Articles in Accountancy Age, MayDec 2003

1
This series of articles, discussing issues of
business inefficiency and technology in
accounting firms, first appeared in Accountancy
Age magazine between May and December
2003
Mungo Dunnett Associates 11 Polstead Road, Oxford
OX2 6TW Tel [phone] Email
info_at_md-as.com Web www.md-as.com We operate
across a range of professional service firms.
Our focus is on ensuring that your activities
are geared towards the areas that are most
commercially valuable.
2
Making Money from
Management Information
BY MUNGO DUNNETT
Its easy to spend large sums on new IT systems.
Over the last ten years there have been some
spectacular examples of IT installations that
promised the earth and cost it too but
delivered precious little. Indeed, in many cases
the bigger the firm, the bigger the IT disaster.
But this need not be the case. In accountancy,
as in most other business sectors, the key is not
what you buy its why you are buying it, and
how you use it. A simple need What you need
is a management information system simply, a
database that does what you want it to, and
delivers commercial value by letting you focus
your sales, client service and marketing The
purpose of good management information is to
tell you what to do to operate more
profitably activities. And this is a key start
point. I dont get excited by the prospect of
processing efficiency that is often the
beleaguered admin teams rationale for IT spend.
The purpose of good management information is to
tell you what to do to operate more profitably.
The next consideration is the IT design. Have
you ever let an architect friend run amok in your
house? Fabulous state-of-the-art constructions,
that you really dont
need? The same applies to MI systems. These
projects dont go wrong, they start wrong. Dont
let the techies have the casting vote on what
the system is going to do. And certainly dont
let the IT salesmen These projects dont go
wrong, they start wrong either. Think about
what you really want the system to deliver and
resist the temptation for all those bells,
whistles and expensive customisations. They will
not be cost-effective. Determining client
profitability The next consideration is the
analytical work. In common with most
professional service firms, there is critical
information what you cannot do without. First,
you must be able to determine the profitability
of your client work. This need not be beyond a
workable 80 level of correctness which can be
implemented otherwise you will get bogged down
in unhelpful detail with cost allocation. And if
this means that you need to get tougher on
timesheet management by the way, then do it.
Secondly, you need a single data view of each
client all of the services they use, linked
together, including the profitability of each.
You can now perform one of the most vital MI
tasks the ranking of your own clients by
profitability which is guaranteed to produce a
different view from your intuitive ranking by
3
billings. Finally, you need to be able to
examine your client business for trends sectors
where you are growing (or not) clients whose
business is growing (or not) particular services
which are increasing in sale levels or
profitability or not.   Knowing where to
focus The analytical work tells you which
activities to focus upon. Again, there will If
this means that you need to get tougher on
timesheet management by the way, then do
it be some awkward surprises here. But the
critical element and the only activity that
will start to repay your investment on this
management information is making sure you
implement the findings. This will mean focusing
your marketing on those client types, or
services, with the largest profit potential. It
also means stopping the production of generic
client material, and starting to speak to
clients known circumstances, business cycle and
buying patterns as revealed by the data. And it
means getting this data in the hands of The
critical element and the only activity that
will start to repay your investment on this
management information is making sure you
implement the findings whoever are your
front-line salespeople, to make sure that you are
holding onto
your profitable business, and expanding it by
targeting your cross-selling more effectively.
Without implementation without changing the way
you currently do all of these things you will
simply never get a decent return on investment
from your IT activities, and nor will you manage
to take your business performance to the next
level of efficiency.   You may suspect that
some of your competitors are not strong in these
areas. Are you going to take advantage?
4
Its people that wreck IT investments,
not systems!
BY MUNGO DUNNETT
Computer systems never answer back. And in the
midst of the carping, the recriminations, the
sheer aggravation surrounding that IT upgrade
that went wrong have you ever thought what the
system itself might say? It blames the people
that bought it, the people that installed it, and
the people expected to use it. No matter how
brilliant your IT system, if you dont give your
full consideration to how the firm is going to
use it, you will be throwing your money away.
