Too Virtual?

It would not be possible to be a “virtual CFO,” or to provide outsourced accounting and financial management services, without technology. Today’s cloud-based and mobile applications have further enabled the development of new entrepreneurial ventures that are based entirely on virtual business models, which rely heavily on outsourcing non-core functions and/or hiring widely-dispersed employees that do not report to a physical office.

But none of this removes the need for face-to-face contact. Or does it?

I began thinking more about this question after hearing a couple of speakers at the recent AICPA Digital CPA Conference. Keynote speaker Simon Sinek spoke about the importance of the real human connections that can only be established and maintained through in-person contact, and this validated my belief that face-to-face contact is even more critical as we become more “virtual.”

But later in the day, I listened to a session on generational differences and their implications, facilitated by Jennifer Wilson of Convergence Coaching. Wilson noted that, in a survey on how various generations perceive each other, Millenials (those born from the early 1980s through the early 2000s) were described as over-relying on technology and being “too virtual.” My first reaction was that we Generation X’ers ought to be quite pleased with ourselves, for we have struck a perfect balance, haven’t we? After all, we embrace technology and leverage it fully, while still recognizing the value of face-to-face interaction and ensuring that it is part of our business relationships. Simon Sinek would be proud.

But then I began to wonder – are Generation X (and the Baby Boomers) blinded, by their own experiences and perceptions, to the generational forces of change? Are the Millenials, and the generations that follow, going to hold the same convictions about the importance of face-to-face meetings? After all, as I once read somewhere, they are “technology natives,” the equivalent of having grown up speaking the language of technology, whereas it is just a second language for Generation X. Perhaps the affection the older generations have for direct human interaction is driven by a pre-technology upbringing and nostalgia that the younger generations will simply not share?

I think Sinek would dispute this; he would say the desire for face-to-face contact is a fundamental human need. One of my clients astutely observed that the use of emoticons is an acknowledgement of the shortcomings of digital interaction – a feeble attempt to add some emotional, human context that is missing without body language, laughter, or facial expressions.

I hope Sinek and my client are right. Either way, I will continue to build my professional relationships the only way I know how, the only way that is truly enjoyable and rewarding: by balancing today’s technologies with a liberal dose of real, live interactions.

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Thoughts on the 2013 Digital CPA Conference

Along with three of my Fesnak colleagues, I attended the second annual Digital CPA Conference in Washington, D.C. this past week.

As I wrote in a post recapping the conference for Fesnak’s blog, the first Digital CPA Conference was launched in 2012, in response to the proliferation and maturation of cloud-based technologies, which simultaneously challenge traditional modes of operating in the accounting profession while creating exciting and unprecedented new opportunities. While these challenges and opportunities run the gamut from social media to generational trends in virtual/mobile workforces to efficiencies in document management and workflow, chief among the new opportunities is what the AICPA calls “client accounting services” enabled by cloud-based accounting applications.

“Client accounting services” is the AICPA’s term for finance and accounting outsourcing (FAO), a type of business process outsourcing (BPO). I prefer the term FAO over “client accounting services,” not only because it is more widely known, but also because it more accurately captures the breadth of services provided. After all, it is not just accounting; it is financial management, inclusive of financial planning and analysis (FP&A) and virtual CFO services. And “client accounting services” could be anything; the term does little to distinguish a robust BPO offering from old-school bookkeeping or write-up services – ironic, given the AICPA’s aspirations for “client accounting services” to supplant these traditional services with a more value-added, “trusted adviser” role.

Also ironic is that FAO is not at all new; it has been performed for years, if not decades, by outsourcing service providers such as the Big Four accounting firms and, today, by industry leaders such as Accenture, Genpact and Capgemini. What is new, however, is the concept of FAO as a core service offered by small, mid-size and second-tier national CPA firms. Indeed, there is a vast market opportunity for these firms: While the largest multi-national enterprises outsource to the aforementioned leading providers, emerging growth and middle market companies lag far behind in their adoption of FAO (see HfS Research / KPMG study here, and ACCA / HfS Research study here). As these small to mid-sized enterprises (SMEs) enter the market to procure FAO services, who better to meet the demand than the CPA firms that are already entrenched in these market segments?

The 2013 Digital CPA Conference provided plenty of great content from thought leaders such as Simon Sinek, Geoffrey Moore, Jennifer Wilson and others, and I appreciate the AICPA’s efforts to help CPA firms leverage new technologies, optimize new service opportunities like FAO, and navigate change and complexity in general. However, I think the Digital CPA conference is already at a crossroads in its short life. Although the conference addresses a range of technology-related topics, the central theme in both 2012 and 2013 has been cloud-based accounting applications as an enabler for developing “client accounting services.” Many of the sessions were geared toward firms that are just now thinking about, or have only recently launched, such initiatives. This is all positive. But as FAO continues to become a more prevalent offering at CPA firms, there will need to be a conference devoted  exclusively to outsourcing, just as there are audit and tax related conferences.

An “FAO Conference” (I’ll leave it to the marketers and event planners at AICPA to come up with a catchy name) should definitely address technology. But as Digital CPA speaker Bill Reeb noted, technology is just a tool. There are so many other areas that could be, and would need to be, addressed in an AICPA outsourcing conference. These include, but are by no means limited to: pricing strategies and contract negotiations; competition from non-CPA firms; the clash between the new outsourcing services and existing professional standards (e.g., for compilations); best practices in various accounting and financial management processes; KPIs for an outsourcing practice; cultural challenges running a BPO operation within a traditional CPA firm; recruiting talent; organizational structure and management of an FAO practice; outsourcing engagement structure and management; etc. (Certain of these topics were in fact part of the 2012 Digital CPA Conference, but at an introductory level only and were understandably not repeated in 2013’s conference, which was again geared toward very early-stage “client accounting services” practices). The Digital CPA Conference could continue to exist separate and distinct from an FAO Conference, with an ongoing focus on emerging technologies across all CPA firm disciplines.

