principa’s lobby slide deck. Because the lobby slide deck is a 60mb PowerPoint presentation you’ll need to contact us for copy on CD but it comes free with your membership of the Alliance.
7. Buy new coffee cups, glasses, water jugs and serving plates. Get a Nespresso Coffee machine (www.nespresso.com) and delight your guests with affordable, high quality and fast serving coffee.
8. Start, or re-start, your client newsletter and in it tell them something they might actually be interested in, something new and exciting (and that will not be something about the latest change in tax law!). If you’re a member of the Principa Alliance you have a newsletter system you can implement immediately that is one part of the smorgasboard of marketing tools and resources at your fingertips.
9. Run some seminars a couple of times a year and schedule monthly client breakfast meetings that will be of interest to your clients. Principa has dozens of turn-key seminars and workouts for you to choose from and you can also host guest presenters and thereby widen your sphere of influence and your network.
10. Never give your business clients a set of financial statements without a GamePlan Three Bottom Lines Report and/or an Annual Business Performance Review and allocate at least 90% of the review meeting talking about future opportunities rather than past outcomes. A quick discussion on the four ways to grow a business makes a great starting point. Given the current economic climate you might want to add the blog posting I wrote on the strategic opportunities that the current economic climate offers savvy business people.
11. In addition to cleaning your office you should give your client portfolio a makeover. Undertake a Pareto analysis of your client base to determine who amongst them are your major profit contributors — you’ll need to find a way to assign a servicing cost to each client to do this which will be the subject of a White Paper I’m about to publish so keep your eye open for that. There’s also a basic framework for this analysis in the 3-Year Planning Model in FirmPlan. Explore ways to lift the profitability of the bottom 20% of clients or seriously consider referring them to another firm that is better suited to their needs so that you free up capacity to work with other customers.
12. Talk to your clients. You can do this in several ways, your newsletter is one way, another is to take one day out of each week to visit with your clients just to see how they’re going and how your firm is performing from their perspective — these visits will pay for themselves many time over. Yet another way is to conduct a Client Advisory Board at least once every year.
13. Talk to your team members. They are close to the action. Ask them to complete a Team Member Feedback questionnaire. You’ll be amazed at the ideas your team will come up with that you can use to delight your customers. We have compiled a list of more than 1,000 ideas from team members of our member firms. Contact us if you’d like a copy.
14. Re-engage your team in the process by revisiting Towards Awesome Service and Phone Right. The latest DVD versions of these fantastic business-changing products are now available and Members of the Alliance can also view TAS, Phone Right and Building a Better Business online. These make great lunch + learn material that will get your team thinking about what you could be doing for clients as well as your firm.
15. Purchase and read a copy of Paddi Lund’s book The Absolutely Critical Non-Essentials, it’ll give you a great understanding of why little things are important and lots of ideas for some implementing CNEs in your own practice.

For a very small investment of time and money you could give your firm a makeover that will help you stand out from the pack. In the same way that your vehicle needs a clean out and routine maintenance every 5,000 miles so too does your business. These initiatives are not superficial, cosmetic window dressing. They will give you a new look and feel, they’ll make your team feel good about your firm and themselves. Interestingly an article written by Rachel Kelloway in the Weekend Australian (August 2-3, 2008) titled “Office fit-outs count in chase for productivity” made precisely this point. You’ll see the same growth that you experienced when your firm first started out if you are willing to back up the makeover with the same commitment, passion and action that you exhibited then.

There are four success drivers. They are:

Desire – have a very specific set of written goals that you can break down into 10, 5, 1 year success benchmarks. Break your 1 year goal down in to monthly targets which in turn can cascade into weekly and daily activity activities. Our simple one-year strategic plan template will help you focus in on this process.

Direction – this is your strategy. It follows from your goals and defines your the framework for action. We have created a simple one page strategic plan framework that builds from your firm’s Mission Statement (do you have one? If not you should create one. A business without a Mission (read Purpose) is like a ship with out a rudder.

Discipline – everyone in your firm must be disciplined; especially the leaders. Do what you say you’ll do and expect your team to do likewise. Keep focused on your result-yielding initiatives and if they cease to yield the desired results change your strategy or your activities. Remember Activity (not ideas and not talk) Produces Results. Focus will be achieved if you conduct a daily 15 minute meeting with your team using a 3-Point Agenda (with everyone standing so you don’t get too comfortable): what’s happened since yesterday that you should know about, what do you plan to get done today? what decisions must be taken, or what help do you need, to accomplish your plan today?