The IT spaghetti Heres how it happens. You
know that your current IT isnt good enough. You
cant keep track of the services youre selling,
and who within the firm is doing what. You cant
access information about your clients. You dont
have decent enough information to let you do
selling with any real confidence. There has been
one too many glitches in dealing with clients,
and now theyre starting to worry that the firm
doesnt quite know what its doing. The IT
spaghetti is past its sell-by date, and its time
to bite the bullet. And then the salesmen come
in with a sad shake of the head as they hear
you describe your own travails, and then with big
promises. However dont blame the IT salesmen,
because the problems are there already. One of
Parkinsons lesser-known laws is that the time
organisations
spend on making decisions is in inverse
proportion to the complexity of the subject.
Thats why it takes so long to agree the car No
matter how brilliant your IT system, if you dont
give your full consideration to how the firm is
going to use it, you will be throwing your money
away park spaces and why IT installations are
waved through with indecent haste. The first
rule of thumb Heres the first rule of thumb.
Make sure that you need the new IT. That you
really need it, and that the old one cant simply
be used more intelligently, and the data inputted
and extracted more cleverly. Its amazing how
often the new system is expected to right the
wrongs of the entire company. If you are not
thinking sensibly about your IT needs, and why
your IT is not delivering the value it might, you
will simply spend money on a shiny new system
that is beset by all the old problems, but merely
spins them around faster. Before you open Its
amazing how often the new system is expected to
right the wrongs of the entire company your
chequebook, therefore, draw up a painstaking list
of precisely what has gone wrong that is
eminently fixable, and what
5
really does require a new system. And consider
precisely what functionality you want. It
generally costs a fortune to customise and if
your staff dont understand what the fancy
gadgetry does, your money will again be largely
wasted. The price of understanding Heres a
second rule of thumb that might scare you. Its
generally recommended that companies installing
information systems spend an additional 25-30 of
the cost of the system in making sure that Never
underestimate the power of the sullen staff
member to dismember your IT processes people
understand what it is there for, and how they are
supposed to use it. This is truly at the heart
of IT mismanagement. IT systems are very
threatening theyre either impenetrable, or they
are likely to reveal information that threatens
individual members of staff, or staffs working
practices will need to change in order to
accommodate it. And sometimes all three. Never
underestimate the power of the sullen staff
member to dismember your IT processes. If views
are not sought and listened to, if training is
not comprehensive (and as much fun as possible),
and if the IT is not positioned as a positive
benefit in your firms working life, the system
will expire quietly.   Truly, purchase IT in
haste and repent at leisure. IT installations
are all about return on investment. The IT is
your investment but its your people that will
deliver the
return. Dont leave them out in practice,
theyre much trickier to accommodate than the IT
itself!
6
Where is the money
being made?
BY MUNGO DUNNETT
Youve got a busy firm. Everybody is busy.
Theyre engaged on client work or theyre
preparing for client work. Or theyre
prospecting for client work. Or theyre
preparing for prospecting for client work. Or
theyre planning to prepare to prospect for
client work. Whatever theyre doing, they
certainly all look busy. And indeed they are
busy. But what if all this effort isnt actually
making the firm any money?   Two reasons It
happens more often than you might think. And it
happens for two reasons. First, theres a
tendency to give the An astonishing number of
firms base their major decisions on revenues
top-line billings rather than profit customer
what they want and if youre not sure quite
what they want, youll give them extra service
anyway. Thats an expensive thing to do.
