14
Managing Processes for Your Future Firm

“Quality is not an act, it is a habit.”

~ ARISTOTLE

As pointed out in earlier chapters, the distinction between leaders and managers is that leaders set the vision for what the firm does, and managers get the work done through team members. Of course, leaders do some managing, and most managers are building their firms toward the future. However, when leaders get caught up in managing, they tend to ignore setting the direction for the firm, and it becomes detached from its vision and mission. Similarly, when managers only do work or micromanage others, they tend to ignore training and developing others, and their scope of work influence is limited to what they do themselves. Jim DeMartini, managing partner of the top-100 firm Seiler LLP in Redwood City, CA, says, “I think that accounting firms give way too much training to professional accountants on management. I believe that firms should employ full-time managers who have that skill set.”

This chapter will cover the importance of good management to leadership. Leaders can have good self and staff leadership but still fail without good management. Leaders can have a compelling vision and mission but still not move forward without good management. In this chapter, I’ll touch on the key processes and metrics necessary for managing an accounting firm. Many books and seminars are devoted to the management of accounting firm. What I am attempting to do in this chapter is place management in its proper context with leading—managing follows strategy.

Setting up Business Processes

Leaders can only do their jobs well when good managers ensure that processes and projects are carried out within the policies and values of the organization. Great managers make great leaders possible. Without great managers, leaders lose focus and momentum. Without great managers, leaders and their firms will be constantly frustrated in growing their talented people and serving the needs of their clients. Bill Haller, managing partner of the national firm CapinCrouse LLP in Indianapolis, IN, says

I can’t really carry out my strategy unless I have these executives deployed doing practice development, coaching, running systems, and building infrastructures for the firm. I meet with our process owners quarterly to see how they are doing against their blueprints. We are very much a goal-oriented firm that breaks down the business plan and parcels it out to all the players.

According to Charly Weinstein, CEO of the megaregional firm EisnerAmper LLP in New York City, NY

We have great managers in all aspects of the firm, so I don’t have to spend a lot of time on the metrics of the business. I watch it and make sure it’s okay. If something sticks out, I try to jump right on it quickly. But we have good people in place who do the traditional management things. I can focus on our direction, leading our up-and-coming leaders and making good investments in people.

Jim DeMartini adds

When we introduced the COO here, there was plenty of friction around the idea that partners would be asked to cede their administrative responsibilities. It took a lot of cajoling and, frankly, a little bit of table slamming every once in a while to kind of get everybody to the point where they now realize that it’s probably the best thing we ever did, and the end result is great for them. They are actually the ultimate beneficiaries of this because they don’t burn time doing things that were not highest and best use. And the actual processes and the results are far superior to what existed before. Bottom line: the clients end up getting overall better service.

A business process is a way of systematizing and then ensuring that all the routines in your firm flow well and reliably; it defines steps to take, inputs to respond to, and the appropriate actions to take for any given decision.

Many of the world’s biggest corporate failures can be traced to poor management of their processes. MCI WorldCom’s former leader had a powerful vision for the consolidation of telecommunications in the 1980s and 1990s. He was a bright, energetic, compelling leader, but his company failed. One of the major reasons was a failure to integrate its acquisitions under a common management structure. It was reported that at its peak, MCI was using approximately 50 different billing and collections systems that did not work together. If you were a customer of MCI, you may have been billed several times for the same service, or you may not have been billed at all. As a result, cash flow eroded, and the firm’s top leaders and managers began to fabricate their reported numbers. They ended up bankrupting MCI and serving time in prison—a sad ending to a rising star of a company.

Very few accounting firms will ever end up like MCI, but I wonder how many suffer from a lack of key business processes. How many multiple-partner firms have different processes to support each partner? How many multiple-office firms have different processes, software, hardware, employee policies, accounting, auditing, or tax processes for each office?

