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.
Ric, I used the same observation by Twain years ago in an article I wrote at the request of David Connell.
Always good to review the status of the profession and make the changes that are going to position you well for the next 10 years – not the next 10 weeks!
Cheeers, Matthew
Ric, I agree with you recommendation to take part in the Businessfitness G, B and U survey. My assessment of the reason that the gap between the U and G practices exists comes down to 3 factors.
The first is the skills and expertise gap which is pretty well self-explanatory. The second is the systems and efficiency gap which I think is also self explanatory. However the third is a little less defined and this is the ‘culture’ gap.
My guess is that the ‘culture’ gap will make up the biggest percentage of the 3 gaps between a practice which is ‘good’ and the the one that is ‘ugly’. In fact I’ll go further by saying that without a great culture the other two have little chance of improving the financial performance of the practice or any business for that matter.
Unfortunately the culture gap is the one that is most difficult to measure in terms of its financial impact but it certainly isn’t hard to measure in terms of it’s existence or absence as the case may be.
If measured, my guess is that the culture of the ‘good’ practice will be streets ahead of the ‘ugly’ practice or as I said earlier, any business for that matter.