* Don’t confuse PKF in Texas with PKF the way Ed Kless has defined it—that is, Professional Knowledge Firm. Here’s why.
We see so much dysfunction in so many firms, it’s always great to see one do something right. In the Aug 20-Sept 9, 2007 issue of Accounting Today, there’s a Special Report insert titled Tax Season 2007: Gauging Results. On page 18 is an article by Anjana Jackson, a manager in the Tax Department of Pannell Kerr Forster of Texas, P.C. (hereinafter PKF) titled “Reclaiming Tax Season.” It’s encouraging, an discouraging at the same time.
She states one of the firm’s core values is “People are the Key to our Future.” So far so good. But this is what particularly caught my eye:
In 2007, we wanted to strengthen our commitment to provide our employees meaningful challenges in their career growth (a core value) and to progress toward a more consultative mindset. We felt our largest barrier to achieving the success we desired was our client base. In order to groom consultants and provide challenges for our employees, we examined the types of projects our clients asked us to perform, the time commitments, and the level of learning and career satisfaction associated with a client.
The result was an aggressive decision to “disengage” a number of clients that scored low in these areas. This was a huge leap of faith. The reduction of our existing client base represented almost 25 percent of our 2006 charge hours. The impact of upgrading our client base was a reduced busy season workload of seven percent, while improving employee morale and increasing our net fees by 10 percent.
Hallelujah! I wonder what took them so long to perform this analysis? We have been preaching for over a decade that when it comes to customers, less is more. Not only have I coined Baker’s Law—Bad customers drive out good customers—we at VeraSage also use the Adaptive Capacity Model, utilizing the metaphor of a Boeing 777 airplane for your firm. This forces firms to strategically think about their capacity allocations among different value segments of customers, while always reserving capacity for its most valued customers (see article).
We see far too many firms that will actually add capacity for back-of-plane customers—that is, D and F customers (F, of course, standing for “friends and family”). No airline would think of doing this. Once they sell a certain number of Priceline.com (i.e., cheap) seats, that’s it, they no longer will stuff the back of the plane. This is why we call it the “adaptive capacity model” because firms can change—dynamically and strategically, in response to market demand—where they move the bulkheads in their airplanes. Our colleague Paul O’Byrne loves making the point that if CPAs ran airlines, the second story on the Boeing 747 would be on the back of the plane.
So why do nearly all firms have too many customers? We hear two major justifications, both of which are specious upon serious reflection. First, we need this low level work to provide on-the-job training to our youngest team members. Second, we make money on this work, it contributes to our overhead.
The first reason is absurd. Today’s knowledge workers go through at least five years of college, are incredibly intelligent and motivated to learn. Why give them uninspiring work? Would CPAs make surgeons pierce ears? The second reason is just as absurd. Sure, we make money on this low-level work because we are knowledge firms, we make money on practically everything we do (unless we are horrendous pricers). Surgeons could also open a kiosk in the mall and provide body piercing, and most likely they’d make money too. It’s just not the best use of their talent and intellectual capital.
If a firm truly wants to develop its younger team members into a consultative mindset, rather than compliance drones, that should start from day one, not after they’ve performed some hazing ritual of doing crap works because the partners paid their dues and they’re going to make sure the youngsters pay theirs.
And this is where I find the PKF article discouraging. She still speaks of charge hours. How can we create entrepreneurial CPAs if they are still being taught they sell time and have to account for every six minutes of their day? There is such a disconnect here. Team members need to be taught that what they are really selling is intellectual capital, so they will be incentivized to develop and contribute IC to the firm. This focus on hours is holding these firms back from developing the kind of team member mentality they all say they want. Why can’t they see this? Is the elephant in the room invisible?
She also writes the old standby: “We truly believe that our most valuable asset is the people who work for us…” People as assets (or resources), how demeaning and dehumanizing. The beginning of wisdom is using the correct language. When are firms going to start referring to their knowledge workers as human capital investors, or better yet, volunteers?
We live in a knowledge economy, but one would never know it studying the practices, procedures, language and leadership of nearly all firms. They treat their people more like factory workers, providing them uninspiring work along with mediocre leadership. Is it any wonder we have a talent crisis in the professions? Today’s younger generations know they are knowledge workers, even if the firms that employ them do not.
PKF provides lunches and dinners and 20 minute chair massages during busy seasons. All very well and good. But until it realizes its people are knowledge workers I’m afraid all these efforts, while necessary, are hardly sufficient. Until it escapes the shackles of The Old Practice Equation (leveraging hours and hourly rates) and embraces The New Practice Equation as defined on the top of this Web site, its destined to remain a Firm of the Past.
I applaud PKF’s efforts on customer deselection and recognition that it needs to provide challenging work to its knowledge workers. I only wish it would follow that very reasoning to its logical conclusion and embrace The Firm of the Future. Until then, we’ll have to look elsewhere for leadership and real, meaningful change in the profession.