We see it all the time in our consulting practice: firms that plateau in their growth. The owners have enjoyed some growth but are frustrated in moving the firm to the next level. They seem to hit a ceiling of complexity. Their management is designed for the firm of the past rather than the firm of the future. The processes that were useful to the old firm will not sustain the new multimillion dollar firm.

Most of the issues that we encounter are with processes that were useful in start-up mode. As a firm grows, the owners must be willing to adopt policies and procedures that support a business, rather than a sole practitioner. As a firm grows, the biggest frustration to growing is the unwillingness of partners to give up their personal preferences, so the work can be done faster and better in a more uniform manner.

Just like Sam Coulter, founder and president of the local firm Coulter & Justus, P.C., in Knoxville, TN, describes in his farming background, managing can sometimes feel mundane and repetitive. Every month, managers repeat some of the same processes: collecting the bills, paying the invoices, hiring new staff members, scheduling engagements, giving performance reviews, and on and on. In Jim Collins’s book, Good to Great: Why Some Companies Make the Leap…and Others Don’t, the level 5 leaders possessed a dogged determination to get things done. This was their way of leading the managers who actually built and operated the day-to-day processes, key performance indicators (KPIs), and projects. And just like on Sam’s farm, every day, there is management work to be done. In the book Faster Cheaper Better: The 9 Levers for Transforming How Work Gets Done, coauthor Michael Hammer says

Even the most mundane work can be given meaning and value for those who perform it if they understand how it benefits, even in the simplest of ways, the lives of others …. A late classical Jewish text contains a paean to the spiritual value of work: “Precious is work, for of all the creatures that God created in the world, He granted work only to humankind.”

Advantages to Structured Procedures

There are many benefits of regularly updating and standardizing business processes for the firm of the future, rather than the firm of the past. Some are described in the following sections.

More Consistent Results

Implementing standard processes makes the outcome of your work more predictable. Think about it: if you follow the same steps every time you’re faced with a routine problem, then your outcomes will also become routine. The firms that allow partners to perform work using their own preferred systems dramatically limit their potential growth. Clients want consistency from your firm, and team members respond much better when there is one system for doing all work.

Bill Gates said

Virtually every company will be going out and empowering their workers with a certain set of tools, and the big difference in how much value is received from that will be how much the company steps back and really thinks through their business processes … thinking through how their business can change, how their project management, their customer feedback, their planning cycles can be quite different than they ever were before.

A few years ago, a 10-partner firm we consulted with was processing 7,000 individual tax returns. The partners were still doing those returns in the same manner they did them when the firm had been founded 25 years earlier. Each partner met with the client, assigned the work to a preparer, consulted with the preparer, acted as a go-between with the client, reviewed and signed the return, and either met with or discussed the return with the client over the phone.

To improve procedures, in a nutshell, this firm redesigned its processing of tax returns toward the firm of the future, away from the way it had done it 25 years ago. In the new firm, processes like those used by volume outsourcers were adopted. Tax managers and preparers met with clients, and managers reviewed and signed over 6,500 returns. The client turnaround improved by several weeks, profits went way up, and busy-season stress was dramatically reduced.

Measurable Outcomes

When you have a standard process producing predictable results, then you can effectively quantify and measure the quality of the results that you produce; when you don’t follow a process, and the results are unpredictable, then the task of measuring the quality of your output is virtually impossible. In the client situation previously mentioned, the firm had 10 different processes because each partner was the one who determined his or her own process. Because the partners did the intake, review, and signing, there was no measurable quality standard—there were 10. Once the new process was in place, it allowed the tax compliance partner to ensure that the same quality existed for each preparer and manager.

Training for Team Members Improves

Having a standard business process significantly reduces the complexity of training other associates simply because you already have a tested, proven process that produces quality results when followed. Again, referring to the previous client example, before the firm changed, the managers and preparers had to learn how each partner wanted his or her work done. Once the new systems were put into place, there became only one way. This is the whole philosophy behind the profitability of companies like H&R Block, Southwest Airlines, and Walmart: predictable, repeatable processes.

