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The Firm of the Future Starts Here

Building a NextGen Firm

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About the authors: Jennifer Wilson

jen@convergencecoaching.com Jennifer Wilson is co-founder and partner of ConvergenceCoaching, LLC, a national consulting firm that helps leaders achieve success. Named as one of Accounting Today’s 100 Most Influential People in Accounting, INSIDE Public Accounting’s Top 10 Most Recommended Consultants, and AICPA’s - The Practicing CPA Top 25 Thought Leaders and Top 25 Most Powerful Women in Accounting, Wilson is an experienced change agent who has worked in both public accounting and industry. She is a frequent speaker, writer and thought leader on topics related to leadership, the rise of the next generation, and managing change within the CPA profession.

Brianna Johnson

brianna@convergencecoaching.com Brianna Johnson is a consultant with ConvergenceCoaching, LLC, a national consulting firm that helps leaders achieve success. Johnson, a Millennial, is committed to helping teams work better together and is a frequent speaker and facilitator of topics related to leadership and personal development; embracing generational, personality and gender diversity; business development; and marketing. She is also a regular contributor to the ConvergenceCoaching Inspired Ideas blog and a regular columnist for Accounting Today’s “Generational Viewpoints” column.

For more information about ConvergenceCoaching, LLC and its services, visit: www.convergencecoaching.com

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Building a NextGen Firm There has never been a more exciting - or challenging - time to be in public accounting Driven primarily by shifting demographics and technology innovation, change is impacting virtually every aspect of the profession. Today’s firm leaders have both the opportunity and responsibility to prepare their firms to thrive in the new world where Millennials will dominate the work force and Generation Z will make their impact known, too. • • • •

By 2020, one in three adults will be Millennials (those born 1982-2000) 4 By 2022, Generation Z will account for one-fifth of the labor force (Inc.) 10 By 2025, Millennials will make up three-quarters of “working aged” people in the U.S. (Catalyst)4 By 2030, all Baby Boomers will be over the age of 65 (census.gov) 19

Firm leaders cannot underestimate the impact that NextGen clients and talent, with their strong desire for inclusivity, flexibility, leading-edge technology, efficiency and empowerment, will have on the face of their firms. This document will provide firm leaders an overview of the critical changes necessary to position their firms for growth in five key areas: talent, technology, their business model, product/service mix and leadership communication. Those who embrace and implement these changes today will create a truly NextGen Firm and have the best opportunity to sustain their firms well into the future.

Empowering and Elevating Talent NextGen TALENT values: flexibility, inclusivity, openness to feedback, and empowerment NextGen professionals approach work differently. They want control over how, when and where they work. In the Road to Retention study and report facilitated by INSIDE Public Accounting and ConvergenceCoaching, LLC,11 young accounting professionals shared that the least enjoyable aspect of public accounting is the hours worked and that the top factor that would encourage them to stay in the profession was work-life balance. Younger professionals want flexible, trusting leaders who will empower them to structure their own productive work days, work styles, and even their work clothes.15 NextGen firms provide flexible options in both the timing that work takes place (flextime) and the place where work occurs (remote work). In fact, the 2016 ConvergenceCoaching Anytime, Anywhere Work™ Survey 6 of 160 CPA firms found that: • 68% allow their team members to flex their hours • 51% offer some sort of Fridays-off benefit during the summer • 45% of firms allow their team members to choose their place of work • 42% employ a team member who moved to another geography and continued working for their firm • 39% no longer mandate work on Saturdays and of those who still mandate them during busy season, half allow their team members to work the Saturday hours from home NextGen firm leaders always ask “what’s next?” related to their flexibility of time and place programs, identifying ongoing expansion to further flex initiatives.

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In addition to flexible dress and work programs, NextGen firms offer their talent: • Flexible career progression. Given their dominance, young professionals don’t have to wait their turn to reach desired leadership positions. They have options and are less likely to stay with a firm that isn’t transparent about progression and flexible in the pathways they offer, including mobility between disciplines (e.g., moving from audit to consulting). • Frequent and specific performance feedback. NextGen firms are moving away from once- or twicea-year formal feedback to a more continuous feedback model with frequent short huddles with team members and are investing in coaching skills for their people developers. • A much greater emphasis on learning with one-size-fits-one learning plans, more individualized performance coaching, and providing experiential learning, shadowing and soft skills development earlier in their careers. • A “get-better” culture that offers many feedback avenues where team members can drive improvements and changes in the firm. People want their voices to be heard and to contribute to their firm’s vision, strategies and new initiatives. With the greater emphasis on talent strategies and people development programs, NextGen firms dedicate senior leadership to shepherd their HR function and they commit resources to quality HR talent to ensure their talent management programs flourish.

