In Brief

CPA firms are facing a succession crisis that endangers growth and profitability. The historical model of organic growth that relies on relationship management by generalist partners is no longer effective in an increasingly specialized practice environment. An entirely different leadership foundation is needed, one that requires specialists who work together in pursuit of a valuable decision support function. Growth requires all stakeholders to be engaged in a shared purpose, shared quality, and shared language.

Editor’s Note: An interview with author Paul Fisher, appearing as part of The CPA Journal Voices of the Profession video series is available here.

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The succession crisis faced by the CPA profession today will not be solved with traditional planning. Clients are not following CPA firms as they did in the past, and firms think of this as declining loyalty. Employees are not following one another like they used to, and firms think of this as the declining commitment of a new generation. The need for human beings to express loyalty and commitment to one another is no different today than it was a generation ago—yet we’ve stopped following one another. When people stop following one another in any socioeconomic system, organic growth becomes nearly impossible. Raising professional services above the commodity value of what is produced will require that people respond to one another’s actions in ways that create growing value. CPAs have stopped doing this as a profession, creating the current crisis.

Furthermore, attempts to train people to follow and commit the way they did in the past are failing, and not because firms don’t have the people or haven’t trained them. They are failing because firms have failed to redesign and implement a new organic growth model that is responsive to the socioeconomic realities of modern professional practice—a new follower-ship system.

Twilight of the Old Giants

The mind-set of management today is human capital–focused, and rightly so. One top 100 firm managing partner told this author that, “We’re growing now, but we could grow a lot faster if we could keep people.” This belief has fueled the move from “attract and retain” human capital efforts to what is often called “the war for talent.” The succession planning equation seems to be: Keep People = Organic Growth = Succession Solved.

Nothing could be further from the truth. Simply keeping people won’t provide the profitability that it once did. Leading colleagues to provide their services in increasingly valuable ways, on the other hand, will provide that profitability. In the near future, the profession could evolve into a diverse, integrated, and growing decision-support profession, or it could remain a relatively small accounting profession with a mixed bag of disconnected, commodity-priced ancillary services. Which of those two scenarios plays out will depend on the quality of the organic growth systems firms build and the way CPAs inspire their colleagues to greatness together.

The historical model of organic growth is dying. It relies heavily on relationship management by generalist CPA influencers who are expected to use those relationships to earn trust and expand business relationships with clients. The current population of practitioners, however, is far more specialized than at any time in the past; they know less and less about one another’s function with each passing year. At the same time, the number of specialties is exploding. These two opposing phenomena indicate that the simpler, slower business environment that supported the “trusted advisor” approach to organic growth is quickly evaporating.

Focusing on developing people to function like relationship managers—yesterday’s giants—would be training them to fail. The economy today demands new giants—specialist practitioners who manage evidence together in pursuit of a healthy and valuable decision support function. This requires an entirely different leadership foundation, model design, and execution. The quality of the new sustainable organic growth systems won’t just depend on developing enough specialist expertise and then keeping employees from leaving. These systems will rely on an ability to help the economy produce valuable outcomes with those specialists, just as they did in the days of the old giants. But in order for firms to grow like they used to, they must relearn how to grow by sharing purpose, quality, and language.

Model of Change: The Healthcare Industry

What is happening now is not new or unexpected. The specialization trends beginning today are similar to those seen in the medical profession in the 1980s. During that time, demand for specialization led many to fear the loss of relationships with family doctors. There was also the belief, which persists today, that the quality of medicine was actually threatened by that specialization. The quality of care would surely suffer in the new world of HMOs (Health Maintenance Organizations), where patients were passed from specialist to specialist instead of receiving the personal comfort of a family doctor’s advice. There is no objective evidence that the quality of medical care has declined since the 1980s, but that’s how many people feel.

The publicly unspoken narrative in the hallways of CPA firms that “we don’t have the people” speaks to the same fear of the loss of relationship managers. They have been the creators of value and the foundation of customer loyalty. That is all about to come to a screeching halt. The arc of specialization is telling CPAs—just as it told the medical profession—that the practitioners of tomorrow will not and cannot rely on historical interpersonal knowledge to help clients adapt to future events and conditions. The pace of change in today’s risk management environment is simply too fast for that to be useful any longer, despite the false comfort it provides clients.