John Wright, managing partner of the top-100 firm Padgett Stratemann & Co. of San Antonio, TX, says

Business development is everybody’s responsibility, especially our leaders. The primary responsibilities I have are recognizing in the marketplace where services need to be delivered, recognizing the skill sets we have in our firm to deliver those services, identifying the gaps in those, and leading the charge to fill those gaps to build the team to be able to deliver. Then, we focus on having the systems in place for executing consistent client service.

Benefits of Creating the Process

The act of defining a business process is in itself extremely helpful because it allows you to uncover the flaws in your current systems. Breaking your processes down to their components helps you look at them with fresh eyes. You can refine your business methods without incurring the cost and lengthy duration of trial and error.

Establish Standards, Policies, and Procedures

Your firm likely needs standards for things as simple as entering time into the billing system and for more complicated issues, such as tax processing, audit file retention, and virtual operations. Write down as many policies and procedures as you can, and train each person in the firm. Appendixes A, “Affinity Diagram”; B, “Four Whys”; and C, “Flowchart,” have examples of affinity diagrams and flowcharts that will help you document your processes. Flowcharting is a great way to document your procedures in the form of a picture, and of course, a picture can be worth a thousand words. Managers can then hold employees responsible for meeting the clear standards.

Kris McMasters, CEO of the national firm Clifton Gunderson LLP in Peoria, IL, says, “I have three people who work for me directly. My job is to set the vision for them, to set their goals and their expectations to keep them on track, and provide that vision to our board. I spend a lot of time communicating both with our employees and communicating with our partners.”

Improve the Consistency of the Client Experience

All standards, policies, and procedures must consider both the external client and the internal one (employees). Client loyalty—their willingness to engage you for more services when needed and to refer you when they have the opportunity—will depend on both extraordinary bedside manner and the proactivity and responsiveness you have in turning around their engagement on time and on budget. Good processes and procedures increase the chances of accuracy and quality.

A few years ago, one of our consultants went to work with a major investment firm. Because he was an attorney, his role was to meet with clients of the firm who had a net worth of over $10 million and provide estate planning for them. He was assigned a 7-state territory, which covered approximately 20 offices of the firm. He was to meet with the large clients, entertain them, and sell them the investment services and products of this firm.

Before he could get reimbursed for his travel and entertainment expenses, he had to submit his expense report. The firm did not provide him an expense advance, but that wasn’t the big issue. The big problem came in the manner he was reimbursed. Before he could recover his money, he had to file an expense report and include a copy of the canceled check showing that he had already paid the expense before the firm would pay for his entertainment. The consequence of this process totally subverted the strategy to entertain clients of the firm.

Standardizing Work-Flow Management

The idea of controlling the flow of business processes and other work dates back to the construction of the pyramids, but it was not until the 1980s that the modern concept of work-flow management for service firms began to come into vogue.

How a firm will assess the work flow and convert that flow to an automated process will differ with each firm, but there are three basic rules:

1. Adapt the process to the firm’s existing work flow. Nothing is more disruptive to a firm than a sudden change in the way processes are handled. When you implement a new process, be sensitive to the existing work flow, even if it is manual. Adapt the process to the firm, rather than the other way around. The process of altering how work flows through the office is generally called business process engineering.

2. Don’t sacrifice human interactions. One of the most enduring criticisms of work-flow automation, from the efficiency studies of the 1920s to today’s sophisticated digital systems, is that they disrupt long-standing human relationships. Administrative staff who used to handle tasks are displaced by technology. Partners communicate by e-mail, rather than in person. Clients are sent to a portal, rather than paid a personal visit. Work-flow management does not require the end of these critical, personal relationships, and it should not interfere with them. When technology disrupts human interactions, take care that alternate means of human contact, such as client meetings, staff meetings, personal lunches, and team-building events, are used to keep the interactions vital.