Embracing Technology NextGen TECHNOLOGY values: innovation, efficiency, pervasiveness, urgency Technology is driving immense change in our work and lives. To capitalize, firm leaders must be vigilant to ensure that the firm’s approach to technology is seen as a strategic imperative and not an administrative function or necessary evil. NextGen firm leaders understand that technology impacts their culture, clients and their service deliverables. Technology can make a firm feel progressive, easy to work with and for, and competent or it can leave a far different, more frustrating impression. To ensure technology contributes to growth and sustainability, firm leaders: • Dedicate NextGen IT leadership focused on strategy enablement, driving change and making things happen versus enduring an IT leader who is waiting to be told what to do, blocking ideas or resisting change. • Ask service line leaders to develop annual strategies to progress technology in their team’s service delivery, considering efficiency-enabling tools like scan and auto-populate programs for tax, data extraction technologies, benchmarking and big data in audit, and Cloud and workflow tools in client accounting. NextGen service line leaders must anticipate new technologies and their impact to the relevance of their offerings, ensuring that the firm stays ahead of emerging technologies like blockchain2 or apps like Taxfyle.16 • Deploy ever-evolving technologies to manage the firm including implementing CRM, world-class remote access technologies that allow for efficient remote work and increased worker mobility, and improved communication and social tools. NextGen leaders offer leading-edge technology tools, high-performance connectivity and strong IT support to ensure their people are able to leverage IT in all aspects of their roles. • Recognize the impact technology has on client engagement and understand that NextGen clients expect a more digitized client service experience. They leverage high-quality internal data analytics to better serve clients and they seek tools like portals, apps, video communication platforms, social media, and other digital technologies to heighten and personalize their client touches. Technology touches all aspects of firm management and may just be the most important strategic enabler of the

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next decade. NextGen firms realize the strategic advantage that IT offers and they’re forming cross-generational IT committees to drive firm strategy, follow technology trends in their specialty areas and raise IT-forward strategies for the firm to implement.1, 12, 13, 14

Adding More Value and the Rise of Advisory NextGen CLIENT SERVICE values: transformative advisory, collaboration, relevancy Technology promises to bring new opportunities and competitive threats to the profession. In the 2015 University of Oxford The Future of Employment study,18 experts calculated a 98 percent probability that jobs in accounting will be replaced by computers and a 99 percent probability that those in tax will see the same fate. The disintermediating technologies of Uber17 and Airbnb3 and the promise of artificial intelligence (AI) combined with analytics illustrated by applications like IBM’s Watson9 make these assertions believable. To remain competitive, firms must seek ways to provide additional value for clients. NextGen firms understand that their clients seek advisors who can help them forecast opportunities and challenges, and identify solutions for addressing them. As a result, the NextGen firm will develop advisory skills in all of their professionals and look for ways to provide additional insights and value within their traditional compliance services, making their compliance providers more indispensable. NextGen firms also understand the importance of developing consulting services that enable the firm to mitigate the risk of compliance disruption. After appointing or recruiting a consulting practice leader, firms might first expand to complementary consulting services like international tax, state and local tax (SALT) or property tax consulting that they can offer as an extension of their existing service line. Some firms will begin by offering less traditional consulting services, whether it be M&A due diligence, succession planning, outsourced CFO and controllership services, HR placement services, cybersecurity, SOC audits, or others - and they’ll expand from there. To grow a sustainable consulting practice, NextGen leaders will: • Adopt a different mindset related to practice development and performance metrics. Consulting services are often project-based (versus annuity services) and thus require perpetual practice development to maintain and grow revenue levels. These practices typically experience peaks and valleys in utilization and are often delivered with less leverage than compliance services because these specialized practices are typically expert-based with less lower-level work to leverage to others. • Approach recruiting and retention differently. Firms should begin hiring advisory talent as regular practice and must employ different screening practices to identify different skills than are sought in a traditional CPA firm hire. Great consultants are outside-of-the-box thinkers, creators and innovators. While many firms value and progress people on technical ability, most don’t yet measure or promote people based on advisory competence. NextGen firms will employ a two-track system to identify those with great relational and consultative skills and place them on a separate, non-compliance path early in their careers. • Invest in more experiential and relationship learning. Bringing people along on client, referral source and prospect meetings is the most effective way to develop transformational advisors. A less-seasoned professional can gain great experience and confidence by shadowing a seasoned consultant in a series of similar client situations and engagements and taking on small pieces of responsibility during each one. NextGen clients want more than transactional compliance services from their CPAs, NextGen firms will take a more advisory approach with all firm clients and will also expand their services to include true consulting offerings. By expanding their service boundaries and increasing value, these firms will move up the value chain and will ensure sustained client relationships.

