|STANLEY ZAROWIN is a senior editor on the Journal . Mr. Zarowin is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.|
As the Bob Dylan song of the 1960s warned, "The times they are a-changin." Management accountants certainly can attest to the sagacity of those lyrics. But how exactly will the changing times affect CPAs in the years ahead?
Change is not new to management accountants. After all, they are expected to be jacks-of-all-trades and to leap nimbly from one priority to another—handling accounts receivable one day, payables the next, human resources a week later, closing the books at the start of each month and—most demanding of all—dropping whatever they are doing to provide instant information and analysis on everything from inventory to cash flow.
But as Yogi Berra put it, "The future aint what it used to be." While its clear that the frantic pace of management accountants will continue, and its equally clear that the business role these CPAs will play in the years ahead will be significantly different, what is less clear is how many of todays accountants will be willing—or able—to adjust to what many in the profession are now calling the New Accounting.
What is the New Accounting?
An anecdote will help with the definition. Some years ago, when a Fortune 500 company was seeking a new chief financial officer—a search that went on for more than half a year—the president kept rejecting candidates even though they showed ample skills and experience with traditional financial tasks: digging into balance sheets, trimming costs and managing money with sophistication. He even rejected candidates who qualified as so-called business partners—those who understood how the business ran, including marketing and production, and could provide shrewd business advice to top management. "Sure, I want a business partner," the president said, "but I also want someone who can be more than that. I want someone who can help me accelerate change in this organization. I want a change agent."
The new accountants are change agents and more—much more. Its the more that creates problems for many management accountants. But before defining what the more is, some historical perspective.
The most significant shift in the role of management accountants began in the 1980s, triggered largely by the introduction of the personal computer (PC). Top management recognized that the PC could do more than just warehouse data: It could be an analysis tool, generating what-if scenarios ("What if we lowered the price of widget X but boosted the price of widget Y?"), data searches ("How did widget X sell in St. Louis in February?") and real-time reporting ("How many widget Xs do we have in the warehouse today?")
So, in addition to all the traditional tasks of the finance department, the PC—the tool that was supposed to make a CPAs life easier—suddenly added new burdens. From then on, accounting was launched on a new journey, but it was a journey into unchartered waters by professionals without a compass and trained to steer a quite different course. What was very clear was that the columnar pad was dead—long live the computerized spreadsheet! And now accountants were being asked to do more than record historical financial records; they were invited—sometimes ordered—to get out from behind their data, become analytical and proactive, look into the future and join with management in making and taking responsibility for all those tough decisions. Further, top management expected the accounting department, in addition to its demanding role processing transactions, to serve as the central information hub and purveyor of all sorts of data stored on the computers.
While all this was going on, the culture of American business was undergoing a sea change, too: Competition among business enterprises was becoming keener—thanks in large part to the efficiency and data-analyzing power of the computer. To stay competitive, top management generally realized that just selling more goods and services was not enough. So it added two new priorities: Improve the quality of products and services and increase productivity. As a result, American business went on a forced march in search of inefficiencies. The idea was to find them and fix them.
But management sage Peter Drucker and others said that was not enough: "There is nothing less useful," lectured Drucker, "than to do a little better that which should not be done at all." Business heard the prescription, and soon a new buzzword— reengineering —crept into the management litany and quickly redefined American business. The idea behind reengineering is to go beyond seeking efficiencies and to ask, Is this business process (report, study, procedure) really necessary? And, if it is, how can it be designed to better serve the business?
One of the natural fallouts of reengineering is downsizing: If a task is unnecessary, so, too, are the people who perform that task. Downsizing whipped through nearly every business, producing a mixed bag of results—in some cases creating bottlenecks because of manpower shortages, while in others effectively eliminating deadwood in organizations, lowering costs and jump-starting sagging profits. As a result, todays business profits are generally at or near record highs and product and service quality has risen appreciably. But anxiety over job security—especially among middle managers, the job function of most management accountants—has become what can best be described as a national malaise. Its only because business is so good today—effectively resulting in 0% unemployment for finance professionals—that this anxiety among CPAs has abated somewhat. But any dip in the business cycle will surely reignite the job security issue.