3. Save time, not money. The two are, in fact, closely related, but if the focus on assessing work flow is simply to cut costs and corners, then the result will likely be poorer service to clients. The goal should be to reduce waste and the time needed to turn tasks around, two goals that clients and accountants can agree upon.

Once the firm understands how work currently flows from the client to the staff and back to the client, it is time to address the software and hardware of work-flow management. As CEO of the regional firm Hill, Barth & King, LLC (HBK), in Boardman, OH, Chris Allegretti devotes a lot of effort to figuring out the best way to service the firm’s clients. “I spend a lot of time reassigning clients. We pay particular attention to ‘A’ clients because of the 80/20 rule that about 80 percent of our revenue comes from about 20 percent of our clients. And we want to make sure that those 20 percent of our clients are getting our best effort.”

Process Should Follow Strategy

Really, there is no reason not to incorporate processes into your business activities; they make it easier to train new employees, help you uncover errors in your current routines, help make activity outcomes more predictable, and enable you to effectively measure the quality of your output.

An important point is that companies should be as concerned about how a business achieves its financial results as they are about whether it meets its financial targets. Value drivers help companies understand the reasons for their current performance and how their future performance will likely develop. To understand value drivers, managers must have performance measurement systems designed to capture information on all aspects of the business, not just the financial results. A performance measurement system comprised of multiple measures allows managers to better monitor employees’ actions and guide firm behavior.

In an accounting firm, poor processes directly affect the efficiency of operations and the ability of team members to serve clients. They can distract accountants and staff from doing their jobs and cause mistakes. Unnecessary mistakes delay jobs and create significant cost overruns. Cost overruns, delays, and mistakes all decrease the profitability of the firm.

Manage to a Written Strategic Plan

Too often, firms manage to a budget or last year’s numbers, rather than a strategic plan. At one level, owners should view their roles as investment managers, investing dollars in production, marketing, training, technology, and innovation and seeing a return from those investments. Managing to a strategy requires identifying the firm’s objectives and its expected returns on initiatives, assignments, and due dates. Then, managers must be held accountable for investing those dollars wisely.

In some of our consulting, we help firms develop a strategic vision of where they want to go in 3–5 years and prepare a series of action steps for each year. We then help the firm break down the yearly actions into manageable 90–120-day chunks that are assigned to team leaders on their performance scorecards. All performance scorecards, which are fully described in chapter 8, “Accountability: Trust but Verify,” use certain generic measures. These generic measures tend to be core outcome measures that reflect the common goals of many strategies, as well as similar structures across segments of the firm. This combines the strategic vision of the firm and accountability on a steady basis.

Ray Strothman, managing partner of the local firm Strothman & Company, PSC, in Louisville, KY, tells

We grew to a point about nine years ago that I hired a chief operating officer [COO]. The COO was to help with the administrative running of the firm. The first person I hired was an accountant/controller type, and she did an excellent job. She got everything organized, and it worked really well; then, she decided to leave after about five years. One of my partners, Mellissa Frasier, is now our COO, and she does an exceptional job of recruiting, retaining, and accountability.

Management for the Future

In an accounting firm, manager roles should be designed for the firm of the future, rather than the firm of the past. In other words, manager roles in the $1 million firm should be designed for the $3 million firm. One of the first pure manager roles that most firms find very useful is the professional firm administrator. We see many firms at the $1 million revenue level that can grow very well into the $3 million level with a well-qualified person to handle accounting, billing, collections, payroll, supervision of the administrative staff, coordinating human resources functions, and many other functions. Firms that split these functions among the partners on a part-time basis get low-grade results that stymie growth and reduce the attention on client service.

Once an accounting firm is looking to grow beyond $8 million, a full-time COO can be very useful. At some point, a marketing manager, a CFO, industry service-line managers, an audit department manager, tax department managers, and client accounting managers are appropriate. They key decision is, Will we need this manager when we double our revenues? If so, then we need the person now. Always be looking forward, not back.