The Mayo Clinic in Rochester, Minnesota, is ranked number one in more specialties than any hospital in the nation. People don’t go there because they have a stable population of aging family doctors that never left the clinic. They go there not just to see the best specialists in the world, but for the unparalleled care that its integrated clinical environment provides. The patients are loyal to Mayo, not to individual, irreplaceable, relationship-managing family doctors.

Shared Purpose: A Reason to Grow

During the rapid increase of medical specialization in the 1980s, many believed that this growth was not justified. People believed that medicine was becoming focused on performing more and more procedures without an adequate contribution to patient outcomes, very much like the CPA profession’s own attempts to grow organically today. Thus, the process of evidence management—that is, specialists managing evidence of patient need—was instituted in order to control unwarranted growth. This forced the medical profession to move away from general practitioner relationship management, driven by patient wants, to specialist evidence management, governed by patient needs. Medicine would not be allowed to grow further until it proved its commitment to the greater good of society by committing to sharing a common purpose with it. Despite the use of a process designed to limit growth, however, the medical sector grew more rapidly than ever. In fact, the share of U.S. gross domestic product (GDP) consumed by medicine nearly doubled from 9.2% to 18.0% from 1980 to 2010.

In a similar way, the CPA profession is not being allowed to grow organically because it has not proven its commitment to sharing a purpose with all of the other stakeholders in the economy that rely on it. Without that commitment, any attempt to design and implement a significant organic growth plan will fail. First, society demands to know the profession’s reason to grow.

The Reason to Grow

Building a leadership foundation is not as easy as it used to be. In the past, executives and managers were only expected to lead employees, using tools like vision, mission, and values to convince them to agree to be governed. Partners would then lead their clients via unique value propositions. These tribal, organic growth systems worked just fine—until specialization and unit-productivity rendered them useless. It became unsustainable for each partner’s book of business to have its own reason to grow.

Today, the profession is being asked to lead all specialists and all stakeholders in the economy at the same time, and with the same foundation. The profession’s reason to grow needs to be universally agreed to in order to properly serve as the foundation of an evidence management system. Accountants have traditionally supported the decision-making needs of stakeholders through a conflict-of-interest model based upon principles of precision, consistency, and objectivity. This worked in a slower business environment, but the data-driven economy of today requires different thinking. People will not follow and commit to one another if they are not a part an agreement of shared purpose. That is the reason to grow. The principles serving as the foundation for this shared purpose must be relevance, transparency, and choices.

The word “relevance” has risen to the top of the list of the profession’s greatest fears. Basic economics—allocative efficiency, specialization, and unit productivity—have been deemphasizing the accounting function as a percentage of GDP since even before the age of the personal computer. While that process will continue into the foreseeable future, accounting will never simply go away. It is an important feature of any decision-support environment. At the same time, data and analytics that are more responsive to rapidly changing conditions are designed to have better predictive value than the traditional measurement of earnings, financial position, and cash flow. Accounting will always be relevant to decision making in the world economy. But accountants themselves will not lead the decision-support profession any longer unless they learn to share a new reason to grow with other specialists.

In the context of the profession’s shared purpose, “transparency” refers to the continuous availability of decision-making information. Even in today’s data-driven, immediacy-obsessed economy, the ability of the decision-support function to provide true transparency is hampered by human beings. Information of all kinds can be diverted, withheld, taken out of context, exaggerated, and ignored. True apolitical transparency of data and information is the new independence. In the same way that human beings can be led to interfere with transparency under the current followership agreement, they can be led to embrace and value it under a new one.

As to the final principle, choices are not unlimited. Sometimes they are limited by ethics, others by agreement, regulation, or timing. But listing available choices is the gateway to decision making. Choices articulated inside a transparent process environment give all stakeholders the opportunity to compete and cooperate in the same risk management environment.

Relevance, transparency, and choices may not end up being every firm’s reason to grow. Discovering a new follow-ership agreement and committing to it is actually a leadership exercise. No one can confer a reason to grow upon a firm or the profession at large, not even the AICPA or government regulators. CPAs themselves must do it.