One of the first departments to face reengineering was finance—it was both a natural and easy target because much of its work lends itself to what the reengineering consultants call metrics —quantifying the cost and impact of business processes. Once a metric is determined, it can be compared with metrics taken some time earlier and later to determine its true value to the business. But before many top managers let the reengineering consultants loose to redesign the organization, they wisely undertook benchmarking studies to measure how bad—or how good—the metrics of their current processes were. In most cases, they were not good at all.
Theres no question that reengineering works. In the decade or so since reengineering was first employed among mostly large and medium-size organizations, the average cost of running a finance department in those businesses has plummeted some 37%—to 1.4% of an organizations total revenue from 2.2%. (See exhibits 1 and 2.) These numbers come from Gregory Hackett, president of The Hackett Group, a Hudson, Ohio, consulting firm that has benchmarked nearly 1,000 companies (see "How Does Your Finance Department Measure Up," JofA, Jan.97). To be sure, not all of those savings came directly from reengineering business processes; some resulted from trimming payroll. With payroll representing about half of a typical finance departments cost, its not hard to extrapolate how those process improvements swelled the unemployment lines.
Has American business cut, improved and reengineered as much it can? Hackett thinks not. Of the companies that have undertaken reengineering—and these mostly are among the Fortune 1000—he sees the potential for further improvements of as much as 50% in the next few years. That would bring down the average cost of running a finance department to as low as 0.7% of total revenue from the current level of 1.4%. How will such a reduction affect head counts? According to Hackett, we should expect another one-third reduction in the number of people in finance. Those cuts may include some clerical staff, but they also will have a sizable impact on accountants.
Is that as low as it can get? Hackett speculates that, based on the many reengineering studies his company has conducted, the theoretical bottom is about 0.3% of revenue—which implies another 50% cost reduction, and that, too, means the head count will be trimmed even more.
Okay, you may argue, but all this is somewhat speculative and theoretical and, anyway, were talking about averages and trends—not specific jobs.
Lets talk specifics. While hard projections are impossible to come by, some anecdotal evidence that will affect the future may be useful. Phillip Ameen, CPA, controller and vice-president of General Electric, says that, generally speaking, for the last several years GE has not hired accountants for entry-level positions in the finance department and "we have no current plans to change that policy." GE is certainly not discriminating against accountants; it also avoids hiring MBAs and business majors for those jobs. Instead, he explains, the company searches for bright people who are adaptable—not those who are stuck in yesterdays business paradigm.
Once hired, the new employees are put through GEs rigorous financial training management program so they can do what the company considers to be the highest priority work of the finance department: analysis of data to support decision making by GEs top management. At the same time, the finance department has become the hub for business data—distributing information as needed throughout the enterprise.
This represents a shift from the traditional role of finance, where most, if not all, of accountants resources were focused on transaction processing—so-called back office work. For many companies, transaction processing represents nearly 70% of their finance departments costs, which leaves precious little time for analysis and what in the New Accounting has become the most important of all jobs— putting your feet up on the desk and thinking .
Information—very current and useful information—is the lifeblood of todays business, and if tomorrows accountants expect to be included in managements decision making, they will have to be the key personnel involved in developing, configuring and dispensing information throughout the organization. Peter Senge, head of the Centre for Organizational Learning at the Massachusetts Institute of Technology, says that todays companies owe their competitive edge to their ability to learn and to keep on learning.
"Learning," adds Shoshana Zuboff, a professor at Harvard Business School, "is the new form of labor and the heart of productive activity." And one of the primary sources of this learning? The professionals who control the information.
Management accountants first priority, then, is to construct executive information systems so eventually line managers and others can tap into the data warehouse and easily and speedily extract the information they need to keep the business competitive.
The new accountant, then, must be ready for all of the above roles, and that includes
- Developing an in-depth understanding of all aspects of a business.
- Becoming a data hub for the business information warehouse.
- Applying analytical skills so new trends can be spotted and forecasts provided.
- Taking on the role of a business partner—providing insightful advice to top management.
- Recognizing what needs changing and then taking up the cause with effective presentation skills—in short, becoming a change agent.
To cordon off enough time for the prerequisite thinking and analyzing necessary for accountants to be effective business partners and change agents, the drudge work must be taken off their plates and shunted to computer systems that excel at handling transaction processing.
To make this transition, CPAs will have to shift their thinking and work habits. Hackett, for his part, is not optimistic that all the CPAs who work in business and industry are willing, or even able, to make that transition. To a large extent, their formal training—both in school and in subsequent jobs—rarely prepared them for many of these new tasks. For one thing, accountants are expected to be exacting, which is why monthly closings often consume many days as they conduct searches for last-minute transactions—even if those last-minute transactions are effectively small change and will have little impact on closings results.