Lisa Cines, office managing partner, Rockville, of the megaregional firm Dixon Hughes Goodman LLP, adds

I have three senior leaders; there’s a CFO, there is a senior HR professional, and there is a gentleman who has a unique split in both IT and marketing. We have coined the phrase Aronson 2.0, and it means every area of the firm should be doing what is necessary to prepare to double our size. And that’s what those three people are responsible for within their departments.

The Balanced Scorecard Framework

The performance (balanced) scorecard discussed in chapter 8 is designed to translate the firm’s strategy and mission into measures that managers can use to manage the organization. The scorecards contain both generic and unique measures that are tailored to the firm’s competitive strategy. The following generic measures show up in most firms’ scorecards:

▴ Staff delegation, leverage, and training

▴ Customer satisfaction and loyalty

▴ New client development

▴ Profitability

These measures typically fall under four hierarchical perspectives: learning and growth, internal business processes, customer, and financial. When building strategy maps, we can see the clear cause-and-effect relationships between different perspectives. For example, a well-trained staff will improve customer satisfaction, which leads to increased retention and profits.

Based on its strategic direction, every firm will have some unique measures that are included on the scorecard:

▴ Share of industry market

▴ Percentage of realization of standard revenue

▴ Utilization of staff

▴ Gaining additional skill

▴ Penetrating and developing a new market

Ensuring meaningful accountability on these measures or the ones that your firm uses requires management, and there is a crisis of undermanagement in most accounting firms. In his book It’s Okay to Be the Boss: The Step-by-Step Guide to Becoming the Manager Your Employees Need, Bruce Tulgan explains how many leaders and managers struggle with the entire concept of management. Many professional accountants are not trained and do not want to be involved in management; they just want to serve their clients. Management is a completely different skill set from the profession of accounting. Your firm’s managers need to become experts in management, not just accounting.

Debbie Lambert, managing partner of the top-100 multioffice firm Johnson Lambert & Co. LLP in Raleigh, NC, says

I find that many accountants really prefer specified processes. In leadership, there is no checklist, and you must make decisions in real time. Our firm’s technical committee is led by two partners. These people not only set the quality standards of our practice, but they also deal with things like our client communications. They deal with the infrastructure that supports how we’re doing our audits and with questions that arise in our work or from our clients. If a question comes up in the field that’s relevant to everybody else (since we audit 350 insurance companies), then it’s this group’s role to make sure we have a good answer.

We have several functions that report to the CFO for administrative purposes. In addition to our controller, our marketing and HR directors report to the CFO.

Before you are trained in it, management may seem like one of those mysterious talents that you are or aren’t born with. You’ll hear people say, “Oh, he’s good with people,” or “His staff would walk on water for him.” And you hear the opposite kind of remark, as well, such as, “My boss is such a jerk.” These vague kinds of remarks can make it sound like managing people is an inherent skill or deficit, but you can learn to manage people and use systems that make your expectations clear to them.

When you’re using the balanced (performance) scorecard system, you will select particular measurements that matter to your firm about individual and collective performance. These KPI are valuable tools in the hands of managers using a scorecard system to manage projects and processes.

Selecting the Right KPIs

The ideal KPI would be easily standardized; viewed as valuable by all leaders, owners, and managers; and readily computable, meaning firms already have the data at hand or could easily get it. For the accounting industry, the most relevant and telling KPIs would provide insight into daily and weekly operations, sales, utilization of staff, and client service. By examining these KPIs, users can easily get a comprehensive view of the firm across a wide range of business operations. Viewed alone, each of these indicators could be misleading about the future of the firm. Hugh Parker, executive partner of the regional firm Horne LLP in Jackson, MS, says, “Processes and systems need to have flags that jump up if there is a problem.”

KPIs such as revenue per client, revenue per owner, revenue per employee, realization per client and per owner, and utilization of each staff member help management make informed decisions that can lead to higher cash flow and earnings. Because management relies on these measures to guide business decisions, the information tends to be reliable and verifiable within an organization.