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Changing the Business Model NextGen BUSINESS MODEL values: innovative, experimental, change-ready Increased service automation may pose a threat, but NextGen firms recognize that it also provides an opportunity to free up resources to focus in other areas, including expanding advisory services and providing new and higherlevel value to clients. The automation of many lower-level data entry, data extraction and analysis functions in firms will drive changes in staffing and will likely impact the firm’s business model, removing much of the bottom of the traditional leverage pyramid. NextGen firms will need to find new ways to repurpose those resources and invent new onboarding and learning programs to instill technical skills without the benefit of the normal first years’ repetitive and somewhat clerical tasks. NextGen firms will also recognize the need to invest in talent that were never part of their traditional service lines but now must be, including data analysts and AI experts who will manage the apps and data they produce to the benefit of both the firm and its clients. These skills and their output bring new meaning to the role of CPAs as knowledge workers. NextGen firms will anticipate the financial impact of any loss of those lowerlevel services and will need to elevate their overall pricing for services to reflect the new knowledge work and value paradigm. Traditionally operating with low pricing self-esteem, practitioners will recognize that the shift in talent availability and the increased insights and value they offer as advisors call for pricing that reflects that value. Further, NextGen firms will challenge the time-based pricing model and will look at a variety of pricing and packaging options that do not consider the hours worked as a factor. Selling project-based engagements and/or more monthly or annually service packages frees the client from their fear of incurring hourly charges and provides a more free-flowing, advice-seeking interactivity between the client and their advisor. The move toward remote work will drive another business model change – the need for less, or at least not more, physical office space. Firms that encourage their people to work from home or an alternative location for part or all of their working hours can reduce the number of dedicated offices and/or cubicles they must maintain. Many young professionals already view being “at work” as meaning a variety of things. Their mindset isn’t confined to office walls being the only place to be at work. Because of this, NextGen firms will move to new, blended workspaces with lobby-like space that has comfortable seating, standing desks, docking stations, high-speed wireless and plenty of outlets and will supply check-in offices and/or meeting rooms that employees can sign up to use. Another business model shift will be in the geography that firms cover. As more firms implement high-quality video communications, remote auditing practices and other remote service delivery, NextGen firms will offer borderless services to clients who meet their ideal criteria regardless of geographic location. Lastly, NextGen firms will begin to measure performance based upon results produced and move away from traditional input-based measures. For instance, instead of measuring chargeable hours, firms will measure revenue produced, tax returns filed or reviewed, audit sections completed, accounting transactions processed, board meetings attended, client dollars saved, employees mentored, new business sourced and other output-oriented measures. These changes in business model may be the hardest for firms to accept, because they challenge long-held traditions and strongly held axioms. That is why our last area considered in this document is leading and communicating change.

Leading the Change NextGen LEADERSHIP values: motivational, inspiring, communicative Building a NextGen firm won’t happen all at once, but it does have to happen with a sense of urgency to maintain the attention and loyalty of clients and staff. NextGen leaders must embrace their roles as strategic and dedicated change agents.

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Communication is a crucial factor in driving any change and NextGen leaders will experience the greatest success when they can: • Effectively communicate what change is needed and why. Leaders must carefully plan their messages and explain what changes are being made, and the factors that are driving or causing those changes. In addition, they must carefully consider who the affected stakeholder groups are, in what order they need to be communicated to and what the appropriate method of communication will be to make the greatest impact. It is also imperative to craft the message so that the recipients understand the benefits and impacts of the change and their role in driving the change forward. • Hold others accountable for making the change. The leadership team sets the example for which changes will truly be embraced by the firm. Leaders need to show unity with one another in embodying the change and in doing their part individually. • Drive the firm relentlessly toward their NextGen vision. There will always be change-resistant individuals. Leaders who are set on achieving the NextGen vision must continue moving the firm forward in achieving milestones, even in the face of resistance by some. These leaders understand that resisters will either come along eventually or will need to transition to another workplace where they can maintain their traditional ideals. NextGen leaders must communicate the need for any given change, motivate people in driving toward it and continuously address and encourage those who are resistant. They recognize the need to use communication as a tool to inform, motivate, and inspire the outcomes needed.7,8

