The XYZ Credential

Editorial written by Jim Emerson, president, The Emerson Company, which has been the leading analyst for the larger professional service firms for nearly 20 years. Emerson’s Opinions on Professional Services is a publication issued periodically by The Emerson Company and serves as a forum to promote professional criticism and opinion. The company’s primary goal, through publications and research services, has been to help the profession continuously improve. For more information on The Emerson Company see www.emersoncompany.com .

Dated July 23, 2001—Reprinted With Permission.

F undamental shifts in the nature of business have created new challenges and opportunities in professional services. The pace of change, technology, globalization, environmental and political factors, talent shortages, and the increasing complexity of business transactions are driving this shift. Businesses and individuals today are required to integrate knowledge to successfully solve challenges. And this issue extends far beyond the largest multinational companies to middle-market companies, emerging companies, and individuals. In response to this reality, there is a clear need for professionals who have the knowledge and experience to bring disparate competencies together to solve complex problems. While this quarterbacking function has been going on in an informal manner for some time, credible independent research would indicate that the market need has matured to the point that a much more formal credential process is warranted. Clients want a higher level of assurance that the integration function is being handled by professionals who have the skills, training, and experience to get the job done in a comprehensive and quality manner.

In response to this opportunity, the American Institute of Certified Public Accountants has launched its XYZ credential initiative. The XYZ label is simply the placeholder name for a yet-to-be selected title. A previous name, “Cognitor,” had been used; however, the AICPA membership did not find the “Cognitor” label appealing and it was dropped. Once the credential is officially launched, a new global professional body, separate from the AICPA, will be formed to provide the ongoing infrastructure and support for the credential. Essentially, the XYZ credential will constitute a new profession that will be different and distinct from other existing professions and will complement, not compete, with the other credentials.

Under the AICPA plan, professionals who possess the XYZ credential will have specific integrative competencies, professional competencies, and cross-disciplinary knowledge. Integrative competencies represent the true differentiators of the XYZ professional and demonstrate the capacity to envision, strategize, conceptualize, and innovate. These competencies include creating and leveraging knowledge, systemic thinking, future focus, strategic thinking, innovation, conceptual skills, and a global perspective. Professional competencies are the enablers that allow the XYZ professional to be effective. These competencies include an entrepreneurial orientation, stakeholder focus, external focus, analytical prowess, organizational insight, networking and resourcing, recognized expertise, impactful communication, compelling influence, dedication to excellence, and lifelong learning. The XYZ professional must also have a solid knowledge base. This knowledge differs from knowledge required for other credentials in that it covers a much broader range of functional expertise. This cross-disciplinary knowledge covers accountancy, business law, corporate finance, human resources, information technology, marketing/sales, and operations. The knowledge required in each of these areas is not at the depth of a professional who works exclusively in the area; however, the XYZ must have a big picture understanding of specifically how a competency brings value in a business sense.

Emerson’s Opinion: Personally, I have given substantial thought to the need for professionals possessing proven capability to integrate various competencies to solve complex problems. While this consideration predates our work in the client satisfaction area, it became much more fact-based once we started talking to clients about their specific needs and expectations. Since 1993, we have talked to approximately 15,000 major U.S.-based companies about their views on global professional services. Several common themes have emerged from many of these interviews. One is the reality that even the world’s largest companies do not have the capability or desire to integrate the various disciplines necessary to get many jobs done. At a minimum, most clients believe it is the job of the service provider to integrate their own competencies and, ideally, to also integrate services from third parties to deliver comprehensive solutions. And having professionals on staff who were specifically trained in the service integration function would obviously help meet and exceed this common client expectation.

A dditionally, in more than 30 years of involvement with professional services, it has always been fascinating to me that the professions have a very academic, rather than practical, view of knowledge and learning. Regardless of whether it is accounting, law, engineering or medicine, the focus is always on a greater and greater understanding of a narrower and narrower area of expertise. A doctor may have world-class knowledge and experience in performing open heart surgery; however, how the heart problem relates to other body functions, how its relates to nutrition, how it relates to life-style, and how to communicate with the patient and other medical professionals about these integration issues is often at a remedial level. And if you take the medical integration issue to a higher level and evaluate the profession’s record working with other groups such as the insurance industry, regulators, retirement industry, biotechnology industry, pharmaceutical industry, university community, nursing industry, nonmedical care provider industry, etc., to improve overall care, the story is even sadder. I don’t mean to pick on the doctors—my view of the other professions, including our own, is very similar. The world is becoming interconnected faster than the professions’ ability to deal with the related integration issues.