Most data that ultimately shows up in a KPI is information that firm owners already have or should have at their fingertips. But how many KPIs are too many, and how many are too few? Firms are not going to use 100 different indexes. Instead, a few carefully selected KPIs could create the indicators that stakeholders need to get a good sense of future performance.

Gary Shamis, Jay Nisberg, and Marsha Leest, in their book How to Manage Your Accounting Practice: Taking our Firm from Chaos to Consensus, say “Accounting firms can’t charge the same fee to every client or for the same type of engagement.” They discuss various ways to calculate profit and productivity using utilization, realization, and margin rates. In addition to those three, I believe that two other KPIs are needed as a baseline to create a comprehensive set of performance indicators for accounting firms. Adding my two to Shamis’s, Nisberg’s, and Leest’s three, I like to use the acronym LUBRM, which stands for leverage, utilization, billing rate, realization, and margin. Each of these is described subsequently:

1. Leverage. The total number of nonowner employees divided by the number of owners. This index recognizes the owner’s ability to attract and retain talent to whom work can be delegated. The higher the leverage, the more revenue each owner can manage. The average midsized firm may have a 5:1 or 7:1 ratio, yet you will find many of the best-managed firms are able to achieve greater than 10:1 ratios.

2. Utilization KPIs. Compare a firm’s billable hours to total worked hours. Utilization KPIs can indicate an excess or shortage of capacity, an inappropriate percentage of time being spent on administrative activities by fee earners, or work that is being inappropriately leveraged within the firm.

3. Billing rate. Usually a blended rate for all billed hours divided into the total revenue. This can be calculated for various engagements and various months or seasons of the year.

4. Realization KPIs. Measure write-downs (produced billable fees not billed), net fees (gross fees less write-downs), realization percentage (net fees divided by gross fees), net fees per partner, and net fees per full-time employee (net fees divided by total full-time employees). If a firm’s write-offs are too large, you may be discounting work in order to win it. If write-offs are too low, it is usually an indication that the market will bear a higher fee for your services.

5. Margin KPIs. Measure profitability and efficiency of operations. “Cash is king,” says Tony Argiz, founder, CEO, and managing partner of the megaregional firm Morrison, Brown, Argiz & Farra, LLP, in Miami, FL. “We don’t pay much attention to accrual accounting in our firm, and that is why we have some of the lowest WIP and AR in the profession.” Keeping a close eye on the efficiency and effectiveness of billing and collection activities is critical.

Standardizing KPIs

According to Kelly Platt, editor of INSIDE Public Accounting

Unfortunately, not all accounting firms use the same internal KPIs to measure performance. Moreover, the right KPI for one firm may not be appropriate for another (due to size, niche, or market) or as easy to generate. Even those companies that use similar measures may not be using the same underlying definitions that allow for comparisons in the marketplace. We have selected standard measures that will not unduly burden the firms. This allows us to report these numbers in comparison to others, so they get real value from our annual benchmarking service.

We have found the INSIDE Public Accounting annual benchmarking survey to be one of the most valuable tools we use to help firms set the right KPIs and measure themselves against the industry standard. If you are not benchmarking yourself, make it a point today to reach out to INSIDE Public Accounting, and join their survey team next year.

Bill Haller operates his firm from a remote office using a series of KPIs. He says, “Every month, I get a report by office by person of all the returned client surveys, the scores for each office. Every client that returns one with a three (out of a possible five) is sent to every partner in that office.” Bill’s firm believes that its most important KPI is client loyalty, so it monitors client loyalty at the granular level. Client loyalty is a predictor of future revenue.

By designing your own predictive KPIs, you can begin to guide your firm by looking forward, rather than in the rearview mirror. The use of KPIs can help an accounting firm’s leaders identify, investigate, and manage emerging trends in key business activities in a timely fashion. Most likely, firm administrators are already tracking some key metrics; however, these metrics might not be the most meaningful for your firm or might not be analyzed sufficiently to interpret trends and identify root causes.

