Innovative or risk extinction - accounting

"History teaches that innovation does not come about by central planning. If it did, Silicon Valley would be nearer to Moscow than to San Francisco."

Tom Kelley, The Art of Innovation

MUCH OF OUR PROFESSION'S CORE services are not In step with the needs of our customers. One has to accept that Our profession's innovation curve is essentially lacking and Inquire as to why it has been more than 25 years since our pro-1978. Opening Yourself to such concepts can create deep emotional and intellectual Responses, some of which might be extremely unpleasant.

Many of our profession's challenges can be summed up by asking: Are we a slide rule in a computerized world? We are a regulatory-based profession, and if Enron teaches only one lesson, it is that the "expectation gap" wasn't a gap at all--it was a chasm.

Since our profession's last innovation, Microsoft has changed the world, Detroit is no longer the center of automobile dominance, the Berlin Wall has fallen and the Soviet Union imploded.

Why should we care about innovation?

Well, excluding the probability that there is some budding entrepreneur in his garage somewhere plotting to usurp our profession's dominance in a regulated industry with a better service offering, it boils down to survival. If we don't innovate as a profession, within our firms and personally, our future will be dictated to us rather then directed by us.

Without innovation, others progress while we are stationary. Over time, dominant advantage and value are reduced and market share is stripped away by more relevant service offerings. Research by professor Jennifer Chatman of the Hass School of Business confirmed the influence of an innovation-based culture on firms' long-term sustainability.

Her research found that--over an 11-year span--revenues for firms that have a culture which is strategically relevant and strong in innovation outperformed those firms that don't by 682 percent to 166 percent. Further, net income for innovative firms increased by 756 percent compared with 1 percent.

What would outperforming your competitors by 756 percent in net income be worth to your firm, your firm's team members and your retirement plan?

ELEMENTS OF THE INNOVATIVE PROCESS

We are a people business and we must recognize that people have a natural tendency to explore and create. As firm leaders we must remove the barriers inhibiting our team members' creativity.

Are your people willing to share their ideas regarding new or improved services or products? If not, you most likely have a leadership issue because your firm isn't supporting the creativity inherent in your team members.

If the risk of advancing an innovative concept, idea or expression is greater than the potential rewards, people will remain silent. The more silence there is the weaker your firm becomes.

Barriers to an organization's creativity include harsh criticism of new ideas; intense internal competition; avoidance of risk; overemphasis on status quo; extreme time pressures; and unrealistic productivity expectations.

Removing these barriers establishes an environment where new ideas can flourish for the benefit of the firm, its customers and its team members.

Innovative firms and their leaders recognize that creative ideas come from everywhere and at anytime. Accordingly, such firms have systems in place that support the exchange of ideas and concepts. The leverage those sparks of ingenuity into new and profitable offerings. Innovative leaders act quickly when innovative ideas surface and recognize that creativity requires "friendly conflict."

To innovate people must be able to debate freely while maintaining friendships. Firms should schedule frequent creativity brain-storms that encourage a free flow of ideas from team members.

This all starts at the hiring stage. Firm leaders, understanding they are an intellectual capital provider, must hire the intellectually curious because their firm's future is dependent upon its ability to deliver new and improved service offerings. Leading firms recognize that those who toil endlessly at their desks are not driving the firm forward but are anchoring it back.

INNOVATING AT THE FIRM LEVEL

Innovation is a dynamic process. Your firm's strategy and long-term vision must incorporate innovation in services as a core metric or you become a batter with two strikes before you even show up at the plate. If you maintain only the services you currently offer, you simply strip away the long-term value your firm is capable of offering.

When you maintain the status quo, you don't recognize when your customers either do without a needed service due to lack of knowledge as to what is available or they unnecessarily go outside of your firm to solve problems.

Innovation must drive your firm's strategic decisions. Take 3M, a company famous for its creativity and innovation. The company has a policy that its technical people have the freedom to spend 15 percent of their time (six hours per week) on anything they want for the benefit of 3M. That is how Post-it Notes were invented. The underlying polymer was created for another purpose, but it failed. Another team member then experimented with it to help him find a "sticky" bookmark for his choir hymnal.

And even after 3M initially squashed the idea of marketing "sticky notes," the company's culture supported continued investigation during the inventor's "15-percent time," all the while he was protected from either reassignment or reprisal.

Now, 3M does not provide accounting and tax services, but its success and others' leaves clues for everyone else. 3M and innovative companies like it create the opportunity for innovation by providing team members with the time and resources to simply experiment. What new service offerings could your firm create if you provided 15 percent "free-thinking and research" time to your team?

While current producers focus their attention on efficiency, productivity and protecting their market share, innovators outside the establishment rewrite the rules and alter the operating environment.

Failure to discard legacy systems requires firms to pay the ultimate price--extinction.

