Innovation: Accounting As A Process & Product

Last week I wrote about my meetings with accounting firms. Their refreshing ambitions as individuals and as agencies belie the stereotypical “number cruncher” persona of an accountant. My discovery was this:

Human interest in the good fortunes of others.

In this Part II, if you will, I am going to look at accounting firms as service providers of process and product, simultaneously, to reframe how accounting firms could serve their clients strategically.

2 reasons:

  1. I want to share how attention paid to clients’ well-being in the form of process and product is altogether innovative to forward industry development.
  2. With the above ambition in mind, the accounting firm that innovates upon its service delivery and product creates greater profitability for all involved.

Accounting Is…

Let’s get back to the basics to ground the remainder of this article.

Accounting is “an information system that provides reports to stakeholders about the economic activities and condition of a business…..Accounting also can be used to guide management in making financing, investing, and operations decisions for the company” (Warren, 2015).

A Process & Product

Think logically here. Accounting services are the product; the product of accounting is the services provided. So, the process and product of accounting are one in the same in the eyes of the client.

“The earliest accounting records were found over 7,000 years ago among the ruins of Ancient Mesopotamia” (Fremont College of Business, 2019). By now, bookkeeping, accounting, and tax services are processes that are more or less optimized, save for changes in the law.

The reason is that development in the industry–the process of accounting and the product of accounting services–is mature. As the saying goes, ‘it is what it is’.


The chart below was devised by Utterback and Abernathy in 1975 in their influential paper, A Dynamic Model of Process and Product Innovation. It expresses how the coexistence of process and product develops.

When new, development is uncoordinated; when mature, development is systemic. The line chart also shows over time how process innovation grows and slows whist product innovation gradually depletes.

The stimulation of both process and product innovation are, in the beginning, market need and output desired by the market (7,000 years ago ’til today) to eventually technology (making things easier) and ultimately innovation determined solely by cost.

Scalability

“The reason that people should care about how they define the product is it impacts the boundaries of their scaling approach” (Bradley, 2017).

The accounting service product is not scalable. Why? The process is not scalable either. (Remember, accounting product and process are the same thing.)

Scaling for accounting firms is a form of scaling called ‘scaling out’, which is a means of replication. Such an effort requires one unit of resource for every one unit of profitability gained.

In lay terms, accounting firms that want to grow have to hire on more talent.

Thus, defining bookkeeping, accounting, and tax services as a process and a product “impact how value is optimized throughout the [accounting firm]” (Bradley, 2017).

Serving Clients Strategically

Accounting firms would do well to reconsider their stage of development in the overall industry of accounting. Again, only the changing law alters the product. All the while, the ubiquity of bookkeeping and tax preparation software has forcibly undercut accounting firms’ prospects. Software will only get better, spreading to take over more complex accounting activities in time.

Often called the language of business, accounting is in many ways reaching the end of its innovation lifecycle, losing out to the slang of progress. There’s a new language of business – and that is

Articulate Your Strategy
To Meet Your Ambitions

Ambition = Strategy.

One’s personality, character, motivation and aspiration equates to one’s personal ambition. I’ve written at length and repeatedly about this phenomenon. For the here and now, think about it.

One cannot change one’s personality, character, motivation and aspirations without changing what makes those very attributes. In short, we’re all stuck with who we are.

And, if accounting firms care about their clients, there’s a problem and a solution.

Problem

If the value of accounting firms is more or less optimized already, then

  • How is it possible to grow?
  • How can accounting firms serve their clients more strategically?
  • How might accounting firms’ leaders address their deep-seated ambition?

Human interest in the good fortunes of others.

Solution: Innovate On Process & Product In Terms Of Ambition

Think differently of process and product and you might come up with something new.


Accounting as a Process

A “linked procedure or activity which collectively realises a business objective or policy goal, normally within the context of an organisational structure defining functional roles and relationships” (Workflow Management Coalition, 1999).

Accounting as a Product

“Consumers ‘hire’ products to do the work of helping them make progress; the product does the work, while the consumer enjoys the benefits (progress)” (Klement, 2018).


Operations and procedural strategies may be ‘hired’
to innovate within the accounting industry.

“Operating activities involve using assets to earn revenues and profits” (Warren, 2015). Conversationally, i.e. outside of accounting circles, assets aren’t always resources owned by a firm. Assets are resources, sure, and opportunities, too. Opportunities for what? Creativity.

Product innovation tends to be driven or stimulated by new market needs and opportunities. The critical insight for innovation is often obtained by identifying the relevant product requirements rather than in new scientific results or advanced technology. The locus for innovation is in the individual or organization that is intimately familiar with needs. 

Utterback & Abernathy, 1975

How to Innovate?

Additional professional services to clientele may be

  1. Support beyond bookkeeping, accounting and tax services, and
  2. Reconditioning client strategy…

So that accounting firms’ clients remain salient, productive, and intelligently profitable.

Bottom Line

Accounting firms have a unique, private view into their clients’ business. Accounting firms already speak the language. What is the business saying? Is it crying out for help? Is it content amid trends based on factors that cannot last? Is it doing well such that change is not needed? Does it have great potential that just needs a spark? These are opportunities, especially for the accounting firms that want to see their small business clients

  • Grow their business acumen.
  • Become more resilient to industry threats and competitive deficiencies.
  • [Re]Discover alignment with their personal ambition.

Rehr Consulting

In a 30-minute to 1-hour informational interview (in person, telephone call, Skype, etc.) I would get the answers to 3 basic questions:

  1. Why did you get in business in the first place?
  2. What are your Top 3 goals, and Top 3 risks?
  3. Is your business operating in alignment with your personal ambition?

From there, I would work with that client to figure goals, devise ways to achieve the desired business performance (strategy), and strengthen resilience.


Warren, C. (2015). Survey of Accounting. 7th ed. Stamford: Cengage Learning, pp.8-9.

Fremont College of Business. “History of Accounting – Introduction to Bookkeeping.” Fremont College, Fremont College of Business, 2019, fremont.edu/history-of-accounting/.

Verma, Ravi, et al. “How Do You Define a Product?” How Do You Define a Product? | Scrum.org, Scrum.org, 4 April 2017, http://www.scrum.org/resources/how-do-you-define-product.

Klement, Alan. “Why Is It Called ‘Jobs to Be Done’? (And Why Is This Important?).” Why Is It Called “Jobs to Be Done”? (And Why Is This Important?), Medium | JTBD.info, 18 Oct. 2018, jtbd.info/why-is-it-called-jobs-to-be-done-and-why-is-this-important-7febc880289b.

Workflow Management Coalition. “Workflow Management Coalition Terminology & Glossary.” The Workflow Management Coalition Specification Document Number WFMC-TC-1011, Workflow Management Coalition, Feb. 1999, http://www.wfmc.org/standards/docs/TC-1011_term_glossary_v3.pdf.

Utterback, J. and Abernathy, W. (1975). A Dynamic Model of Process and Product Innovation. The International Journal of Management Science, 3(6), pp.643, 645.

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