Secondly, an astonishing number of firms base
their major decisions on revenues top-line
billings rather than profit. The critical
knowledge One of the most important pieces of
information that you or any business, frankly
must have at your fingertips is
the knowledge of where your profit is coming
from. And this, ultimately, is the purpose of
good management information it tells you what to
do to operate more profitably. The
extraordinary thing is that, while the
identification of profit is so often considered
to be some sort of black art, its really not
that complex, and certainly not that costly to
deliver. In order to understand your client
profit you need two things. The first is a
While the identification of profit is so
often considered to be some sort of black art,
its really not that complex robust breakdown
of your own staff costs. This means all the
costs that can be reasonably attributed to the
winning of a given client, support work for the
client work, actual servicing of the client, and
any further in-office or out-of-office expenses
entailed. Suddenly all that busy effort is seen
for what it is a significant cost base, taking
up considerable time for some of the more
expensive staff members on the payroll.
Calculating staff cost Each staff member needs
to have a cost per hour fully loaded
calculated. More controversially (and yet if you
dont do it, you wont have any decent
information) you need to install a timesheet
mechanism and make sure people use it. I often
hear
7
complaints about this staff will be up in arms,
nobody will bother filling it in, and theyll all
cheat on their timings. I have very little
sympathy. If this is not how your firm operates,
you are the poorer for it. Its time to get
tough with the staff it will be done, they will
do it properly, and if they dont or wont its a
disciplinary offence. A functioning
database The second thing you need is a
functioning database, into which can be loaded
the client data (what they have bought, in a
single view across the range If this is not how
your firm operates, you are the poorer for
it of your services, and the billing dates) and
the cost to serve (which of your staff have been
working on the client, for what time, and with
what other directly attributable costs). The
typical profit pattern Now you can determine the
profitability of your client work. Dont get
bogged down in endless detail this need not be
the Activity Based Costing project from hell all
you want is a workable steer for the firm. But
what it will show you will be absolutely
invaluable. Suddenly you will see that your more
demanding clients actually lose the firm money
that a great swathe of middle-ranking clients
make you very little at all and that a small
number of star accounts are propping up the
profitability of the whole firm. In other words,
your client profit will be showing a fairly
typical 80/20 skew.   Getting off the
fence You need information real facts that
will let you make decisions about what the firm
does, and how it operates, with proper
confidence. This is where IT really earns its
corn. The secret, as with all IT investment,
You need information real facts that
will let you make decisions about what the firm
does, and how it operates, with proper
confidence is not expensive systems. Its
understanding what you want to achieve, doggedly
making sure the data is correct and then
getting off the fence and implementing the
findings.
8
Using technology to make
better client contact
BY MUNGO DUNNETT
Why is it that people seem to forget what its
like to be sold to, as soon as they start doing
selling? We all know how annoying it is to have
a bad sales pitch pointed at us when we least
want it and yet the blinkers descend whenever
were trying to flog our services to someone
else. And you wonder why accounting firms tend
not to be good at selling?   Why bad selling
happens There are two reasons why it happens.
One is just obtuse selling technique which is
the result of bad hiring and bad training. The
other is a lack of good information and unless
you have a decent IT function, you are going to
be in trouble when you try cross-selling.
Thats Selling is all about people but
dont make the mistake of assuming that this
means charm, smarm and a golden sales
patter because one of the great strengths of IT
and one of the least used is its ability to
help you deal with your clients. The clients
interests Heres how it works. Youll have
heard the tedious old maxim that accounting is a
people business that its all about
relationships, trust and convenience. But
the heart of good selling is exactly those
concepts its just that its devilishly
difficult to do well. Selling is all about
people but dont make the mistake of assuming
that this means charm, smarm and a golden sales
patter. Instead, the most effective selling
comes about when the client truly believes that
what you are offering is in their best interests,
and that it is their own best interests that you
have at heart. The faith in the bank
manager One of the most powerful consumer
research studies I have ever seen was in the
banking sector a few years ago. It transpired
that an astonishing number of people,
irrespective of salary level or educational
background, opened their monthly bank statement
in the unspoken belief that the bank manager
was the last person to have read it before it was
posted to them. They felt that somebody older,
wiser and caring had skimmed their months
transactions, nodded thoughtfully and said
Thats a good month. Well done or
alternatively Oh dear, thats not like her at
all I hope she does better next month.