For these reasons, I do not have anything but praise for the XYZ concept. It addresses a clear market need with a substantive solution. In fact, I think it is a brilliant idea and frankly wish I had thought of it first. I am not well connected or knowledgeable in AICPA matters; however, from my vantage point I would give much credit to AICPA president, Barry Melancon, and KPMG partner and former AICPA chairman, Bob Elliott, for the vision and energy to drive the idea. In terms of organizing my specific opinions on the idea, I will address the issues of standards, access, complementary nature, and leadership. In the process of providing these opinions, I will also make certain suggestions. I am making these suggestions only to be helpful and to try to make the idea even better. No one should construe these suggestions as Emerson being negative on XYZ, because I am totally in the support camp and make these comments solely for the “good of the order.” Whether these ideas are even considered will not change my view of the concept. I also understand that XYZ is a very controversial initiative, even among our large professional service firm clients. The reader should understand that this opinion would not change if all our client firms and every professional in our client firms were to be negative on the concept.

Standards— There are four primary issues of concern to me in the area of standards. In no particular order, they are: rigor, specialization, ethics, and globalization. First is the issue of rigor. While XYZ does not yet have a written standard that delineates the specific requirements for obtaining the XYZ credential, the AICPA has produced a substantive framework that is the basis for a rigorous certification process. I hope XYZ leadership makes sure the end result of the certification process is exclusivity. I don’t know what the magic percentage of the total membership in the accounting, law, engineering, etc., professions that should be allowed in is, but I hope the percentage is relatively small. Without this exclusivity, the credential will quickly lose credibility. Second is the issue of specialization. It is simply not practicable to think that the credential will be capable of crossing market segments (i.e. multinational companies, middle-market companies, emerging companies) and perhaps industries (i.e. retail, health care, manufacturing, high technology, financial services, etc.). If this is true, and I am almost certain it is, there should be some consideration to awarding the credential in a particular segment based on where the professionals have their primary experience. Even if a professional has all the necessary integration skills and experience, it is inconceivable to me that the market would accept XYZ professionals in the multinational company market if they primarily have practiced in the emerging company market. Likewise, would a financial services company accept an XYZ with primarily health care industry experience?

S ince the XYZ concept rightfully accepts individuals from a wide variety of professions, I believe there must be a common set of ethical standards to address issues of independence, revenue sharing, continuous learning, etc. While these standards have not been fully developed, I believe the organizers understand the importance of having a set of standards that cross all the professions involved and give the necessary confidences to the marketplace. And fourth, I believe all certification, testing, education, ethics, etc., rules must be global in nature. All the professions, accounting in particular, are faced with major challenges relating to having different standards in different countries and trying to make this patchwork system effective in our new global economy. The XYZ organizers seem extremely aware of this issue and have worked hard from the early stages to involve professional groups from around the world. In this regard, however, I would argue that it is extremely important to bring the Big Five firms into full support of the credential. These firms are truly global in nature and their support would go a long way toward making the credential instantly international. I also happen to believe this would be a win-win as it would give the Big Five firms another foundation piece to support their ongoing globalization efforts.

Access— The underlying XYZ concept includes involving individuals from a number of professions who meet a common standard for knowledge and experience across a broad scope of knowledge. While I understand market research indicates that clients expect and would most easily accept and embrace the combination of XYZ-CPA and XYZ-lawyer, any number of other types of professionals may be involved including corporate finance, actuarial science, information technology, strategy, etc. I am of the opinion that it is absolutely critical to involve those other professions from the very beginning. While perhaps not in large numbers, some involvement would show support for the multi-disciplinary nature of the idea and demonstrate that XYZ is not a CPA plot to take over the world.

