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![Page 1: New Strategies for Profit and Performance Your strategy should be the solution, not the problem. CPA Leadership Institute August 7, 2013.](https://reader031.fdocuments.net/reader031/viewer/2022013105/56649e675503460f94b62145/html5/thumbnails/1.jpg)
New Strategies for Profit and Performance
Your strategy should be the solution, not the problem.
CPA Leadership InstituteAugust 7, 2013
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What do you find is the greatest marketing
challenge facing your firm?
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How do you think the most successful firms
will address these marketing challenges
in the future?
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Current Strategic Challenges
• Shrinking margins• Downward fee pressure• Complexity• Labor
– Shortages– Demographics– Cost– Efficiency
• Technology integration
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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
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Complexity
• Laws and regulations• Standards• Information overload• Deal structures/financial
instruments • Risk analysis• Technology
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• “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
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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
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“If rivals all pursue the “one best way” to compete, they will find themselves on a collision course”.
Understanding Michael Porter Joan Magretta 2012
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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
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AICPA Demographics
Source: AICPA 2009
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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
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CPA Human Capital “Cliff”
CPAs
Non-CPAs
MenWomen
Women Men
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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
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Salary Trends
5000055000600006500070000750008000085000
Dollar Am
ount
Average Pay per Professional
All Firms
T100
© INSIDE Public Accounting 2012 Used with permission
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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
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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
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Innovations in Communication
• Written language >3500 BC• Printing press China 1000AD
Gutenberg1436AD
• Digital word About 1940AD• Accounting 1970-1980’s
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Innovation Curves
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Strategy
“Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition”.
Competitive Strategy Michael Porter 1985
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Keys to Success
• Strategic competition means choosing a path different from that of others.
Understanding Michael Porter Joan Magretta 2012
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Firm of the Future
CPAs
Non CPAs
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Strategies
• Consolidation• Cost advantage• Differentiation• Technology
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Consolidation
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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
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Is growth in itself a strategy?
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Growth Objectives• Talent • Niche/Specialty• Geography• Critical mass in practice areas• Economies of scale• Profitability• Improved client service
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Consolidation
• Challenges– Management– Integration– Processes and systems– Standardization– Capital/investment– Risk
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Consolidation
• Challenges– Transition/succession– Client relationships– Client service– Increased fee structures
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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
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Cost Advantage
• Labor costs• Efficiency• Leverage• Technology
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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
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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
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Redefine Positions
• Data management• Executive assistants• Data input• Technology specialists• Client relationship specialists• Technical specialists• Team
leaders/managers/supervisors
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Reduce Labor Costs
• Manage and control• Gain efficiencies
– Standardization– Processes and procedures– Specialization– Leverage/critical mass
• Manage margins
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• “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
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Processes Lagging
Over 60%
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Files not Consistent
Over 72%
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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
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Innovation Headline 2013
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Inside India's 'No-Frills' Hospitals, Where Heart Surgery Costs Just $800
Source: Business Insider April 21, 2013
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Innovation in Public Accounting
www.cpainnovationproject.com
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Technology
• Adoption and integration• Appropriate level of experience• Consistent application• Improve proficiency• Avoid duplication• Simplify!
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Technology
• Strategic partners• Process driven• Limit manual tasks
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Processes• Intake
– Standardized– Paperless– Organized– Timely
• Type of service• Relationships?
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Differentiation
• Specialization• Geographic location• Niche services• Client service
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Specialization
• Critical mass• Expertise• Efficiency• Processes• Investment• Rapid growth• Reputation
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www.SteveEricksonCPA.com
Leverage
Strategy and Value Curve
$
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Geography
• Less competition• High value• Convenient• Technology• Need for better management
and processes
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Client Service Strategy
• Staff– Engagement– Control – Part of something bigger– Success
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What Employees Want
• Valuable work• To be successful• To feel secure• To be needed• To be cared about
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Rating of Motivators
0
100
200
300
400
500
600
700
Flex Time Money Position Fringe Clients Team Success Learning
7
8
9
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Copyright ©2012 Steve Erickson LLC
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Leadership Lesson from Neha
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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
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You know what needs to be changed in your firm to improve client retention and client
acquisition.
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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
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Take advantage of the opportunity before you
to truly differentiate your firm from your
competition.
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Copyright © 2012 Steve Erickson LLC
Accounting FirmProfit Improvement Model TM