People will always be impressed when it appears
that you have done your homework. They love to
think that they are important enough either as
a business, or as an individual to warrant
special focus being given them by another firm.
Then, when that firm contacts them with real
evidence that their movements have been tracked
and
9
reflected upon, and that there is a particular
solution that has been selected just for them,
there can be an People will always be impressed
when it appears that you have done your
homework extraordinary and very human
response. The information is sitting there It
is these feelings that the best cross-selling
will trigger. And this is where good IT comes
into its own. The information is often sitting
quite unutilised in your own data systems. What
you need is a system that will allow you to track
your key clients, so that you can spot what
theyre doing, where theyre going, and (by
extension using your intuition) what they are
going to need next. This is not difficult
but it takes a combination of accessible
management information, intelligent application
of thought to their precise needs, and then All
of this can be killed stone dead by the clunky
sales pitch on the phone the wit to put across
engagingly that you have been going through
precisely that process. As I hope you will
realise, if you have been following this column,
its the simple stuff like this that makes IT
work. All of this can be killed stone dead by
the clunky sales pitch on the phone or the
generic, laser-printed circular. Its a
combination of hard facts, and soft people
skills. But without the facts youre left with
charm and the smarm. And you wouldnt buy from a
firm like that, would you?
10
Linking your technology
to your people
BY MUNGO DUNNETT
Beware the technology buff. The person who says
you need a state-of-the-art IT system because
well, because theyd really like to be able to
use one. Yes, good IT can make it very easy to
spot where things are going wrong. And yes, it
can make it quicker to reach the right
conclusions. But does any of this actually make
you money? Your business depends on people
meeting people and if the technology isnt
helping them to do that, then you might as well
simply stand around the box and admire
it.   Technology and the front line Technology
is there to help people do business. And yet IT
is usually as far away from the front-line of
your client business as it can get. There are a
number of reasons why this happens. First,
people dont tend to trust new data outputs.
They may have good reason not to far too often
the first set of reports are rushed out to
impress the boss, and are either misguided or
plain wrong. Nothing Technology is there to
help people do business. And yet IT is usually
as far away from the front-line of your client
business as it can get makes an IT investment
look bad as quickly as a crumpled data output
sitting in
the bin. But even if the data is correct, well
presented, and timely, its often still not
trusted. Experienced client-facing people have
developed their own way of doing things of
selecting prospects, of scanning client records,
of choosing the cross-sell opportunity. Are they
to be expected to throw away their acquired
working practices overnight, because of some
fancy new report? Would you? The
intrusion Secondly, people dont like the
intrusion. Any sales environment that has
depended on a fair degree of personal latitude
and initiative and thats a fair summary of
the Whilst the senior partners will rightly love
the close targeting that a good IT system will
bring, for the recipient this is a new and
usually unwelcome scrutiny of their working
practices laissez-faire sales practices
permeating accountancy will resent the
supervisory element arriving with contact sheets.
Even where there seems eminently good sense
about the new identification of sales
opportunities, the sub-text is new and somewhat
threatening this is work that now has to be done
its defined, explicit and monitored. Whilst
the senior partners will rightly love the close
targeting that a good IT system will bring, for
the recipient this is a
11
system, with the opportunity to discuss their
findings.   Sales is difficult enough already in
the accounting profession without upsetting the
good people youve got. If you want to raise
your cross-sale game, dont forget that its the
people that will do it for you, not simply the
shiny new box in the corner.
new and usually unwelcome scrutiny of their
working practices. One half of the journey The
issue here is not that the reports themselves are
bad Ive covered good data reports in previous
articles. Its much more basic that the
client-facing person has the ability to terminate
your IT investment simply through poor engagement
with it. This is why the Unless you bridge the
eternal gap between technology (and techies) and
salespeople, you are going to waste IT
money selection of IT, the populating of robust
databases, and the production of valuable
reports, is only half of the journey, and the
expensive half to boot. The other half the
mobilisation of your data is the one where you
make money. Selling it in Unless you bridge
the eternal gap between technology (and techies)
and salespeople, you are going to waste IT money
and upset your rainmakers. A few quick rules
first, make sure that your key salespeople want
better targeting, have a say in the purchase of
the IT, and get the reports they think they need.