Remember to design KPIs that are easy to gather, report, and understand. The goal is not to do fancy statistical analyses but to have quick, accurate ways to track your firm’s progress in real time. Generally, KPIs for accounting firms measure productivity of the fee earners, value delivered to the client, producer efficiency, and the profitability and efficiency of firm infrastructure. When choosing KPIs, managers must ask, What are the key drivers of our practice, and how can we best track and manage them?

It is important for firms to understand how well their current structures can support a financial return that allows the firms to reward their people and invest in continuing practice development. These metrics include salaries and benefits/net fees, other operating expenses/net fees, days in accounts receivable (average AAR/(net fee/365), days in unbilled work in progress (WIP) (average unbilled WIP/(net fees/365), collection percentage (fees collected/fees billed), average unbilled WIP/gross fees, and a listing of incurred but unpaid expenses.

Rich Caturano, managing director of RSM McGladrey, Inc., in Boston, MA, says

We have whittled our accounts receivable down to 45 days of sales. In our old firm, we never thought we could do it. But, we’ve learned you build an advance, and you get the client to pay you in advance before you start the work. We thought we could never get away with that with our clients. Well, you know what? It wasn’t easy, but 8 years later, 70 percent of our clients are billed that way now.

Once a firm has established its KPIs, it can track and analyze trends. Benchmarks and interrelationships can be established and used to set goals. Then, administrators and managing partners can read between the lines to assess difficult-to-measure activities like leadership development and client satisfaction. This gives you a chance to correct behaviors or activities that are counterproductive to your firm’s strategic and financial goals. Don’t try to track all possible KPIs; you will get hopelessly bogged down in detail. Pick the four or five that you find most useful.

Business Process Management Overview

Many of the accounting firm leaders I interviewed for this book took exception to management expert Peter Drucker’s view that businesses only have three main functions. In addition to Drucker’s marketing, production, and innovation, some of them added firm governance and finance. As you look into each area that requires management, you will also find many subareas that will need their own brands of management. For example, almost every firm has a manager of assurance and accounting, as well as a manager for tax.

Business process management (BPM) is a management approach focused on aligning all aspects of an accounting firm with the wants and needs of its clients. It is a holistic management approach that promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology.

BPM attempts to continuously improve processes. It could therefore be described as a process optimization process. It is argued that BPM enables organizations to be more efficient, effective, and capable of change than a functionally focused, traditional hierarchical management approach.

A business process is a collection of related, structured activities that produce a service or product that meets the needs of a client. These processes are critical to any organization because they generate revenue and often represent a significant proportion of costs. As a managerial approach, BPM considers processes to be strategic assets of an organization that must be understood, managed, and improved to deliver value-added products and services to clients.

BPM Activities

BPM activities can be grouped into five categories: design, modeling, execution, measuring, and optimization. Each of these is described subsequently.

Design

Process design encompasses both the identification of existing processes and the design of “to-be” processes. Areas of focus include representation of the process flow, the actors within it, alerts and notifications, escalations, standard operating procedures, service level agreements, and task hand-over mechanisms. In their book, Faster Cheaper Better: The 9 Levers for Transforming How Work Gets Done, Michael Hammer and Lisa Hershman say

Most managers have a worm’s eye view of the world. They need a bird’s eye view, an understanding of what your company really does and the role they play in achieving its goals, or better yet, its results. Once you understand what your organization does, you can begin to design better ways to do it, ways that break you out of the old trap of “we’ve always done it this way.”

Redesigning your processes for the future is a critical role of the managers.

Good design reduces the number of problems over the lifetime of the process. Regardless of whether existing processes are considered, the aim of this step is to ensure that a correct and efficient theoretical design is prepared.

Modeling

Modeling takes the theoretical design and introduces combinations of variables (for example, changes in rent or materials costs, which determine how the process might operate under different circumstances). It also involves running “what-if” analyses on the processes, such as the following:

▴ What if I have 75 percent of resources to do the same task?