The streamlining of a reason to grow to one shared purpose will vastly simplify the ability of specialists and clients to contribute to the growth of the profession. They will only be required to interpret their actions in the context of whether or not they contribute to the profession’s reason to grow (and as required by regulations, of course). Followership will be much easier and more universally compelling when the only leadership foundation is well-defined, universal, and pursued by all stakeholders as a matter of shared responsibility.

In addition, this simplification is crucial to moving forward profitably in a specialized world that demands that value be based on client outcomes. As stakeholders require better performance and more accountability to the reason to grow, there will be pressure from all participants to expend resources that outstrip society’s willingness to pay. The shared purpose will be crucial to preparing that foundation of organic growth. In order to maintain economic balance among all stakeholders, however, the shared purpose will need process controls in order for everyone to share quality.

Shared Quality: Balancing Results and Outcomes

Continuing advances in quality in the profession are dependent upon both increased specialization and the ability to integrate new specialists. Design professionals call these “competing constraints”; both are necessary, but each one competes for resources with the other. Without a follow-ership system designed to share quality and a systematic plan to manage that mutual obligation to cooperate inside a shared-value universe, practitioners will tend toward procedural quality, and clients will tend toward experienced quality. Ultimately, neither will be satisfied, each blaming the other for a deficit in quality, or services that are too expensive. This translates into negative institutional capital for firms.

Managing the competition between specialization and outcome delivery inside a shared quality followership system is crucial for organic growth innovation in the profession. Once a firm has a new specialty or a new technology, everyone else soon has it, too. The only space for competitive differentiation is in the way human specialists integrate their efforts together.

It seems counterintuitive that designing a process control environment would be part of developing a foundation for rapid organic growth, but that is exactly what is needed. Medicine was able to double the percentage of its share of U.S. GDP over a 30-year period with operational controls intended to limit growth. Similarly, tapping into the growth in worldwide demand for decision-making information demands that CPAs systematically pursue the production and dissemination of decision-making information in tax returns, financial statements, technology, financial services, consulting—in everything they do.

In order to keep diverse specialists focused on the group goal of enhancing relevance, transparency, and choice in their work, an operational control framework that balances the needs of all stake-holders in the quality-sharing agreement is required.

Designing a New Process Control Environment

While marketing literature might suggest otherwise, the profession’s process efforts are typically aimed at producing core products more quickly while maintaining a level of procedural quality that satisfies specialists. The experienced quality of other stakeholders is generally only considered afterward. This approach will not produce a quality-sharing result powerful enough to fuel the profession’s reason to grow.

Continuous improvement efforts are just starting to take root, and the experience of medicine shows that they will accelerate rapidly. But the profession is afraid of offending already-disengaged junior colleagues with a process control environment suggesting that some of their activities don’t add value. It would be unwise to demotivate them under the current failing followership system. That is why continuous improvement systems in the firms of tomorrow will produce the activities most likely to fulfill stake-holders’ mutual responsibilities to the reason to grow. Yesterday’s lean process environments, improperly led, are just another reason for practitioners to feel devalued and underappreciated.

The first process modification to an existing process development systems is an activity-based balanced scorecard that continuously analyzes major process initiatives for focus on the reason to grow. A practical example from this author’s experience follows.

Case Study

One day, a colleague expressed her frustration with a decision made by a process team at the firm. The financial statements uniformity project had decided to divert all sources of financial general ledger data, including hosted cloud data, into the internal production software, prior to adjusting and releasing financial statements to clients. Her concern was that a particular client needed adjusted financial data with budget information for the following period to take to his board of directors. The production decision made retrieving that information from his cloud-based accounting system suddenly much more time-consuming and difficult.

For the firm’s practitioners managing procedural quality, however, the benefits of that move were compelling:

  • Reduced process variability
  • Fewer software tools
  • Uniform storage of issued financial statements
  • Reduced output variability
  • More uniform financial presentation.

Those practitioners had defaulted to their own procedural quality criteria as the sole quality indicators of the initiative. And who could blame them?