Secondly, portray the IT as a benefit for the
business as a whole including them. And
thirdly, allow them a transition period during
which they are using their old methods alongside
the new targeting
12
Linking technology and
client feedback
BY MUNGO DUNNETT
Every few years the IT industry thinks up another
spin on an old story. Why should you dump your
existing system and splash out on a new one?
Why, because its better, quicker, smarter, more
certain to take your business to a new level You
can spot these promises at 100 paces.   The
over-promise of CRM One of the more recent ones
was Customer Relationship Management. Yes, with
a simple integrated system you can create a
comprehensive knowledge base encompassing your
people, your clients, their products and the
contacts The secret of clever IT usage is to
put together the basic functionality that stuff
that does work, and does deliver value without
spending big money they have with you. And,
predictably, the country has become strewn with
over-promised and undercooked IT spaghetti. The
secret of clever IT usage is to put together the
basic functionality that stuff that does work,
and does deliver value without spending big
money. And its very possible to do this.
Although you wont be able to create a completely
functioning CRM system on the cheap, you can
certainly make use of the key elements
if you know what to look for.   The basic premise
of CRM At the heart of CRM is the ability to
understand your client base to listen to your
clients, note down the relevant information about
their plans, preferences and activities, and then
make intelligent use of this in the way you treat
those clients. Its a theory that is as old as
selling, and as effective as friendship. It
entails listening really listening and then
reflecting intelligently on what youve heard.
The role of the technology is to hold all this
information in one easy place, enable you to look
it up easily, cut it into different sections if
thats what you need, and use it to build a
simple contact programme to make timely, relevant
contact with your more important clients. This
goes under many different Its a theory that is
as old as selling, and as effective as
friendship. It entails listening really
listening and then reflecting intelligently on
what youve heard names, but Knowledge
Management is one that youll hear bandied
around. The key to the technology is that it
needs to be able to handle simple data fields.
That could well mean an Excel spreadsheet or
13
in bigger databases, Microsoft Access with some
simple amends to suit your purposes. This is
generally the simplest part of the process, not
the most difficult the reason being that most
of the faults, mistakes and wasted time are to do
(predictably) with how the system is used, and
what data is put into it. Some simple tips A
few simple tips for assembling effective client
data. First, make sure that when your staff have
been in touch with a client, they find out what
the client likes, wants, needs and doesnt
want. Then load this into the system and tell
the client that Most of the faults, mistakes
and wasted time are to do (predictably) with how
the system is used, and what data is put into
it youd like to bring their records up to date
accordingly. Thirdly, consider the patterns that
emerge which types of client are saying which
sort of thing? Who is looking to grow? Who
needs a certain sort of service? And who
crucially is likely to want a certain sort of
service, based on what they have already told you
about themselves? Try to surprise
clients Its these clever but simple inferences
that are at the heart of effective
data-and-selling. Finally, use the information
properly. The best, most invaluable insights
about clients can be destroyed utterly by a
clunky, ill-prepared sales pitch.
Try to surprise clients with how carefully youve
examined their data, and how much effort youve
put into understanding their business. Their
expectations are generally astonishingly low.
Take advantage.   Youll have done this by using
your simple data system. But the client never
needs to Their expectations are generally
astonishingly low. Take advantage know that.
Simple technology, and simple sales practices
but done with real care and subtlety. And in the
meantime, think of the IT budget youve just
saved.
