The Dawning of the Age of the Digital CPA

I recently attended the 2012 inaugural DigitalCPA CPA2Biz Cloud User Conference in Washington DC. The theme of the conference was how cloud technologies are transforming the CPA profession. While the impact on traditional audit and tax services was covered, the main thrust was on outsourced accounting (also referred to as client accounting services), which is enabled by cloud technologies such as Intacct and The American Institute of Certified Public Accountants sees outsourced accounting as a very significant growth area for the profession, and the software vendors are doing their part to drive growth through CPA firms, which they see as a primary distribution channel.

Unlike audit and tax, for which there is a huge body of knowledge on best practices and professional standards, the outsourced accounting realm is just now receiving the collective attention of the profession. Sure, standards exist for predecessor services to outsourced accounting, such as bookkeeping and “write-up” work, but those services are rapidly morphing and expanding as cloud technologies enable firms to become virtual accounting and finance departments for their clients.

Outside of the general and keynote speaker sessions, there were a wide array of concurrent sessions to choose from, along tracks categorized as practice management, technology strategy, or hands-on technology training. As partner-in-charge of my firm’s outsourcing practice, I spent most of my time in the practice management sessions, which included topics such as value pricing, staffing, client needs analysis and knowledge management.

A common theme throughout many of the general and concurrent sessions was that cloud technologies are a critical path to offering clients a total solution, as opposed to just selling labor and time to do the same things that clients could do themselves; this favors a value pricing model rather than hourly rates. Another theme was the ability to standardize processes in the cloud so that they can be efficiently replicated. Specialization within industry verticals was also a recurring theme, converging with the broader trend of the market increasingly favoring specialists over generalists. There are many reasons to specialize within industry segments, including being able to offer deep, industry-specific intellectual and social capital. Within the context of cloud technologies, specialization allows for further industry-specific standardization and replication of processes and reports. Another consistent theme was how an outsourcing practice is culturally different than traditional CPA firm practices like audit and tax, such as with respect to staffing, position titles, compensation, pricing arrangements, and management of client relationships.

My firm has provided outsourcing services since its inception eight years ago, and it was refreshing to be able to join with other professionals and thought leaders to share ideas and our collective passion for the value proposition of outsourcing.  Our firm was represented by Nicole Ksiazek on two different panels. There are relatively few firms doing what we do, and that was apparent by the attendance at the conference. There were about 400 attendees, and while one would expect the audience to be the early adopters of cloud technologies, nearly half were only exploring, not using, cloud applications. Even many of the firms held up as examples of leaders in cloud-based outsourced accounting have nascent practices, are in the process of evolving traditional write-up work to the new model, or are serving very small businesses that do not have much complexity.

There is an irony to the automation and related efficiencies that CPA firms can realize through cloud technologies, and it was highlighted by keynote speaker Geoffrey Moore’s own presentation: Automation leads to commoditization. Clients will be able to achieve the same benefits of cloud applications on their own, which will commoditize the outsourced accounting solutions that firms offer. While the cloud is indeed a game-changing enabler that supports the economics and logistics of outsourcing, a company’s decision to outsource its finance and accounting is ultimately going to have to make sense for reasons other than technology alone – which, of course, I believe it does, as articulated in this prior post among others.

As Moore further explained, this tendency toward commoditization challenges firms to differentiate themselves – which, again, is going to be more and more difficult as other CPA firms, and clients themselves, adopt similar cloud technologies. Continuing the cycle, Moore’s answer for the need to differentiate is to specialize; only then can you optimize your offering, before the next disruptive technology comes along and the cycle repeats. So once again, the ability to specialize – in terms of industry depth or other subject matter expertise – is front-and-center. Cloud technology enables a firm to efficiently leverage and apply this knowledge within industry sectors and specialized areas, but the cloud is not an end in itself. While it may seem like a mixed metaphor for a term that calls to mind something floating in the sky, the cloud is only a platform.

Transforming How Accounting Gets Done

Last week was our firm’s annual meeting, when our managing partner provides all employees with a recap of the past year and a look ahead at the next year’s goals. Each service line partner presents a similar perspective on his or her own practice area. Because we are adding new employees all the time, this also gives our most recent hires an opportunity to understand the firm’s capabilities outside of his or her own group.

As I prepared my talking points, I reviewed the first bullet on my PowerPoint, showing the mission of our Financial Management Outsourcing group: “To provide financial insight and leadership to help entrepreneurs, executive teams and investors take their organizations to the next level.” In years past, I have started my presentation by reciting this mission statement. While we certainly remain true to this longstanding customer-centric mission, I was suddenly struck by the following thought that seemed more appropriate as the kick-off of my presentation:

“We are doing nothing less than transforming the way accounting gets done in emerging growth and middle market companies!”

I have posted previously on the value proposition of finance and accounting outsourcing, so I won’t get down into the details again here. Doing so was not on the agenda for the annual firm meeting. But what I did say was this:

“Imagine you are talking to an entrepreneur about her great new product. And then she says she plans to build a factory to manufacture it. You would say, ‘You’re crazy! Find someone else to make it! Outsource it!’ You would give her similar advice if she wanted to hire several employees to form an IT department, or someone to process payroll. Yet with accounting, the default choice still seems to be to hire people internally. And THAT is what we want to change – to make outsourcing the default choice for accounting and finance, like it is for manufacturing, IT and payroll.”

Seems pretty self-evident to me. I am more enthusiastic than ever about the accelerating trend, and I look forward to being with others that share this passion at the CPA2Biz DigitalCPA Cloud User Conference later this week. Stay tuned for insights gained from this three-day event.