But are such exacting closings even necessary in the first place? Since top management generally puts little faith in the numbers that are generated by the monthly closing—and dont find much practical use for the numbers anyway—one wonders why so much time and energy is spent on the activity. Some companies, like Motorola, are beginning to wonder whether a virtual closing—a process in which computer systems handle many of the details and less attention is given to extracting a number thats correct right down to the pennies—is close enough. It certainly saves time and manpower and money.
As the controller of an automaker recently proclaimed at a business seminar, "When it comes to some reporting and forecasting, close enough is good enough." When he spoke those words, however, some of the accountants in the audience groaned. Its those groaners who probably wont be able to make the transition.
Since Hacketts firm conducts reengineering consultations for many Fortune 1000 businesses and thus examines his clients both before and after, hes well qualified to answer the question, How many CPAs will be capable of making the transition?
His assessment: "We find that only about half of them make it. The other ones, if they are retained in their jobs at all, become, in effect, high-level clerks." Given the salary disparity between clerks and professionals, it isnt hard to forecast the future of those CPAs who cant make the transition.
The irony, Hackett adds, is that our society long ago adapted to change. While many may not like it, change today is deeply imbedded in the business culture, and we believe that if were not changing, somethings wrong. The old adage, " If it aint broke, dont fix it", has changed to, "If its old, fix it—whether its broken or not ."
He adds that CPAs as a group are not in tune emotionally with change. They feel most comfortable with well-defined procedures, they dread uncertainty and they want the books to balance. But while " close enough is good enough " may be perfect for forecasting and seeking trend lines, it will not balance the books with the degree of accuracy thats traditionally been expected of and by accountants. However, in todays business environment, that job is best left to the computer systems, which can be programmed to handle it efficiently and economically.
What should an accountant do to prepare for tomorrow? Here are some suggestions:
Facilitation: To be an effective change agent requires persuasion and facilitation skills—the ability to create and deliver formal presentations that use information as a tool to convince others that change is not only good but also necessary. For some, facilitation skills are an inborn gift; not so for most accountants, who tend not to be people-oriented. Thats not to say they cant learn the skills. But it takes time and practice.
Knowledge: CPAs should think of themselves not so much as accountants—those who balance the books and post billings—but as knowledge professionals. Discover where the information is and how to mine it as a resource. Learn who needs the data and in what form, and build a computer infrastructure so its readily available to the organization. Recognize that while knowledge has always been power, in todays fast-paced, highly competitive business world speedily delivered knowledge often means survival.
Discover the other departments in your organization that need what
you can supply. Think of yourself as a partner to these departments.
Financings job is to knit together the basic elements of decision
making: forecasting, budgeting, strategic planning, reporting,
benchmarking. In other words, by integrating these functions, finance
becomes a chief driver of the decision- making process (see "Becoming
a Business Partner," JofA, Mar.97).
Foresight: Get away from just looking back, putting the accounting magnifying lens only on historical data. Start to look ahead—using a telescope. Use yesterdays data as a guide for tomorrow, but remember the old adage—" history surely repeats itself, but not always in quite the same way ."
Risk: Accountancy training stresses risk reduction—or at least risk identification of whats known. But change requires a willingness to examine the unknown, which, in turn, implies risk taking. It takes great courage to give up what works well now for something that you know will replace it in the future. Or, viewed from the other side of the coin, " if you always do what youve always done, youll always get what you always got .
Outsourcing: Dont be rigid in thinking about outsourcing. Many finance departments raise a knee-jerk objection to it because they fear it will erode their power. The day may come when its economical to outsource even the entire finance department. But, remember, if youre prepared to assume the new role as knowledge guru, such a move will not be traumatic for you.
Analysis: Recognize that the only way to really know whether change is called for is to measure what youre doing. In your new role as a facilitator and change agent, get to know the metrics and be involved in benchmarking so youll know when it aint worth fixing. Be open to such innovations as the virtual close, rather than investing a week in a mechanical operation that fewer and fewer top managers find especially useful.
As a CFO at a Fortune 500 firm put it in trying to convince his accounting staff to think out of the box, "Thanks very much, but the beans have already been counted. Time to rethink your jobs."