The Shape of Firms to Come

In the last few years, public accounting, and all the related financial services industries, have changed dramatically. The change is not simply a response to any single, temporary factor, such as the economy, technology or competition. Rather, it is a permanent environmental shift, and firms, businesses and even governments must restructure their work forces to recognize this fact. If they do not, they will fail to remain competitive and profitable as we move toward the year 2000. Business is consolidating and decreasing its work force at all levels. CPA firms certainly are not immune to this trend. In 1992, the six largest CPA firms eliminated 6,200 professional jobs, including 600 partners. The partner and professional staff count at most second-tier firms has declined steadily for a number of years. The same is true for many, if not most, regional and local firms. At a recent regional management of an accounting practice conference, I asked for a show of hands by those who had fewer employees today than two years ago. Almost all the 125 participants raised their hands. WHY IS THIS HAPPENING? The reasons for the consolidation are illustrated in exhibit 1 on page 40. Competition in the marketplace is pushing down fees, particularly those for price-sensitive, compliance-type services. At the same time, client demands, standards overload, increased insurance and litigation costs and declining staff productivity caused mostly by higher training expenses raise overall production costs for most firms. The resulting problems are exacerbated by the increasing seasonality of the work load. The net result is flat growth and stagnant earnings for a lot of CPAs. Many firms have spent a great deal of time and money on niche-building, developing unique and profitable new products and services and improving client service through total quality management and other programs. Firms also have invested heavily in technology to offer better service and increase efficiency. These activities are important to firms' long-term success and survival. However, they won't be enough if firms do not recognize that the basic model of CPA firm staffing must be changed. THE RIGHT STAFF AT THE RIGHT TIME Many firms attempt to maximize productivity and profitability by adding work during the off-peak, nontax season. At best this is a very difficult solution, as all firms are trying to do the same thing, thus increasing even further the marketing pressure on fees in the off-season. A better choice is to develop a work force that fits the work load. Such a fundamental shift is the result of a process--one that must have a specific, detailed plan carried out over a period of time. It requires discipline in hiring practices, a change in firm culture and a different and more difficult management style for the partner-owner group. It is one of the keys to building and managing the successful firm of the future. The traditional model of CPA firms is pyramidal, with the partner-owner group at the top, managers and more experienced staff forming the middle and the base consisting of less-experienced and administrative support staff. For the most part, all personnel are full-time, with some extra part-time help added during busy season. This model does not fit the practice of public accounting anymore. Most firms have been moving away from it for years, but the movement has been too slow, and firms haven't created formal personnel plans to achieve the best fit of work load and work force. Firms have allowed personnel decisions to make themselves, rather than develop and implement long-term personnel plans that create the most efficient work force. The process must start with a design of the "perfect" staff of the future based on the expected work load (projected by number of hours to be sold on a monthly basis). The goal is a work force model that fits the work load as well as possible and on which every future hiring decision is based. …