Determination – Rome was not built in a day. Success may take more time than you’d like and it often involves many iterations. Adopt a mindset along the lines of “what would I do if I knew I could not fail.” In fact take that thought to another level and purge from your brain any thought of not succeeding. Take some time out to read a book (or download the audio version to your iPod) called the Law of Attraction: The Science of Attracting More of What You Want and Less of What You Don’t by Michael Losier

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The title of this post is something Mark Twain said many years ago. It is indeed time to pause and reflect for many firms in the accounting profession. The economy is tough, it’s hard to attract and retain talent, baby-boomers are looking to retire in the near future, clients are hurting, competition both within and from outside the profession is intensifying … need I go on.

Despite all of this I’m reminded of words that I have been chanting for as long as I can remember: in any industry, at any time, there are some businesses that out-perform the rest by an order of magnitude. The accounting services sector is no exception.

In his best selling book Good to Great, Jim Collins makes the insightful point that the reason we don’t see many great companies is because the vast majority are quite good. Good, he says, is the enemy of great. Collins’ book is a must-read for anyone serious about improving the economic performance of their business and who want to escape from the sea of sameness that characterizes most industries. He also has a website that’s worth visiting (www.jimcollins.com).

For the most part, mature industries, e.g. the accounting profession, tend not to be hotbeds of innovation. Rather, the “rules” of the game are well known and practiced and most firms are reasonably good at playing the game by the rules they all know. This is why the vast majority of firms drift aimlessly in the sea of sameness.

Mankind exhibits a heard mentality. People, by nature, tend to feel comfortable going with the flow and as long as they’re performing more or less at the same level as others around them they’re content with life. The wide availability of inter-firm comparison data and best practice benchmarking studies might even contribute to industry malaise because they give comfort to the 68% of firms that are content to be within 1 standard deviation of average performance.

However, the great firms view benchmarking studies in a totally different light. They are the ones that leap ahead of the pack, not by following “best practice” performance but by innovatively creating and defining “best practice”.

Clayton Christensen in his seminal book, The Innovators Dilemma: When new technologies cause great firms to fail, noted that new entrants are much more likely than incumbents to innovate. Although Christensen is not talking about the accounting industry his observation explains why new kids on the block often seem to be able to create a firm that has a refreshing feel about it that appeals to both customers and team members and represents a viable alternative to established practices.

These firms experience rapid growth and often race past established firms with respect to profitability, the ability to hire and retain talent and the quality of new business they attract. They exhibit a vitality that older firms lack but once the new order has become established, complacency inevitably sneaks in, a fear of losing market share emerges, innovative energy subsides and opportunities are ignored and missed. The firm settles comfortably into the role of being an accounting business like all the others and gets more or less the same results as all of the others. Best practice in that context becomes nothing more than “typically quite good practice”.

Notwithstanding the above comments, studies of best practice can be very useful to identify potential and in particular to show under-performing firms that there is room for improvement. But they can also serve to stifle innovation by encouraging firms to mimic the strategies and operations of the best performers and while this might help the under-performers lift their game it manifests a me-too industry that exhibits very little product or process innovation.

There is no panacea for migrating a good firm to a great firm. Many roads lead to the desired destination and each individual firm needs to decide what road suits and then set out on the journey with confidence and conviction.

My advice is to look at metrics from benchmarking studies from a holistic perspective and use that information in conjunction with innovative “out-of-box” thinking to decide how to implement change in the way you operate your business.

One of the world’s best studies of accounting firm performance is the annual The Good, The Bad and The Ugly of the (Australian) Accounting Profession (sorry if you’re not an Australian firm) study carried out by my friends at Business Fitness. The 2008 study has just opened and I urge every firm in Australia to participate in the study. There is no charge for participating and you will receive a bucket load of value:

• Insights from leading industry commentators (e.g. me!!!) with the theme “How to Use Benchmarking to Frame Your Practice”.
• Your firm’s ranking plus Comparison Tables highlighting your results as either ‘Good’, ‘Bad’ or ‘Ugly’ against all firms, firms in the same revenue group, by location and charge out rates.
• Efficiency Factor™ (a pretty cool Business Fitness innovation being a one-number summary that brings together profitability, productivity and financial management efficiency to paint an overall picture of how good your firm is on multiple management fronts) together with a one page report highlighting your firm’s efficiency result against the high achieving firms.

The survey closes on August 22, 2008 so get it done now. The small amount of time you put into completing the survey will yield an extraordinarily useful report that will be invaluable for your strategic planning. Perhaps more importantly, the process will give you insights into your own business (one of which might be how little you actually know about it) that will give you reason to pause and reflect on what you could and should be doing to migrate your firm from good to great. In my next post I will be giving you a raft of ideas you can implement right now to accomplish that goal.

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