Illustrations by Martin Megino
Accounting firms constantly advise their clients to embrace
new technology, but what groundbreaking developments
are going on behind their own doors?
George W. Russell
looks at innovation culture within CPA firms
S
ettling into his role as the first Chief Innova-tion Officer at a major CPA firm, Derek Bang has no illusions about the challenge of getting his accountant colleagues to think big.“I must say that many CPA firms are sim-ply not known for trying new things,” says Bang, CIO of Crowe Horwath, the eighth largest CPA firm in the United States by revenue. “They tend to follow in terms of compliance, and they colour in between the lines as it were.”
Bang’s appointment last November was prompted by the firm’s desire to promote innovation as a way of improving per-formance and sharpening strategy. “We want to broadly chal-lenge the traditional ways in terms of service delivery and cli-ent experience,” Bang, an American Institute of CPAs member, tells A Plus from his office in Indianapolis.
With the wealth of new hardware, software, apps and
ro-botics being constantly developed, it’s no surprise that ac-counting firms, as trusted business partners, urge their clients to innovate or risk falling behind competitors. But amid tougher competition, pressure on prices, automation, outsourcing and new regulations, some industry experts believe accounting firms should be looking at their own need to innovate.
Innovation advocates warn that, with technological and cultural evolution, clients may become less dependent on the current CPA business model. “With one click, clients will by-pass the accountant,” Rob Nixon, Chief Executive Officer of Proactive Accountants Network, a Brisbane-based consultant to CPA firms in 38 countries, told a conference in Bali in July.
He was referring to initiatives such as the Australian Taxa-tion Office’s myTax service. Already, 30 percent of small busi-nesses use the do-it-yourself option and thus no longer need an accountant to file their returns. “Digital disruption is going to
INSIDE
Technology
kill a certain part of your revenue,” said Nixon.
Such disruption, say experts, needs to be harnessed to work in the firm’s favour. “There seems to be a great divide between the accounting firms who have adopted technology and those that have not,” says Tanya Titman, Managing Director of Con-solid8, a Brisbane-based consultant to ac-counting firms.
Innovation specialists say the first step for any CPA firm is to figure out where they fall short. “CPAs have to change their perspec-tives in order to be in a position to identify the innovation, which really helps them with their day-to-day challenges,” says Hubertus Eichler, Head of Corporate Governance, Risk and Compliance Services at Mazars in Munich.
To be sure, the innovation bug is be-ginning to bite accounting firms. In
2009, PricewaterhouseCoopers in the U.S. launched iPlace, as a way for
em-ployees to suggest innovative ideas that could help the firm’s customers.
“People are bubbling over with ideas and creative ways to deliver more val-ue to clients,” PwC’s U.S. Innovation Leader, Mitra M. Best, said at the time.
Best noted that many of the ideas that iPlace receives are also suggestions for internal use by the firm. One initiative that changed the way PwC in the U.S. collected employee expense receipts saved “hundreds of thousands” of dollars, Best recently noted in her blog.
Applying digital innovation strategies for both in-house and client use is also true to KPMG. “We continue to focus on inter-nal innovation,” KPMG’s Global Chairman, John Veihmeyer, said recently, citing the firm’s investments in cloud computing and data analytics.
The change of mood is especially notice-able in the mid-tier level and smaller firms that are less focused than the Big Four on lucrative advisory work and more heavily de-pendent on audit and tax, where cost savings through innovation can really matter.
Consultants acknowledge that firms smaller than the Big Four and even the larg-est of the mid-tier firms might not be able to afford the luxury of a chief innovation officer. “The reality is that in a smaller accounting firm the principal needs to wear a CIO hat,” says Titman.
“From my point of view, accounting firms generally are open towards technical
inno-vations that help them improve audit effi-ciency,” says Eichler. “This is especially true for tools that support them in structuring and documenting the audit process.”
Experts stress that there is more to inno-vation at CPA firms than buying a shiny new box of tools and installing its contents on the firm’s computers. “To a lot of people, inno-vation equals software,” says Bang at Crowe Horwath.
A former healthcare industry consulting partner, Bang led the development of Crowe Revenue Cycle Analytics, the firm’s patented healthcare revenue analysis and reporting application. Crowe Horwath says its suite of apps have added US$100 million to its bottom line in the past five years.
Such apps are part of the global accounting software market, worth nearly US$100 billion in 2012, according to the Gartner consultancy in New York. Products range from large sys-tems created by enterprise giants Oracle and SAP, to bespoke in-house auditing software such as PwC’s Aura, and solutions for smaller companies made by providers such as Intuit, Xero, Sage, Microsoft and Hong Kong’s own FlexSystem.