According to Chatman, the most important predictor of creativity and innovation is the development of firm "norms" that support the expression of creative ideas. As previously stated, people will not express themselves if the environment is too risky or their ideas will not be taken seriously.

Firms can foster creativity when people's skills overlap with their strongest interest and their deepest passions; people have expertise about the problem or task; and people have developed personal characteristics, such as independence, self-discipline, tolerance for ambiguity, perseverance in the face of frustration and cognitive flexibility.

This boils down to a leadership dilemma. Firm leaders must recognize how their behavior and firm norms are interfering with the creativity of their team members. These same leaders must then remove these barriers or continue to harm the firm.

Steps firm leaders can take to encourage creativity and innovation include leaving their offices and working with team members and designating "creative" spaces where people can gather and exchange ideas.

Firm leaders also must be ready to have everything challenged and support the abandonment of the status quo to have an improved future.

WHY INNOVATE?

Innovation is imperative if you want your firm or company to have any chance of being more than a passive participant in its future.

It was mentioned at a recent conference on innovation sponsored by The Economist that 50 percent or more of GNP growth is based upon "New Knowledge," also known as innovation. The lead driver of the new economy, intellectual capital, expands exponentially as knowledge is dynamic. Hence the distance between leading firms (measured by profits, quality of life and achieving objectives) firms follows this same exponential curve.

At some point, a firms ability to maintain its current level as the surrounding current strengthens more and more energy just to stay in place, let alone move upstream.

Innovation replaces lost business. Innovative services strengthen customer and team member relationships. Who wants to repeat the same functions again and again? One of the reasons that top talent constantly leaves firms is because their intellectual creativity isn't challenged. The firm's focus on billable hours doesn't allow them to expand their horizons, to develop new service offerings, to contemplate how the firm can improve what it currently does or innovate new ideas and concepts.

Innovation also doesn't occur in a vacuum. The more you innovate the faster you'll bring ideas to market. The faster you experiment with new ideas in the market, the faster you'll achieve success and the more your customers will look to you and your firm for innovative services.

HOW DO FIRM'S INNOVATE?

Innovation is essentially a process that you support by providing resources and time to your team members to ponder a better future.

Yet, you must determine what to do after the initial proposed ideas surface. You must field test new ideas and recognize that early methodologies will require adjustments and subsequent testing. Your firm must recognize and identify the early adopters that should be marketed to first, and in exchange for customer feedback, your firm must accept the inherent risk that traditional benchmark pricing might not be achieved.

Your firm must properly define new ideas and then find an internal champion with the authority and ability to deliver the new service to the marketplace, modify as appropriate and report back to the firm the new tools and abilities learned from the innovation.

Innovation and creativity requires an understanding of the "funnel" concept--a wide opening where an almost endless supply of ideas are presented, challenged, refined and compressed into the few opportunities that require further firm investment.

Innovative firms recognize that "creativity training" is not the answer. You can't simply send people to a seminar and expect instantaneous creativity and new ideas. Innovative firms hire curious people first and then support ongoing creativity.

Innovative firms constantly trace how their services are used. They learn what their customers do immediately after receiving completed projects.

These innovators actually ponder ways to enhance the associated experience and search for ways to make a compliance product valuable instead of a mere requirement. Innovators don't wait for their customers to ask; they understand that it is not their customer's job to innovate.

CONCLUDING COMMENTS

Ultimately it is your choice: focus on your comfort and current convenience and bear the risk that outsiders ultimately disrupt your world and inflict pain and suffering. Or start creating your own future that is directed and influenced by your thoughts and ideas.

Creativity and innovation have inherent risks, yet profits only come from risks. It is far superior to swing at the fastball and miss than it is to be called out looking.

INNOVATIVE Concepts to Ponder

* Why don't CPA firms "option" talent and have permanent on-call experts available to service expanding customer needs?

* Consider reversing how projects are assigned. Instead of the leadership picking the players, allow the players to pick the leadership and projects.

* Frequently change your firm's space allocations. Make people move around.

* Free those corner offices for "creative" thought. Reward creativity, not longevity.

* Change your invoice delivery methodology to make it fun for your customer.

* Identify three internal processes your team members avoid and find ways to make them fun

* Where could you take your team on field trips to stir their creativity?

* How can your compliance products come alive?

* Take your team to a customer's trade show. Let them learn with the eyes of a child.

* How can you redesign operations, install the latest technology or retrain your team to deliver a better experience--without, of course, breaking the bank? Start by following your customer journey, breaking it down into its component elements and asking yourself how you can deliver a better experience.

Daniel D. Morris, CPA is a partner at San Jose-based Morris + D' Angelo and co-founder of the Bay A tea-based VeraSage Institute, a think take dedicated to promoting value pricing and values integral to human capital development, You can reach him at [email protected].

COPYRIGHT 2003 California Society of Certified Public Accountants
COPYRIGHT 2003 Gale Group