It seemed that there ought to be a way to illustrate the balance between procedural and experienced quality in process development. Instead of just analyzing process initiatives by how they affected only procedural quality, the initiative should have been measured against all of the criteria agreed to in the followership agreement—the reason to grow. So the author entered the data regarding procedural quality into a matrix, as seen in Exhibit 1. By all indications of the benefits in the departmental process analysis, the initiative should have sailed through to approval, and in fact it did. The new system would allow the firm to produce more uniform product faster than it had ever been produced before.


Departmental Process Analysis

Value; Costs Increases: ▪ None; Decreases: ▪ Linear production burden improvement Decreases: ▪ None; Increases: ▪ None

But in looking at the matrix as a whole, there seemed to be risk management costs that had gone unrecognized. Importing, adjusting, and issuing that financial information as compiled financial statements turned what was client property into the firm’s property. Therefore, the firmwide cost analysis looked less promising, as seen in Exhibit 2.


Firmwide Cost Analysis

Value; Costs Increases: ▪ None; Decreases: ▪ Linear production burden improvement Decreases: ▪ None; Increases: ▪ Peer review costs ▪ Workpaper and reporting standards ▪ Insurance exposure

Looking at the other side of the matrix to include decision-making value for outside stakeholders, however, revealed the real quality-sharing problem. Information that was relevant to the client’s board’s decision-making processes was suddenly less transparent, thus slowing down its ability to make choices. The client seemed less interested in what we did or didn’t do with his organization’s information and more interested that we simply not interfere with his own self-service efforts. The fully developed shared quality analysis matrix in Exhibit 3 would have helped the team make a more balanced quality assessment. Through the lens of a balanced scorecard, the cost savings and quality increases appeared to be far outweighed by the combination of increased risk management costs and reduced client outcome value that their departmental analysis wasn’t designed to detect.


Shared-Quality Analysis

Value; Costs Increases: ▪ None; Decreases: ▪ Linear production burden improvement Decreases: ▪ Disengagement ▪ Lack of transparency ▪ Decreased relevance; Increases: ▪ Peer review costs ▪ Workpaper and reporting standards ▪ Insurance exposure

Shared Language: Accountability to the Profession

A shared quality scorecard is a good way to show people what not to do, but it is not very good at telling them what they should do. Everyone has different specialist functions, cultures, ways of describing things, and beliefs. Each one speaks an entirely different language.

CPAs used to use simple English to communicate with colleagues: “Tom, get out to the client’s office and help the controller get that inventory system fixed!” Today, issuing that order would receive only a blank stare from almost the entire audit staff at most firms. This is not because today’s employees are less intelligent, committed, loyal, or talented; it is because specialists now operate in a far more complicated and specialized work environment. Procedural specialists no longer have a common frame of reference, function, or language to help them talk to one another about the wider decision-support framework in which they do their specific jobs. They need a shared language to communicate about the health of that environment.

Previously, CPAs were required to be accountable to the growth goals of the firm in order to participate in ownership. Business development used to be conducted by rainmakers and relationship management partners—finders and minders. If you weren’t one of these people, your tenure in public accounting was generally cut short. But today, specialists have become more valuable and difficult to replace, and up-or-out promotion practices have become unworkable. So it was decided that technical specialists could continue to serve as career managers or nonequity partners. Their role in accountability to the firm’s goals was rooted in billable time, whereas the equity owners’ accountability role was grounded in revenue production. This created a professional practitioner class system that continuously and permanently erodes the profession’s ability to design and operate a business development system that is followed by everyone as an act of the highest form of professionalism.

CPAs’ ability to produce audits and tax returns—or anything at all—is affected by their firms’ production capabilities. Specialists need the right technologies and technical training to get the job done. But their ability to operate effectively is also affected by their clients’ operational environments. Some are good, some are awful; most are somewhere in between. After the specialists are done, they come back to the office and either celebrate an easy job or complain about a difficult one. Then they go on to the next audit or tax return.

This is the single biggest untapped growth and relevance opportunity today: having specialists come back to their offices with nothing more than billable time and a product. Specialists need a way to return from their engagements with an assessment of the cost-effective scalability of the decision-support environments in which they operate. It should be their professional duty under any new followership agreement.

