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 DON’T KID YOURSELF – It’s Not Business as Usual By August J. Aquila, Ph.D. There is a new world out there.
Today’s business environment is not the same as your father’s. Clients are
more sophisticated and knowledgeable about the service options available to
them. Firms lacking a clear mission and vision are finding it hard, if not
impossible, to compete against a new group of aggressive and professional
competitors.
This new environment requires firms to actually implement goals by looking at specific objectives and measures. Performance and execution are the key operatives. The old measures, by themselves, won’t do the job anymore. They are still valuable, but new measures are needed today because firms no longer compete simply through marketing efforts. Competition now reflects on how firms manage the practice, treat their employees, win employees’ hearts and minds, and provide a true learning environment. A system that could measure your business development and management efforts – in other words, a system to measure how well you are implementing your firm’s strategy – would prove invaluable. The Balanced Scorecard A system that provides a balanced approached is best. In fact, one such system, is called the Balanced Scorecard. Don’t think that the scorecard approach to managing your practice is about keeping score – it’s not! It’s about implementing your firm’s strategy. And it’s probably most effective at the practice unit level. Here’s how it works. Management uses the balanced scorecard to align the firm’s strategy around five key basic areas – financial, client, marketing, internal business processes and employee growth/learning. While a firm might want to measure additional areas such as community involvement, these five are the most important. Key objectives, those that are critical to the success of the firm, are developed within each area along with measures, targets and action steps. Limit the number of objectives to ensure focus and maximize resources. The scorecard also requires you to do more than set a bunch of objectives. You need to determine how those objectives filter through the organization. A goal set at the top will require new and different behavior throughout the firm. You need to analyze the cause and effect each goal will have on your firm’s strategies and desired outcomes. For example, if your firm can improve marketing and selling skills and you provide staff and partners with access to a client relationship management system, we could assume an increase in professional productivity. Further, if we create processes that provide more on-time delivery, the development of new services and additional cross selling, we could further expect an increase in client confidence in our abilities and a higher client satisfaction level. This in turn would provide us with a broader revenue mix and improve operating efficiency, ultimately improving profits. Financial Objectives and Measures Accountants surely know that production numbers must be monitored, perhaps even to a fault. Most firms today develop annual and monthly budgets. Firms track billable hours, realization and utilization – all the standard metrics. At partner meetings, a great deal of time is spent explaining variances (mainly shortfalls) from the plan. Common reasons may include, “we will get the work done next month,” or “the economy is really hurting us.” In short, no one really understands why the firm did not hit its numbers for the month. That’s the problem with financial objectives – they tell you what happened, but not why it happened. Financial measures, as “lagging measures,” by themselves don’t help management make good decisions. While the Balanced Scorecard doesn’t ignore financial measures, it tells us to go beyond the financials. This requires firms to look at leading measures, also called performance drivers, in the other areas and determine how they actually impact the firm’s financial results. Client Objectives and Measures Client objectives deal with identifying the client and market segments in which your firm competes. Client satisfaction and retention measures also fall under this category. Firms currently measure client satisfaction, but that in itself is a lagging measure. When you complete the annual client satisfaction survey, it is usually too late to save an endangered client. Firms that measure performance drivers throughout the year have time to make corrections. For example, an increase in the number of redoes in your work products or a decrease in the number of referrals received from clients would be leading indictors of client dissatisfaction. Marketing Objectives Firms that only measure the number of new clients acquired or the increase in work volume, may be missing some critical information. Individual client profitability is perhaps one of the most important marketing measures. The following short list identifies some of the other important marketing objectives:
Business Process Objectives and Measures |
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| PO Box 5068 Troy, MI 48007-5068 Phone: 248.267.3700 Fax: 248.267.3737 E-mail: macpa@michcpa.org | |
