Services Safari

Resurgence in Big 8

                                      Big 8 Redux

There’s a short table in an article titled “Back to the Big Eight?"  in the September 2007 issue of CFO Magazine (www.cfo.com ).  This table (see below) identifies the eight largest accounting firms by revenue in 2001 and 2006.  It also shows the number of professionals and SEC clients each firm has. 

I did some additional calculations off of the data within this table on a separate spreadsheet.  I noticed that the:

§         number of professionals within the top eight firms has declined in the last four years.  Specifically, there were only 84,384 professionals in the Big 8 in 2006 yet there were 108,948 professionals in largest eight firms in 2001.

§         revenue per professional has increased by almost 20% during that same time frame. Revenue per professional has grown from $259,349 per person to $311,917 per person.  While this could be due to inflation, this increase could also point to reduced competition and larger fee/client arrangements, possibly driven by increased compliance costs.

§         number of SEC clients has declined from 13,617 to 7,302 in these same five years.  This represents a significant reduction in the number of publicly traded firms.  Some of this reduction may be due to mergers, acquisitions and business failures (resulting in de-listings). However, many firms have chosen to go private rather than subject themselves to the added cost and trouble of new reporting regulations like Sarbanes-Oxley.

All in all, though, it is good to see the profession financially healthy and that its smaller brethren are growing. For there to be choice, competition and healthy innovation in the industry, a balanced group of large competitors will benefit all users of these services. Buyers of these services should question though the real value they get from an audit staffer billing out 3-6+ times their fully burdened cost though. I’m not convinced that true value is accruing to the clients and that these costs are appropriate. They may be market-driven and scarce at the moment but are they really providing value and does this value go beyond the amount billed?

I also think we need to examine why the number of professionals in this industry has dropped by approximately 24,000 individuals within the Big 8.  If this is a problem due to the lack of recent college graduates entering the profession, then clearly the industry is not doing enough to educate students and prospective graduates of the appeal and opportunities available in public accounting.  Alternatively, work-life balance concerns of recruits (a problem that has dogged industries such as public accounting or systems integration) may not be getting the attention it deserves inside these firms and this is keeping headcount down.  If so, then this is a signal that more public accounting firms need to adopt policies like the Booz Allen Hamilton 5 -- 4 -- 3 -- 2 -- 1 program. Or, maybe college students see the post-Enron world of public accounting as just unappealing. Whatever the cause, the industry may need a PR makeover.

Who's Your Most Valuable Service Employee?

The Next Frontier for Human Capital Solutions in Service Enterprises

Say your firm has two employees of like grade, seniority, etc. However, one person is the go-to subject matter expert that dozens of clients and fellow employees reach out to constantly for answers to their questions. Who is the employee you really need to retain the most?

Suppose you have another pair of employees with similar credentials except one of these is constantly connecting with clients, prospects, alliance partners, etc. Who is more critical to your firm's success? Does your answer change if you learn that the latter's chargeability is lower because of all of this connectivity?

Valuing people is still subjective and it remains unclear as to whether companies are looking at consistent measures or even the right measures. A great service employee must always expand his/her professional balance sheet. They must:

• constantly be in-touch with the people, media, tools, etc. needed to remain relevant and valuable with clients (People that prospects seek out, sell more work. Their value (i.e., Total Assets) increases as result.)
• creating a distinct set of differentiating skills for him/herself (This increases one's Net Assets)
• prevent their skill set, contacts, etc. from ossifying (This is the depreciation that affects all assets)
• build their personal brand. A person everyone knows and values never has career or employment problems. A nobody is someone who could be really talented but few people know this. Unknown skills are not worth much.

This subject is important as it reminds us how little Human Resource or Human Capital systems really know about a service firm's workforce. Imagine what would happen if a service firm kept track of workers':  cell phone calls, desk calls, emails, etc.? What if you also could 'see' who they chat with informally every day as they walk around your office or a client's office? What if you could use all of this personal network data to assess the value of employees to your firm? Would you make different decisions as to someone's contribution to the company?

I remember some fine folks I've worked with over the years and I really wonder if the company truly appreciated what they could deliver. For example, I worked with one lady who really burned up a telephone. She always had the best intelligence, knew the inside track on anything going on inside or outside the company. I had another colleague who was one of the firm's most sought after subject matter experts. Hundreds of partners and numerous software vendors constantly sought out her opinions and counsel. One individual was a great closer of work because he could really understand and speak to CXOs.

In the current issue of Strategy + Business (a Booz Allen Hamilton quarterly publication), there's an article titled "The Science of Subtle Signs". This piece looks at groundbreaking research being done in using sensors (on people) to reinvent organizational research. Just check out these sound bites:

"... these devices would uncover patterns of activity that usually go unobserved in organizations like the dynamics of person-to-person relationships and the ways they affect managerial decisions and organizational practices.  Imagine, for example, an automatic system that could detect a breakdown in the trust on which a creative team depends and flag specific steps that could fix it, or one that could map out the complete flow of information and knowledge within an organization...

Beneath the formal organizational chart of any company line hidden webs of social interactions that we can rarely talk about, winds whose existence we may not even acknowledge.  The health or dysfunction of these social networks can determine the effectiveness of a team, a large group, or an entire firm.

In collaboration with Thomas Malone of the MIT Center for collective intelligence, and his research team has begun to use sensors to observe creative group behavior at a major German bank.  (One deliver a finding: people who maintain lots of e-mail and face to face contact report high job satisfaction and personal productivity; those who socialize less, even with the intention of getting more work done, expressed overall less satisfaction.)"

The sensors could be used in other applications as well.  For example, many studies have shown that workplace burnout is a serious issue that cost companies billions each year.  But because people tend to high stress, it can be very difficult, if not impossible, to detect."

Human Resource and Human Capital systems have been and mostly remain focused on transaction systems processing.  The inability or unwillingness of human resource management systems vendors to get into the softer sides of worker attitudes, personal networks and other behavioral aspects is disappointing.  We need technologies that help improve business productivity.  We also need systems that protect employees rights to privacy and individuality.  I believe we can deal effectively and professionally with ethical issues; however, we need vendors in the human capital and human resources space who will energize our thinking and open our minds to new possibilities in the way we value and measure workers.

I've spoken with several human resource and human capital vendors the last two years about moving away from transaction-based solutions; however, I believe the time is right to really advance the thinking and innovation these firms could possibly deliver.

(This post will be cross-posted on www.softwaresafari.typepad.com).