The followership crisis includes a failure to adapt our business development operating systems so that our specialists could contribute equally. Instead, firms doubled down on failing finder-to-minder-to-grinder downward revenue development systems. Sharing purpose and sharing quality were important first steps. Without a shared language, reestablishing universal accountability to the growth of the profession will be impossible.

Implementing the New Operating System

“Clinical governance” is a term that gained popularity in the 1990s to describe accountability systems in medicine that made sure that practitioners would be self-governed and accountable in pursuit of the profession’s reason to grow. These rules of the clinic were designed to empower doctors to enforce their standards of care. Similarly, CPAs need the help of accountability systems to enable specialists to share the profession’s reason to grow with society. In addition, this must take place without daily death-by-meeting negotiations among colleagues, clients, and third parties.

Enforcing relevance, transparency, and choices as the standards of care sounds nice in theory. But specialists don’t all speak the same language or think about the same things. One of the very sources of the profession’s followership problem is that communication is difficult across functional and cultural gaps among accounting, technology, human capital, financial services, and data sciences, among others. This is why they need a common language in order to communicate.

Evidence management in a specialist-led environment is accomplished with algorithms. These decision-tree devices are derived from mathematical probability modeling and help specialists who know nothing about one another’s areas of practice to communicate in a complex environment of a unique set of conditions. They are the operational soul of the specialist-led outcome production of the future.

The value management index (VMI) is one such algorithm-generating device. VMI is designed to produce an assessment that is similar in function to the standard blood panel in medicine. It is the referral device of first resort between and among procedural specialists and integration specialists and helps diagnose deficiencies in the health of any decision-support environment.

The cost-effective scalability of the decision-support function in business comprises three major components:

Specialist competence.

The increase in functional specialization over the last few decades has brought the profession from “if you have the work, you can find the people” to “if you have the people, you can find the work.” No one can fake it any longer in the modern specialist environment. Client specialist competence is fairly easily measured by firms’ functional specialists and can be scored low to high on a scale of 1 to 10.

Specialist integration.

In addition, specialists are so operationally segregated by function and industry so as to make them islands unto themselves. This is not a good situation for an outcome-hungry population of stakeholders. Value creation is rooted in integration, the systematic interaction of human beings who pursue a shared purpose. Moreover, trends are leading away from downward managerial integration, where workers serve the integration function, to an integrator role that serves specialists. Managers are the equivalent of primary care physicians in medicine, the servants of clinical standards of care. This quality of integration services can also be scored low to high on a scale of 1 to 10.

Labor leverage.

The last few decades have shown that labor sourcing will have to increase as the velocity of the business life cycle increases. Building a decision-support function one employee at a time will be decreasingly desirable or possible. Labor leverage can be scored on a scale of 0 to 1, with 0 being no outsourced labor and one being 100% outsourced labor in the decision-support function.

The mathematical product of these three factors will yield a score between 0 and 100. This rough diagnostic score and its underlying factors will yield an array of conditions that specialists can use to assess quality in the decision-support function of clients’ businesses. Best of all, they will be able to use the resulting shared language to communicate with one another about improving the quality of that decision support. Those opportunities to provide additional specialist procedural expertise, integration services, and even analytics and risk management can all be coded into a language that everyone is trained to use in the assessment, referral, and treatment plan of all clients.

The simpler, slower business environment that supported the “trusted advisor” approach to organic growth is quickly evaporating. The economy today demands new giants—specialist practitioners who manage evidence together in pursuit of a healthy and valuable decision support function.

Back to the Future

Growth has always required shared purpose, quality, and language. In the profession’s simpler, tribal past, those connections could easily be created individually and informally inside partner-centric practices. Modern times have overwhelmed the exclusivity of partner-defined purpose, customer-defined quality, and the use of simple English spoken to communicate about those things.

Today’s modern socioeconomic environment requires leadership like none seen before. Instead of managing a loose, politically connected band of tribal leaders, the leadership challenge today is to engage all stakeholders in a single followership agreement, grounded in unified purpose, with quality and language shared by all.

Paul D. Fisher, CPA (inactive) is the chief design officer at New Giants Consulting, LLC, Chicago, Ill. He is the author of Beyond the Days of the Giants: Solving the Crisis of Growth and Succession in Today’s CPA Firms and the forthcoming New Giants Rising! (September 2017).