new strategies for profit and performance your strategy should be the solution, not the problem. cpa...
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New Strategies for Profit and Performance
Your strategy should be the solution, not the problem.
CPA Leadership InstituteAugust 7, 2013
What do you find is the greatest marketing
challenge facing your firm?
How do you think the most successful firms
will address these marketing challenges
in the future?
Current Strategic Challenges
• Shrinking margins• Downward fee pressure• Complexity• Labor
– Shortages– Demographics– Cost– Efficiency
• Technology integration
Average Profit Margins
26.0%
28.0%
30.0%
32.0%
34.0%
36.0%
2005 2006 2007 2008 2009 2010 2011 2012
34.6%
32.5%31.5%
30.5%29.1% 29.1%
30.0% 30.3%
Perc
enta
ge
Margin
© INSIDE Public Accounting 2012 Used with permission
Complexity
• Laws and regulations• Standards• Information overload• Deal structures/financial
instruments • Risk analysis• Technology
• “Any fool can make things bigger, more complex, and more violent. It takes a touch of genius-and a lot of courage-to move in the opposite direction.” Albert Einstein
Competition
• Every firm– Needs more good people– Needs for everyone to work faster– Needs everyone to be more
accountable– Needs more clients that will pay their
fees– Needs brain power and capital for
succession– Wants to be the best
“If rivals all pursue the “one best way” to compete, they will find themselves on a collision course”.
Understanding Michael Porter Joan Magretta 2012
Competitive Forces that Shape Strategy
Bargaining Powerof clients
Bargaining powerof experienced CPAs
Threat of new firms
Threat of substituteproducts or services
Rivalry among existing
competitors
Adapted from Understanding Michael Porter Joan Magretta 2012
AICPA Demographics
Source: AICPA 2009
AICPA Demographics
-20 -15 -10 -5 0 5 10 15 20 25 30 35 40
26
31
36
41
46
51
56
61
Women
Men
CPA Human Capital “Cliff”
CPAs
Non-CPAs
MenWomen
Women Men
Salary & Benefit Costs• Average personnel costs as
a percentage of net revenue– 2012 45.1%*
• Many firms 50%+
* © INSIDE Public Accounting 2012 Used with permission
Salary Trends
5000055000600006500070000750008000085000
Dollar Am
ount
Average Pay per Professional
All Firms
T100
© INSIDE Public Accounting 2012 Used with permission
Average Pay per Professional
0.0%
5.0%
10.0%
0-2 3-5 6-7 8-9 >10 Avg
Percentage Increase 2007-2011
© INSIDE Public Accounting 2011 Used with permission
5 Year Trends
0.0%
2.0%
4.0%
6.0%
8.0%
All FirmsT100
Avg Salary Realized RPH
© INSIDE Public Accounting 2011 Used with permission
Innovations in Communication
• Written language >3500 BC• Printing press China 1000AD
Gutenberg1436AD
• Digital word About 1940AD• Accounting 1970-1980’s
Innovation Curves
Strategy
“Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition”.
Competitive Strategy Michael Porter 1985
Keys to Success
• Strategic competition means choosing a path different from that of others.
Understanding Michael Porter Joan Magretta 2012
Firm of the Future
CPAs
Non CPAs
Strategies
• Consolidation• Cost advantage• Differentiation• Technology
Consolidation
Shake-Out
• Age of partners• Lack of succession options• Unwilling to invest in technology• Lack of capital• Unable to extract value• Lack of expertise/specialty• Profitability pressures
Is growth in itself a strategy?
Growth Objectives• Talent • Niche/Specialty• Geography• Critical mass in practice areas• Economies of scale• Profitability• Improved client service
Consolidation
• Challenges– Management– Integration– Processes and systems– Standardization– Capital/investment– Risk
Consolidation
• Challenges– Transition/succession– Client relationships– Client service– Increased fee structures
PCPS Top Issues
• Partner accountability/unity• Bringing in new clients• Retention of current clients• Fee Pressure/Pricing of services• Developing a succession plan
Source: AICPA 2011
Cost Advantage
• Labor costs• Efficiency• Leverage• Technology
Reduce Labor Costs
• Reverse upward delegation– Don’t allow people to work below
their level– Higher level personnel must
leverage– Utilization levels need to increase– Hire skill levels for the task
What tasks are you doing that you shouldn’t be doing?
• Scanning• Admin duties• Setting up files• Making copies• Inputting 1099s• Typing letters• Write up work• Payroll reports
• Chasing client info• Data entry• Data imports• Filing PDF docs• Ordering supplies• Deliveries• Filing• Bank
reconciliations
Redefine Positions
• Data management• Executive assistants• Data input• Technology specialists• Client relationship specialists• Technical specialists• Team
leaders/managers/supervisors
Reduce Labor Costs
• Manage and control• Gain efficiencies
– Standardization– Processes and procedures– Specialization– Leverage/critical mass
• Manage margins
• “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency”. Bill Gates
Processes Lagging
Over 60%
Files not Consistent
Over 72%
Innovation 2009
The Henry Ford of Heart Surgery In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits
Source Wall Street Journal Nov 2009
Innovation Headline 2013
Inside India's 'No-Frills' Hospitals, Where Heart Surgery Costs Just $800
Source: Business Insider April 21, 2013
Innovation in Public Accounting
www.cpainnovationproject.com
Technology
• Adoption and integration• Appropriate level of experience• Consistent application• Improve proficiency• Avoid duplication• Simplify!
Technology
• Strategic partners• Process driven• Limit manual tasks
Processes• Intake
– Standardized– Paperless– Organized– Timely
• Type of service• Relationships?
Differentiation
• Specialization• Geographic location• Niche services• Client service
Specialization
• Critical mass• Expertise• Efficiency• Processes• Investment• Rapid growth• Reputation
www.SteveEricksonCPA.com
Leverage
Strategy and Value Curve
$
Geography
• Less competition• High value• Convenient• Technology• Need for better management
and processes
Client Service Strategy
• Staff– Engagement– Control – Part of something bigger– Success
What Employees Want
• Valuable work• To be successful• To feel secure• To be needed• To be cared about
Rating of Motivators
0
100
200
300
400
500
600
700
Flex Time Money Position Fringe Clients Team Success Learning
7
8
9
Copyright ©2012 Steve Erickson LLC
Leadership Lesson from Neha
Leadership Lessons from Neha
• Care for me and I just exist.• Care about me and
– I will care about you– I will try harder– I will do better– I will learn– Our relationship will grow ever
deeper– I will succeed
You know what needs to be changed in your firm to improve client retention and client
acquisition.
Start the Journey• Start building a culture of success• Tie the marketing plan to the firm
strategic plan• Change the language in your
practice• Make outstanding client service the
gold standard in your firm• Define marketing in terms of the
solution, not the problem
Take advantage of the opportunity before you
to truly differentiate your firm from your
competition.
Copyright © 2012 Steve Erickson LLC
Accounting FirmProfit Improvement Model TM