In discussions with AICPA leadership, I am aware that presentations have been made to other professions. So, again the organizers are well aware of the need to be successful in this area. Once the AICPA gets past the organizational phase, however, I believe the “not invented here” barrier will begin to take root in other professions and this will be the true test for the credential. In this regard, I strongly suggest that XYZ take an entrepreneurial, personal approach to breaking through. For example, there are law firms and lawyers who have openly supported the multi-disciplinary approach while the law profession has rejected it. Perhaps recruiting a few of the most influential lawyers from this group could be a start. I am a firm believer that the toughest problems are best (or maybe can only be) solved in a one-on-one, grassroots manner.

Complementary Nature— While the role of the CPA has changed over the years, I am not of the view that the CPA business or the CPA brand is dying. It has simply changed. And for those who have evolved with it, the business is actually better than ever. For this reason, I believe it is very important that XYZ does not injure or in any way reduce the value of the CPA’s role or brand. It must only enhance it. In my opinion, several issues will impact this result. First, the supporting organization for the XYZ credential must totally separate from the AICPA as quickly as possible. Second, the leadership of the XYZ supporting organization should have multi-disciplinary backgrounds. I think a highly respected lawyer should be part of the leadership team. Third, the initial credential holders must be the best people the professions have to offer. Nothing like quality will command client respect and attract other top professionals. Again, I think recruiting these individuals to be members of the initial XYZ class is critical. And fourth, to make sure this credential is held in the highest regard and only as an enhancement to other professional designations, I am of the opinion certain strict image standards should be established in the area of business cards/letterheads/e-mails, marketing, client communications, etc. The goal should be to make XYZ the most highly regarded of the business-related credentials, and a rigorous image standard to support this must be established. I believe in a world where everyone is moving to being more casual, a little formality would quickly demonstrate that the XYZ group is different and very special.

Leadership— Any pioneering idea needs leadership that possesses vision, passion, and extraordinary communication ability. XYZ must have this level of leadership to reach its true potential. I also believe no one should underestimate the challenge of this project. This is not the job of running an existing organization, or taking over an organization that needs a little tweaking; this is envisioning, selling, and implementing an entirely new profession. If you had 100 very successful leaders to select from, I would argue it would be very, very fortunate if one had the ingredients for this task. In fact, I would argue that 98 of the 100 would make the self-assessment that they are not qualified for this type of assignment regardless of the compensation level. One reason I am so enthusiastic about this project is the fact that AICPA president Barry Melancon is leading the charge. He is the 1 in 100 person who possesses all the vision, passion, and communication traits necessary. If this launch is possible, I believe Melancon can do it. He is also young enough to see this project through to the point where someone with a more common set of leadership skills could keep it moving forward.

My only concern in the leadership area is what happens when XYZ separates from the AICPA. I understand Melancon will stay in his current AICPA role and a new leader will be selected for the fledgling XYZ organization. Based on significant experience launching new products I know it is very hard to separate the idea from the author so early in the game. There may be someone behind the scenes who could easily fill Melancon’s shoes; but if not, this needs attention now. This person should be involved as early as possible in my view.

Summary— While there is significant work to be done to bring the XYZ credential to even early stage acceptance, I am hard pressed to find any glaring, fundamental flaws in the concept or plan. In my opinion, the idea is right, the implementation plan is right, the timing is right, and the leadership is right. And this opinion is from a person who takes great pride in being a professional skeptic. After all the education and debate around XYZ clears, I believe the only remaining question will be whether our profession has the courage and confidence to lead the professional services industry in the 21st century.

Emerson’s Opinions on Professional Services: #18 (7/23/2001)

Commentary Description: A periodic commentary offering opinions on current issues affecting professional services. Each issue includes the opinion of The Emerson Company as well as that of other respected observers of the profession as noted. The Emerson Company encourages responses from subscribers to its opinions. Approximately 25 opinions will be issued each year on key subjects such as market share, branding, recruiting, retention, disclosure of business risks, globalization, value-based accounting, client satisfaction, risk-based pricing, accounting principles, auditing standards, etc.

Copyright: Copyright, 2001. No part of this publication may be quoted from or reproduced in any form without the written permission of The Emerson Company.