In recent years, there’s been consistent discussion about the value of outsourcing in helping accounting firms to focus on advisory services. The idea is that by taking away compliance work from your staff, more capacity and time is made available to focus on value added work.
Certainly, the uptake of outsourcing services by all sizes of firms has increased significantly in recent years as firms focus on improving the efficiency of administrative and tax compliance services. Combined with cloud technology, outsourcing has certainly lead to reduction in the cost of day to day tax compliance work.
At the same time, there’s been some positive movement on the advisory front. However most accounting firms are still struggling to convert the extra capacity created by more efficient compliance processes into value-added advisory work. The latest Business Fitness Good Bad Ugly benchmark report (2016) showed that most firms are unable to get business and financial advisory fees above 15% of total revenue.
The feedback I receive from many firms is that the ‘extra capacity’ created by outsourcing and increased efficiency of compliance work is hard to identify. Staff say that they are working as hard as they have in the past. Attempts by partners to create greater leverage stutter along despite the availability of some really clever software tools to help with analysis of data and delivery of advice. Advisory work is still largely provided on an ad hoc basis when clients request support.
Clearly, the journey to a stronger advisory focus is a challenging one for many firms. I believe that outsourcing is a key step in making the transition to a stronger advisory focus. However, it will not deliver the results firms are looking for without a significant change in the motivated interests and behaviour of the people within your firm.
It’s clear that in many cases the increase in capacity is simply giving your people the opportunity to do ‘more of the same’ rather than developing analytical capabilities and communication skills required to develop relationships and add value to client relationships.
What can the leaders of progressive firms do to convert the additional capacity created by the efficient outsourcing of compliance and administrative work into a stronger advisory focus?
1. In recruiting future staff, focus on their communication skills and an understanding of the real world as much as their technical capabilities. The latter can be developed through learning and coaching, the former is much more difficult to teach. I’m seeing progressive firms achieve results by focusing on employing staff with strong reporting and analytical skills. These are the capabilities that sustainable firms will need in the future.
2. Critically review the measurements used to assess the performance of your people. Of course, the efficiency of production is important for revenue and profit, but it has little or no direct correlation with the value of services provided to clients. No wonder our staff resist changing their behaviour if they see little or no benefit for them in doing things differently. A focus on performance indicators relating to client contact and communication will become increasingly important for accounting firms with a strong advisory focus.
3. Paradoxically, the best way to free up your time to focus on quality client relationships is to delegate the administrative and compliance relationship with clients to other people within your team. It’s almost impossible to wear both your tax compliance and advisory hats at the same time. Create capacity for yourself and use that capacity to get out to talk with clients and professional networks.
Recently, I had a discussion with the CEO of a progressive accounting firms struggling to create both the capacity and the capability for advisory services within the business services team. Interestingly, the same firm was achieving success with their financial advisory services team.
The CEO believed that the best way forward was to accept that, for the majority of his existing accountants, the move from tax compliance to a stronger focus on client relationships and advice was simply ‘a bridge too far.’ Instead, he suggested that a stronger advisory focus was only possible by investing in a group of dedicated people who already had the aptitude and capability to sit in front of clients and discuss issues relevant to their world.
Perhaps the accelerating move towards outsourcing compliance work is the first step in actually changing the motivated abilities and capabilities of staff we recruit and develop at a local level with advisory services (rather than tax compliance) in mind.
What are you doing now to redirect the capabilities and energies of your team to create a stronger advisory focus in the future?
Is outsourcing tax compliance the first step in redirecting your efforts towards those people who have a real interest in working ‘beyond the numbers?
Also published on Medium.