I am not advocating an FAO Conference for 2014; there is not enough time – or, more importantly, demand – to pull it off that soon. But as the next best thing, I would like to see the 2014 Digital CPA Conference evolve to include separate concurrent session tracks for firms that have more mature and robust outsourcing practices, perhaps addressing some of the areas suggested above.

(Disclosure – my Fesnak colleague Nicole Ksiazek serves on the Digital CPA conference advisory panel.)

Virtual Reality

On Tuesday, February 12, 2013 I had the privilege of moderating a panel discussion on outsourcing at an event held by the Entrepreneurs Forum of Greater Philadelphia (EFGP). The program was entitled “Virtual Reality: Using Outsourcing & Virtual Business Models to Achieve Peak Performance.” The objective of the panel discussion was to give potential buyers and providers of outsourcing services an overview of trends, opportunities and challenges in outsourcing. Particularly for the growth companies that the EFGP serves, we hoped to provide an overview of the resources available through outsourcing as a company grows and evolves, and to provide guidance in navigating the decision of whether to outsource and how to outsource.

Key discussion points included:

  • The value proposition of outsourcing: While there are many benefits, the overarching value proposition is to be able to focus on your core competency. As Tom Peters said, “Do what you do best, and outsource the rest.” This might have been expanded to say, “Do what you do best, and outsource the rest TO WHOEVER DOES THOSE THINGS BEST.” Patrick Gibbons, co-founding partner of The Emerson Group, eloquently described Emerson’s wildly successful business model that provides outsourced services while itself relying upon outsourcing for non-core functions.
  • Outsourcing levels the playing field and enables smaller, earlier-stage businesses to successfully compete with larger encumbents. Joel Cardis, Inhouse-Counsel.net, described several examples he has seen in his role as outsourced general counsel, while explaining how his proactive role with his clients is a modern twist on contracting out for traditional legal services.
  • Outsourcing is continually evolving, and within each functional area (finance, IT, marketing, logistics, etc.) outsourcing is at a different stage of maturity. Outsourcing services are moving up the ladder from handling routine or transactional tasks to more value-added, knowledge-based and strategic activities. Staffing, a form of outsourcing, has progressed from temporary factory workers, to temporary office workers, to interim executives, and now to “fractional” executives, or “executives as a service,” evangelized by panelist Sue Cyliax of Chief Outsiders. Similarly, staffing solutions have evolved into managed services, whereby the management of an entire business process or functional area is outsourced, such as recruiting process outsourcing, represented by panelist Emily Biscardi, founder of Xelerate.
  • Advances in information technology – namely, cloud-based and mobile applications – have made outsourcing more practical and pervasive. As Anthony Mongeluzo, President of ProComputer Services (and EFGP President) noted, the “cloud” is really just a new name for something that has been around for a long time, but broadband technology has made it possible to move vast amounts of data digitally and wirelessly to and from the cloud. Sam Vinovich, a colleague of mine at Fesnak and Associates LLP, described Fesnak’s use of cloud accounting technologies Intacct and Bill.com to remotely provide a robust accounting and financial management solution.
  • Outsourcing is not a job-killing practice and should not be confused with offshoring. It is creating whole new career paths for professionals. For example, a controller in a middle-market company may have no upward mobility if the CFO she reports to stays in her job for a long period of time. But at a firm that provides outsourced accounting services – where her area of expertise lies within the firm’s own core competency and reason for being – she has unlimited opportunities for advancement. And outsourcing provides a wide spectrum of experiences to the professionals delivering the services, which in turn adds to the value proposition for buyers of those services. To use Mongeluzo’s metaphor, an IT professional at an IT outsourcing firm is an “alley cat” that has been exposed to all sorts of ever-changing experiences in the outside world. An in-house IT professional, in contrast, is a “house cat”: limited to the experiences seen inside his or her company, confined by that one company’s vision, resources, budget and existing technologies.

It was a dynamic panel discussion that I was pleased to be a part of. Judging from the audience questions and feedback surveys, it was well-received. Being in the outsourcing field, it is easy to forget that outsourcing is still not necessarily mainstream, at least not in all functional areas, and business professionals still have a number of questions about how it all works and can best be leveraged in their organizations. The panel discussion was a great opportunity to continue to educate the marketplace and evangelize the benefits of outsourcing. Thanks to EFGP, the panelists, and all who attended the event!

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 Bill.com. 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.

The More The Merrier

Cloud-based accounting and financial management software maker Intacct, through its alliance with the AICPA and CPA2Biz, has been hard at work developing its CPA firm channel by teaching firms how to start outsourced accounting practices. As part of this initiative, Intacct is running workshops to help CPA firms develop business plans for what Intacct calls “client accounting services.” As a result of my firm’s BPO partnership with Intacct, I had the privilege of attending one such workshop a couple of weeks ago in New York City.

At first, I must admit that I was not thrilled with the idea that Intacct is encouraging new competitors to enter the finance and accounting outsourcing arena. But I soon realized that Intacct is helping further my vision of a day when outsourcing the finance function is the automatic, default choice for early-stage, emerging growth and middle market businesses – much the same as outsourcing payroll is now standard practice.

So I welcome all of my potential new competitors, and am happy to consider them allies in educating and developing the market for finance and accounting outsourcing, which is still in the nascent stages of adoption among small-to-medium size enterprises. And I appreciate Intacct’s role in creating a critical mass of outsourcing firms catering to these companies, as it can only help validate the concept!