For decades, the profession has operated on a foundation of expanding billable hours for increasingly complex yet still largely compliance-focused work. And while compliance work will remain a mainstay, clients are demanding real advice and a change in how they’re served that matches the realities they feel — a search for how to leverage data as a competitive edge and a constant push to evolve as a firm’s services become obsolete or commoditized.

Yet despite clients’ direct requests for these shifts and the numerous surveys that highlight it across the industry, few firms have truly begun to meaningfully change their approach to meet the accelerating disruption that both technology and non-traditional competitors are bringing to the market. As many new, nontraditional and niche players push into the space, competition continues to increase. Consequently, firms that can’t provide differentiated value — beyond traditional compliance services — will see margins continue to slide and value-added advisory work harder to come by, with their clients going instead where they experience value, perhaps to niche and nontraditional players.

Leaders should see this as a unique opportunity to begin reinventing their firms and to capture this considerable value, which no firm has currently locked up. Even among major industry players there is significant convergence. “But wait,” they might say, “we just hired a data scientist. Our strategy explicitly calls for upskilling our people to be more consultative, and we are rolling out a new tax software suite.” Yes, but that is what you are discussing and doing internally, not what clients see and experience. To clients, there are very few differentiated choices, and the services offered by firms appear to be commoditized. Clients see most firms’ services, technologies and financial relationships as undifferentiated. To win where clients are demanding new and different, the first thing is to stop being the same.

Of course, most firms are trying hard to differentiate themselves from the pack. Undoubtedly most would say they always have been different. But where and how? Clients are shifting from asking for more value to demanding it. It would be a mistake, however, to consider the “demand for value” only a request for discounting. “To discount or not to discount?” takes up a disproportionate share of discussion within firms and is a race to the bottom, chasing ever more commoditized, low-margin work. Meeting these demands, though, will require leaders and firms to solve four critical, integrated and evasive challenges:

1. Putting continual innovation at the center of strategy

Efficiency and scalability are critical to the success of large firms. However, meeting client needs today often means being on the journey of continual change with your clients — problem solving without a standard roadmap and taking advantage of new tools and ways of working to enable them to reach their goals. This must begin with innovation being an explicit part of the firm’s strategy.

Innovation is not a mysterious flash of genius, despite often being celebrated as such. Rather, it is the outcome of a purposeful process that connects client needs, discipline, idea generation, the vetting process and investment. In short, you have to actually organize to innovate. Few know where to start or how to build sustainable capability. The suggestion email box and symbolic task force won’t get it done. While it’s true that innovation may come from anywhere, it must be focused on delivering client needs. As such, a firm’s strategy development discussions must clearly define where the firm will focus its efforts on idea generation; the process of vetting, investing in, advancing and commercializing ideas, and the rights and roles of various stakeholders in the process.

2. Transforming to an “advisory-first” firm leveraging AI and client data

While firms continue a quest to drive overall growth through the advisory service line, none have cracked the code on becoming an advisory-first firm. The shift sounds straightforward but requires multidimensional change. Professionals shouldn’t stop asking, “How can I get this report done faster, easier, cheaper?” But they must also start asking, “How can I use what I’ve learned about the client’s business and industry to shape how they reach their goals?” This change alone can take years and must be underpinned by new ways of executing a project, new styles and types of deliverables, and even new performance evaluations. Despite all of these dimensions, this shift cannot occur until partners begin having different conversations with clients.

3. Reshaping the audit profession around technology

Audits can be done more efficiently than ever, as they should be. Firms struggle with the cannibalization of the business (fewer billable hours). However, there is a limit to how long clients will pay for people to do what machines can do more cheaply (or at least a limit to the amount they’ll pay people to do it, which will continue to cut more and more deeply into margins). If the opportunity is in becoming “advisory-first,” firms must at least begin migrating away from filling their days with manual compliance-focused work to make room and shift their mindset.

This reshaping is not only about efficiency; there is a symbiosis with shifting to an advisory mindset. The same tools and approaches that make the core audit faster, easier and cheaper can be built in a way that puts firms in a unique position to leverage data and knowledge to deliver business insights. However, not everyone can throw infinite resources at this challenge. Beyond the Big Four, or perhaps the largest seven firms, others will need to be selective. Selecting smartly requires innovation capability and investment being considered during strategy development. Regardless of investment, innovations that have the most impact on specific client needs will win out.

4. Taking advantage of the global workforce and new ways of working

Working across a more virtual web of employees and contributors can have significant challenges. At the same time, we cannot go back to the days of merely working across the hall, as this simply does not suit new and emerging generations of professionals. Beyond just remote work, firms will need to think about how to connect to different specialties and rare skill sets, particularly to build innovation and advisory muscle. This means having a strategy for leveraging the global workforce, including the army of contract workers sitting in coffee shops all day.

These four critical challenges are integrated and necessary to solving new and evolving client needs. Few firms, however, have really addressed them that way. Each day that continues, smaller and more specialized firms will continue to edge onto the playing field.

Small and specialty firms can and are winning; major firms should take notice

Where your clients aren’t getting the value from large full-service firms, they are finding what they need in both small and specialty firms (including AI startups and even management consultancies in some areas). The data and networks available today enable this shift. To compete on this front, some firms choose to double down on underserved niches — often they are emerging needs requiring emerging skill sets — and then expand. Another way is to provide ultra-transparency and accountability. One thing clients want deeply, and an area where they often feel most let down, is cost and progress visibility. “Why the cost overruns?” they may ask. “Where are we in the project? Who’s working on it and why?” Giving clients direct access to dashboards on these metrics can engender trust and ultimately help win their business.

This type of guerrilla warfare is already in full swing. Major firms need to heed the call for a revolution, and quickly.

Clients want insights and a competitive edge. If you can meet those needs, there is significant growth to be had. Doing so now just might help bolster your firm and protect competitiveness in a future downturn. How will you handle the challenges that stand before you?

By Mark Masson,

Originally published in Accounting Today, May 29, 2019