Moore Stephens Queensland has been a high-performing GBU firm for the last 12 years. Even in the midst of the most rapid change the industry has seen in a long time (perhaps ever), Ken Pickard (Managing Director) and the team are embracing the digital age, which according to their planning and analysis, will enable a significant competitive advantage.
With over 30 years in the accounting industry, Pickard is quick to note that the business world is currently tougher than at any time in his professional career. Digital disruption is no longer something due to arrive in the future, he claims – it has already arrived. Revenue models, client service levels and the expertise required to thrive in the industry are all changing to represent a “new normal” business world.
Big data and other analytics will play a critical role in understanding client needs and customising service offerings. Indeed, this kind of data usage and analysis is already happening across their client database. By way of example, he cites the opportunity available to a firm of knowing their clients’ insurance renewal dates to act as a trigger for a higher level of engagement and gateway to additional value services for key clients.
What’s happening now
The firm has grown significantly (now $30m in fees) over the last decade through acquisitions and a committed focus to specialised services to key clients.
With seven offices and around 180 employees, MSQ are in the process of implementing an executive management committee model to oversee operational aspects. As Managing Director, Pickard has 12 direct reports which in his opinion is too many to achieve “cultural” and behavioural change at the rate demanded by disrupting markets and business models.
The focus has been to implement one standard way for each process across multiple office locations and teams with different skill-sets and experience levels. Though re-engineering a large firm with multiple office locations is an enormous undertaking (as Pickard notes, implementing change is much easier if all teams are in one location), one positive from operations in multiple locations is the ability to act as a distribution channel for financial services and related products.
It’s an ongoing challenge for the firm to find the correct mix of metrics to drive Team and Partner accountability. The way forward for MSQ is the incorporation of additional KPI’s from a balanced scorecard approach to go with traditional performance measures to ensure behaviours consistent with firm values. Pickard feels that the long established business management protocols of monthly, quarterly, annual review and target setting meetings are still valuable but require additional measures to ensure the business is able to monitor trends and behavioural changes required.
As MD, the major challenge is increasing profitability and maintaining it at acceptable levels while at the same time influencing and changing the behaviours of his key talent. Having doubled their revenue in the last 10 years as a result of growth and carefully planned acquisitions, the firm’s current levels of scale enable profitable growth. A key incentive for future acquisitions will be the identification of specialised talent in the target firm further extend the firm’s expertise and assist with cultural change.
All professional firms will need to become fixated on profitability and modern lead indicators. Pickard strongly believes that future success and sustainability will come from reaching optimum scale where attainment of growth and revenue targets will automatically deliver bottom line profits. He cites by way of example at MSQ, adding the next $5m of fees can deliver $2.5m profit if the firm is operating at scale and optimum efficiency.
Industry Outlook: Expect a 30-40% drop in traditional compliance fees
Recognising that the role of the traditional accountant is fast becoming redundant, the firm are working hard to become the kind of “new” accounting firm expected to thrive in ever-changing markets.
This is what separates this high performing firm from the many accountants who are still unaware of the pace of change or are refusing to accept that our industry will be radically different.
MSQ’s comprehensive approach to realistic future planning is ahead of the general industry curve. The firm is scenario-planning a forecast a 30-40% drop in traditional compliance fees due to general client awareness and market forces providing easy access to switch providers for these basic non value-adding functions. Pickard insists that:
1. It is no longer negotiable for a firm to develop an effective revenue compensation strategy through new additional services that can be efficiently delivered through technology, and
2. Margins on future compliance fees can be maintained through investing in systems, standardisation, automation and client education.
Regular compliance services will continue to provide both client lock-in and lead generation opportunities for additional services to SME’s. This is where the true opportunity lies for smart advisory firms aiming to build a distribution system of products and services designed for high net- worth SME’s and leveraged through technology.
As smaller accounting firms start to lose their larger clients to medium and larger firms delivering more value for similar fee rates, their challenge will be to maintain profit margins at new reduced fee levels. (Pickard also notes that mid-tier firms will also be effectively competing for projects traditionally the domain of the Big 4 and vice versa.)
The solution to maintaining margins is efficiency gains and changing the labour mix – including outsourcing models where appropriate. MSQ is experimenting with a number of models to utilise lower labour rates in conjunction with improved systems and workflow processes, including early stage trials with an offshore provider where for certain documented tasks, the labour arbitrage benefit is a significant contributor to job profitability.
The way forward: A new business “normal”
While much of the recent focus and industry commentary is highlighting advances in “technology” as the major opportunity to improve client relationships and retention rates, Pickard also recognises that the future of sustained success in the accounting industry is identifying, attracting and retaining talented people. Firms will recruit skills related to the services they offer and utilise expertise from industry sectors that do not represent a traditional accounting qualification.
It is the discovering the optimum mix of technology and people talent that will enable the up-sell of current MSQ $5-10,000 clients into $15-20,000 engagements.
Pickard comments on seeing the Big 4 beginning to target the SME market at $1,000 per month fee levels, noting that compliance effectively becomes the “give-away” piece of these engagements.
The future is about thinking and acting smarter; a key success factor will be gaining an extra 100-200% on traditional engagements for key clients – this will need to be through additional services and delivery through a recognised distribution channel.
On a final note, Pickard reminds us that the future has in fact already arrived. MSQ is seeing the impacts of disruption to both their own and clients’ business models with no visible signs to slow-down in the rate of change and uncertain economic conditions. The time to act pro-actively is now.