The Trusted Strategic Accountant: Some Old Tools to Consider

As the most trusted advisor, accountants continue to hold the ear of business owners, and while they continue to have this envious position, I suggest that the advice they provide must move well past statutory and regulatory services. Although accountants, particularly those in smaller practices, continue to maintain this advantageous position with clients, most accountants continue to experience price compression for their bread-and-butter compliance and assurance services.

???????????As I have written previously, accountants, particularly those working in smaller firms, must continue to offer value-added services, such as strategic advisory, estate planning, and retirement benefits services. However, many accountants continue to work based on the compliance-oriented tax cycle and generally do not have the quality time needed to develop a new service. Even for the most aggressive accountant who develops plans to add additional services, most tend to drop the proverbial ball during the busy season, leaving some clients displeased with their services.

???????????However, all is not lost. I suggest that accountants develop informal tools to help articulate client financial performance and avoid the plan to offer additional services if this is not feasible. I provide below a view into one strategic tool, which, although it has been around for a long time, can assist accountants in starting the necessary strategic conversation with clients that, if done correctly, can continue for the life of the client. Dr. Michael Porter, a long-time strategist and professor at Harvard Business School provides a tool (framework) that can add value to an accountant as they offer services for their clients.

???????????When I often interview the small business owner concerning performing a valuation or a lost profits analysis, I begin with what appears to be the most simple question. I usually ask, “How do you compete against your competitors?” The answers are always fascinating and enjoyable, especially from the passionate client in love with everything they do at the company. However, the business owner often does not truly address the question. Dr. Porter suggests that companies can compete successfully by providing a premium, differentiated product or a homogenous low-cost offering.

Concerning differentiation, the accountant should help the business owner understand if the products and services they offer are much different from other competitors. Companies that compete by offering differentiated products or services should consider themselves premium providers and command a higher price than other competitors. Alternatively, some business owners provide similar, if not exact, replicas of all other products and services in the same market. This business owner is usually a low-cost provider and will compete on price and quality.

???????????So, why is it essential for an accountant to understand how a client competes? Usually, from my experience working in the industry and now working with accountants regularly, I have come to know that accountants are continually prompted with questions from clients, such as, “should I invest in this new product?” or “should I buy this company?”, or “should I expand my customer service line?” Each of the questions ties into how a company competes. For example, consider a low-cost provider of homogenous luggage, backpacks, and shoulder bags which is considering expanding its product line to include premier fashion differentiated handbags. Presently the low-cost producer offers almost no customer service but for a direct phone number for the sales representative and provides virtually no guarantee for the performance of their bags. However, with this new endeavor and now knowing that the clientele will be paying a premium, the now low-cost producer is considering offering a warranty and a customer service hotline for bags requiring some service.

???????????Now understanding the differences between differentiated producers and low-cost producers, the accountant has a straightforward two-variable framework to begin the current and future strategic conversations. In the case at hand, the accountant can now ask the following questions of the client.

(1)?Do you have the financial and human resources needed to staff a client services department and the additional sales representatives to call on the clients interested in the premium bags?

(2)?How will this new addition of premium handbags influence the company’s brand??

(3)?Will customers purchase premium products from a company that historically provided low-cost products?

(4)?What are the profit margins of the premium handbags, and how will they affect its overall profits?

As you can imagine, there will be a stream of questions that the strategic accountant can develop once framing the business in a manner reflective of differentiated offerings or low cost. However, one thing that is important to take from Porter is his view that most companies are not well suited and not very successful at offering both differentiated and low-cost offerings, mainly because they each have different requirements and competencies. For example, consider a company such as USAA, which offers financial service products to military families. USAA is a differentiated service and charges prices higher than most of its competitors in the financial services marketplace. Everything that USAA does supports this premium service, including calling its customer services department almost always finding a live person to help quickly solve client issues. USAA has continued to perform well and is coming up on its 100th anniversary.

Similarly, low-cost airline Southwest provides almost no customization, no premier services, and their flights usually are homogenous regardless of the customer. Southwest focuses all of its resources on logistics, getting flights to land and take off on time, for a price lower than all other competitors. Southwest does not try and do multiple things, such as offering premium and low-cost services simultaneously. Both USAA and Southwest Airlines continue to develop a competitive strategy entrenching themselves in offering either premier or lower-cost services, ensuring that they do not muddy the plan by attempting to be all things to all customers.

This article is the first of a few that will address essential strategic tools which accountants can use to assist in framing strategic conversations with clients while enhancing the value of their services. Moreover, should this tool be used regularly, accountants may uncover new service areas that are critically important for their practice. It is time for the accountant to add another crest to its armor; let us move from trusted advisor to the strategic trusted advisor.

Written by: Christopher Young, Ph.D. Chris can be reached at chris@theredmaplegroup.

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