▴ What if I want to do the same job for 80 percent of the current cost?

Execution

One of the ways to automate processes is to develop or purchase an application that executes the required steps of the process; however, in practice, these applications rarely execute all the steps of the process accurately or completely. Another approach is to use a combination of software and human intervention; this approach is more complex, making the documentation process difficult.

Measuring

Measuring encompasses the tracking of individual processes, so that managers can easily evaluate information on the work. For instance, measuring can determine the state of a client engagement (for example, engagement letter signed, staff scheduled, awaiting review, invoice paid), so that you can identify and correct problems and improve the process.

The degree of measuring depends on what information the business wants to evaluate and analyze and how the business wants it to be monitored: in real time, near real time, or ad hoc. Select your measurements carefully. “The right measurement metric not only focuses process redesign correctly but also shapes behavior to an extraordinary degree,” according to Hammer and Hershman.

Business intelligence mining is a collection of methods and tools related to process monitoring. The aim of mining is to analyze current, actual processes vis-à-vis the standard. Mining also allows you to analyze your time and billing systems, tax software, accounting software, and client relationship management systems to identify opportunities for cross-serving.

Optimization

Once you have process performing information from your modeling or monitoring phases, you can optimize the process. In optimization, you identify the potential or actual bottlenecks and opportunities for cost savings or additional client needs. For example, clients with deductions for retirement plans or dividend income may be candidates for wealth management services or financial or estate planning services.

As CEO of the megaregional firm Wipfli LLP in Green Bay, WI, Rick Dreher has recently expanded his business into other countries, and the firm has invested in technology to improve its business process.

We’ve [built] a Web-based interface that sits on the top of QuickBooks, so a small business owner won’t need a bookkeeper, in theory; they won’t need an HR person; and they shouldn’t need a CIO inside their organization.

Wipfli small businesspeople in the U.S. will become more advisers and reviewers of work, and we’re moving toward doing a lot of that work in a factory concept. What we’re trying to do is get repetition. To actually feel like one firm, we had to prove that work could move between the computer screens and the phone lines. We had to prove that we were truly in this cloud environment where the clients are up in the cloud, and it doesn’t matter what office of Wipfli you’re in, including the two in India.

We can all basically access the cloud, work on the cloud, put it back in the cloud, and the next person can work on it, as long as we’re [using] common processes.

Issues to Look Out For

Although the steps in developing processes can be viewed as a cycle, economic or time constraints will likely limit process development to only a few iterations. This is especially the case when an organization uses the approach for short- to medium-term objectives, rather than trying to transform the organizational culture. True iterations are only possible through the collaborative efforts of process participants, but many organizations start a BPM project simply to optimize an area that has been identified for improvement.

Accounting firms simply do not manage themselves, and those that have a full-time managing partner (without a book of business) tend to grow much faster than those that have a part-time leader and part-time practitioner at the helm. As Ray Strothman says

A few years ago, [we took] all the management responsibilities for the day-to-day operating of the firm out of the hands of the partners and hired a professional chief operating officer who reports directly to me. That allows me to spend time thinking about the business, focusing on where we’re going, and she keeps the trains running on time.

Too often, managing partners get saddled with managing everything but the partners. They view their role as an administrative duty, rather than a strategic one. Many managing partners also manage a book of business to retain security and status. Michael Gerber, author of The E-Myth, says, “Most entrepreneurs are technicians who had an entrepreneurial seizure.” This statement definitely applies to professional service firms. The technicians prefer to work in the business rather than on the business. If you’re going to lead a large and growing firm, you’ll need to have someone working on business processes, rather than everyone simply working in the business.

Conclusion

Managing processes and projects are vital ingredients to a well-led team, office, or firm. In order for managers to do their jobs well, they must understand the strategic direction of the group. Most importantly, managers must not become too attached to the processes of today but be continuously striving to build the future firm. In the next chapter, I’ll review the necessity to build that future firm by continuously improving the processes and methods to support the strategies of the leaders.