Beyond technology
While CPAs might be struggling in adopting technology, other innovative ideas can es-cape them. “I observe that CPA firm owners are still lagging behind when it comes to in-vesting in the success skills – we used to call them ‘soft’ skills – for their employees,” says Rita Keller, Principal of Keller Advisors in Beavercreek, Ohio, which advises U.S. ac-counting firms.
There are exceptions. In Hong Kong, inno-vation tends to be more technology focused. Mazars recently implemented a cloud-based regional enterprise risk planning platform embracing its operations in China (including Hong Kong) and Singapore. The platform will be deployed in the rest of the Asia-Pacific region in the next 12 months and progres-sively implemented in other regions.
Stephen Weatherseed, Managing Direc-tor of Mazars and a Hong Kong Institute of CPAs member, says ERP brings economies of scale. “It aligns our business processes across three practices,” he says. “In terms of financial reporting, [ERP] frees up our team from tedious tasks such as processing so they can focus more on value-added tasks, such as analysis and forecast-ing.” Eichler, a member of the In-stitut der Wirtschaftsprüfer in Deutschland, led the develop-ment of Kulturkompass. This methodology to gauge the firm’s progress in corporate culture – an index of environ-mental, sustainability, gover-nance, human rights and other measurable characteristics – was introduced across the Mazars firm.
In many cases, in-novation for CPAs is not so much about creating a killer app as identifying a process that can be streamlined. “A culture of continuous improvement is innova-tion,” Weatherseed says, “but it doesn’t have to be software. With auditing, it’s a case of ‘what did we do last year?’ That’s a basis for challenging that process. That is innovation.”
At Crowe Horwath, the innovation quest is divided into three
main battlefronts: functional knowledge, such as standards and compliance; industry experience, whether banking, healthcare or manufacturing, etc.; and applied technology, which is knowledge gleaned from clients, business partners and other external sources.
While employees have been keen to of-fer suggestions – one employee cut a client
Technology
“ CPAs have to
change their
perspectives in
order to be in a
position to identify
the innovation,
which really
helps them with
their day-to-day
challenges.”
software update process from two days to 10 minutes – Bang stresses that the company has to “truly back ideas up with support, funding and infrastructure and get ideas executed.”
Heads in the cloud
Industry consultants say demographics also play an important part to help innovation win out at CPA firms. Keller, an AICPA member, says much of the lack of willingness to invest in new practices and technologies is caused by a generation of owners near retirement age. “They make the spending decisions and have no desire to invest when they will not reap the benefits of the investment,” she says.
As the next generation of leaders takes over in accounting firms, Keller sees continued and accelerated acceptance of more innovative solutions to practice management and client service. “I see many firms in the U.S. establish-ing ‘next generation councils’ and empowerestablish-ing them to research issues that they would like to see the firm implement,” she notes. “This is the kind of cultural activities that will keep innova-tion moving inside CPA firms.”
In Hong Kong, some technology vendors see difficulties in coordinating rollouts of technology across firms with a worldwide footprint. “But how many accounting firms
can do this in practice? Most partnerships are not global,” observes Ashley Clarke, Chief Operating Officer of FlexSystem and a speaker at the Institute’s information tech-nology conference in November (See How In-stitute members can keep up with technology trends below).
Cloud-based technology might go to-wards breaking down some of those national barriers, according to Titman at Consolid8. “Cloud technology has revolutionized the industry,” she says. “We see the future for ac-countants is around providing clients with seamless integration of all the technology
pro-viders. The providers who focus on delivering a system with scalability will not just survive but will thrive.”
Some firms say they realize the impor-tance of scalability. For example, Mazars sees innovation as a key strategic issue supervised by the network’s global executive board, ac-cording to Weatherseed. “The board empha-sizes this importance through requiring each of the Mazars global business units to incor-porate innovation in their plans,” he says. “All partners in Mazars have innovation included as part of our annual appraisal.”
Eichler, his German colleague, sees real innovation at CPA firms occurring only if their management moves beyond structured anal-ysis into change management and thought leadership. “I have not seen a lot of real non-IT-based innovation in accounting firms in the past 20 years,” he says.
Keller in the U.S. agrees. “At this point in time, CPAs have evolved to where they are embracing technology tools – software and hardware – much more rapidly,” she says. “To profitably and efficiently provide services they must budget and spend dollars on other innovations. CPAs will stay far away from ‘bleeding edge’ but they realize they must be on the leading edge.”