14
But is this IT
worth the money?
BY MUNGO DUNNETT
Remember that lesser-known Parkinsons Law? The
one that says that the amount of time spent on
making a decision is in inverse proportion to the
complexity of the issue? Its why firms spend 2
hours debating who gets the car park spaces, and
10 minutes waving through the IT upgrade. And in
the background is the lone voice saying But how
will we know if this IT spend is worthwhile?
Its a good question.   If youve been following
this column youll know by now that the problem
is rarely the IT. Its the people who use it
and also the people who buy it. The problem
starts with people deciding to buy something they
dont need, going on to buy more than they need,
and then not using it properly. Sounds grim?
Its what happens more times than youd believe.
The basic questions So if you want to avoid
wasted expense in IT, start by asking the basic
questions. First, do you really need the system,
or The problem starts with people deciding to
buy something they dont need, going on to buy
more than they need, and then not using it
properly can you get by with what you have
already? Secondly, if you really do need
new IT (say your old system is on its knees), do
you really need all these extra bells, whistles
and customisations? This is where the IT
industry makes its money. Typically the basic
functionality will be just fine not as fancy,
but just fine. Thirdly, are you Far, far too
often IT projects are kicked off with no real
clarity about what is the intended
deliverable actually going to use this new
system properly? If people dont understand why
youve bought it, how theyre supposed to use it,
and what its purpose is, it will never deliver
its full value. Evaluating effectiveness Which
leads us to the whole issue of cost-effectiveness
(and, if you prefer, return on investment). It
may sound fairly obvious, but you have little
chance of establishing anythings effectiveness
if you are not clear about what effectiveness
means. In other words, what is the purpose of
your IT investment? You must establish at the
outset a very clear view of what the IT is
supposed to deliver, and what success is going
to look like. Far, far too often IT projects are
kicked off with no real clarity about what is the
intended deliverable. For instance is the
purpose of the new system to make things run
quicker a type
15
of operational efficiency? If so, the ultimate
speed of your operational processes is going to
have a lot more to 90 of IT problems are
actually people problems do with how people use
the system, and whether they change their
historic ways of working, than whether the new
system works. As a rule of thumb, systems work
when theyre planned properly and installed
correctly. 90 of IT problems are actually
people problems. Youll know if the processes
are running quicker and if you know the cost of
your people, per hour, youll know what this
saves you. Or maybe the goal is to save
money. Usually this means less time (see
above), or fewer people, through streamlined
working (see above). A new IT platform that
integrates a whole spaghetti of historic systems
ought, in the long run, to be cheaper, but
usually this is much harder to prove. Youll see
efficiency and you may have mitigated a big
risk in You wont make money until you change
practices and change the firms strategy your
scattered systems all eventually falling over
but real savings are hard to prove. Debate it
or use it Or lets say the purpose is revenue
generation and business efficiency. Maybe its
going to link your accounts
system with the client database, to tell you
which are your most profitable clients, and which
you need to upgrade or exit. But are you going
to use the information to do these things, or
simply sit and debate them? You wont make money
until you change practices and change the firms
strategy. Maybe its going to indicate which
clients business maturity is altering, making
them ready for new service cross-sales? But
are Concentrate on making sure the staff are
using it properly, which will give the IT a
chance you going to input the current data
correctly? And are you going to contact clients,
and do it effectively? Until you do, you havent
made any money. It depends on the users IT
systems are in the hands of their users. If you
want to demonstrate their financial worth, youll
need to do more than simply assess whether it
worked when switched on, and didnt keep falling
over. Youll need to evaluate how your people
are using it, what the result of their efforts
has been and how they used to operate and
perform beforehand.   The bottom line, when
evaluating the bottom line, is this dont kill
yourself enveloping the process in an endless
series of metrics. Concentrate on making sure
the staff are using it properly, which will give
the IT a chance. Its the staff that will
deliver the ROI, not the IT system itself.