What’s Next? The NextGen firm vision is exciting and daunting at the same time. To begin implementing these NextGen ideas, leaders must first enroll others in their vision by sharing this document and discussing its ideas and their applicability to your firm. The key is to start small and choose no more than three changes to make from this document. Then, identify a clear, singular owner to lead each change initiative and form a crossfunctional, cross-generational working group to design and implement the changes needed. Once those initial changes are embraced, the firm can select another set of changes to drive forward. Firms that make a commitment to embody the NextGen values, best practices and culture will inspire and attract top talent and clients - building a practice that sustains for many generations to come. Bibliography: 1 Wilson, Jennifer, “How to keep leaders from leaving public accounting.” AICPA CPA Insider. October 7, 2013. https://www.aicpastore.com/Content/media/PRODUCER_ CONTENT/Newsletters/Articles_2013/CPA/Oct/KeepLeaders.jsp 2 Baron, Jon, “Blockchain, accounting and audit: What accountants need to know.” Accounting Today. March 27, 2017. https://www.accountingtoday.com/opinion/ blockchain-accounting-and-audit-what-accountants-need-to-know 3 Airbnb. https://www.airbnb.com/ 4 “Generations: Demographic Trends In Population And Workforce.” Catalyst. August 20, 2015. http://www.catalyst.org/knowledge/ generations-demographic-trends-population-and-workforce 5 ConvergenceCoaching, LLC. http://convergencecoaching.com/ 6 ConvergenceCoaching Inspired Ideas blog. ConvergenceCoaching, LLC. http://convergencecoaching.com/blog/ 7 Johnson, Brianna, “Gen Z: An Introduction to the Next Wave of Talent.” ConvergenceCoaching, LLC. March 30, 2017. http://www.convergencecoaching.com/ gen-z-an-introduction-to-the-next-wave-of-talent/ 8 Wilson, Jennifer, “Want to Keep Your Next Gen? FLEX! Our 2016 Anytime, Anywhere Work™ Survey Will Show You How.” ConvergenceCoaching, LLC. August 18, 2016. http:// www.convergencecoaching.com/want-to-keep-your-next-gen-flex-our-2016-anytime-anywhere-work-survey-will-show-you-how/ 9 IBM. https://www.ibm.com/watson/ 10 Boitnott, John, “Generation Z and the Workplace: What You Need to Know.” Inc. January 27, 2016. http://www.inc.com/john-boitnott/generation-z-and-the-workplace-what-youneed-to-know-.html 11 “The Road to Retention: Motivators and Drivers For Young Public Accounting Professionals.” INSIDE Public Accounting. June 21, 2016. http://insidepublicaccounting.com/wpcontent/uploads/2016/06/The-Road-to-Retention_Motivators-Drivers-for-Young-Accounting-Professionals_2016-Executive-Summary.pdf 12 Wilson, Jennifer, “6 leadership mistakes to avoid.” Journal of Accountancy. April 10, 2017. http://www.journalofaccountancy.com/newsletters/2017/apr/6-leadership-mistakes.html 13 Wilson, Jennifer, “How to move past technology roadblocks.” Journal of Accountancy. November 21, 2016. http://www.journalofaccountancy.com/newsletters/2016/nov/movepast-technology-roadblocks.html 14 Wilson, Jennifer, “Want to keep your Next Gen leaders? Make these changes ASAP.” Journal of Accountancy. June 6, 2016. http://www.journalofaccountancy.com/newsletters/2016/jun/keep-next-generation-leaders.html 15 Saylor, Teri, “Will CPAs one day wear shorts in the office?” Journal of Accountancy. October 3, 2016. http://www.journalofaccountancy.com/newsletters/2016/oct/cpas-wearshorts-in-office.html 16 Taxfyle. https://taxfyle.com/ 17 Uber. https://www.uber.com/ 18 Frey, C.B. & Osborne, M.A., “The Future of Employment: How Susceptible Are Jobs To Computerisation?” Oxford Martin School, University of Oxford. September 17, 2013. http:// www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf 19 Colby, S.L. & Ortman, J.M., “Projections of the Size and Composition of the U.S. Population: 2014 to 2060.” U.S. Census Bureau. March 2015. https://www.census.gov/content/ dam/Census/library/publications/2015/demo/p25-1143.pdf

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