If you recall, I said we’d be having two newsletters this month, on related topics. If you didn’t pick up that newsletter and would like to read it now, e-mail me for a copy.
Previously, we explored how human emotions helped create boom and bust cycles because they exaggerate, for better or worse, normal economic ups and downs. Today I take a helicopter view of the mistakes made by the banks in the lead up and following this economic crisis. This is not a bank bashing contest – I am covering this topic because I think everyone, whatever profession they’re in, needs to avoid making similar mistakes.
Those that forget history are doomed to repeat it
It’s no accident that the banking system is in chaos. Warning signs had been there for a good while: few noticed them at the time for what they were. Others, me included, just had a gut feel that something wasn’t quite right but couldn’t quite put our finger on it. Some things are becoming clearer. I have the same feeling in the pit of my stomach about the current state of the accountancy, legal and insolvency professions. I can’t quite put my finger on all the issues, but I just know that there are a good number of things wrong, major change is necessary. And I expect 2012 will see the accountancy profession following a similar route to that which the legal profession is now undergoing, as we go further into the worst downturn ever experienced.
Accountants have been lucky this far, they have been insulated from the necessity to change by the mix of their work – it’s no accident that legal practices, who enjoy far less regular, ‘compliance’, work, came under more pressure and earlier. But compliance work, like any commodity, is price sensitive and when times get harder its price will only go one way. People are always looking for more for less: sometimes they focus only on price; the ‘better’, less problematic clients focus on service, but even they don’t want to pay ‘too much’, whatever that may mean to them. High levels of compliance work will not shelter accountants from the worst of what is to come. This means accountants will have to change what they do and how they do it or see their best clients vote with their feet, their average fees fall, their practices slowly die, their dreams of growth, merger or sale in tatters.
Here are my own personal views of the lessons the professions need to learn from the shortcomings of the banks if we are to avoid similar things happening to us.
- The banks created products which actively encouraged risk taking. They thought their products (CDSs, CDOs, synthetic CDOs, mortgage backed securities) and their modelling reduced risk. They didn’t, the banks clearly didn’t understand risk, yet they encouraged their customers to play their game! Customers blindly relied on the banks, they didn’t question what they were being sold. There was no balance, no brake, bubbles were created, decisions made which would lead to pain later on.
I learnt a good while ago that nothing is ever as good, or as bad, as it seems. This downturn is not all bad news: it will bring great opportunities for some. What clients need is balance, a brake stopping them from getting carried away, those things they don’t know bringing into their thought processes, bandwagons avoided; uncertainty and panic eliminated – these are areas where accountants could help.
- A combination of arrogance and defensiveness is not an attractive attitude when those around you see things differently. Real division develops when one side starts to struggle and the other remains intransigent. It is then that trust breaks down and people pursue their own interests, in the banks’ case leading now to huge legal claims being taken against them. In accountants’ case, arrogance and defensiveness will make it easier for competitors to poach their best clients;
- Bankers simply ignored the individual receiving their services: they thought that systems and client apathy would be enough to retain their clients. There was lots of ‘noise’ but no real communication with customers, no honesty, no openness. They didn’t see a need for strong interpersonal skills. They failed to do all they could to provide a truly memorable and positive client experience. Models and systems became more important than people. The only consistency this brought was poor, unreliable, impersonal service.
Unfortunately the accountancy and legal professions also tend to attract people who aren’t really ‘people people’, whose gain comfort from systems and processes. How people do business is changing, they have more choice. As the downturn goes into its next phase, they will become more discerning as to who they deal with and how. Trust, not just price, will be key. Strong long term relationships between client and service provider cannot be built on systems alone.
- Bankers believed they were the saviours of the universe, that they were very, very clever. They used hugely technical words and acronyms to somehow demonstrate how clever they were. They were too busy making money, too self-focussed to notice the bigger picture or the long term implications of their actions. They stopped asking questions of themselves and the people at the head of their own organisations and supervisory bodies. The focus on their own personal short term caused a massive hole which now threatens to engulf the whole banking sector, and us with it.
Einstein said that any intelligent fool can make things bigger and more complex, but it takes a touch of genius – and a lot of courage to move in the opposite direction. The only worthy acronym is KISS.
- Bankers assumed that there would always be enough work coming in, that the market would always be there and it only went one way. They assumed that they’d never have to work too hard to get that work, because it was enough just to be good at what they do. But nothing is forever, everything is cyclical. Every business is a ‘me-too’ business. It’s impossible for me-too businesses to maintain high earnings indefinitely, even taking unfair advantage of clients or operating in a niche don’t last forever. The banks didn’t see their successful times as a bubble: they failed to see the bigger picture, to act for the longer term. They focussed on short term profit goals. They jumped on bandwagons with great enthusiasm. Sometimes they felt they had to be seen to be doing so – hence so many mergers, acquisitions, most of which don’t now appear to have been a success. Bubbles are very difficult to see at the time, but become obvious when looking back.
Accountants haven’t exactly seen spectacular times, but they will seem so when you now look back. A good number of the lawyers’ mergers will end in tears.
- Improved technology, the advent of new products or services and new ways of doing the same things have to be harnessed, focussed, controlled for them to work long term. They have to regularly appraised – are they still working right? Not all ‘improvements’ are for the long term good, there can be unintended consequences down the line. Improvements cannot be ignored, but they should never be an end in themselves: the basics underlying how business should be done remain constant, even if sometimes they are hidden underneath a thin veneer of change or ‘improvement’.
- Big is not always best. Being a one stop shop for everything doesn’t work, not ever, for 99.99% of us (it may work for big business, but not for the rest of us). The banks merged because they perceived there was a demand for a one stop shop for everyone for everything. And because of greed. Solicitors are going through a similar process: the jury is out on many of their mergers and takeovers. Fewer people believe a one stop shop works, they don’t think it will provide the quality service they want for the really important things in their life. We don’t trust anyone who says it does. Having the courage to build a small sustainable niche, whatever it may be, works far better, for longer.
A few questions for you, in no particular order:
- Are you and your practice ready for the changes in how business will be conducted going forward? What’s your plan for coping with a rainy day?
- Do you provide your clients with the ‘balance’ they need? What are you doing to make sure your clients recognise they need such balance, and from you?
- Are you trying to be all things to all men? What, if anything, are you doing differently from your competitors? If nothing, why not? What effect would focussing your efforts on making you the best at ……………………….. in your area have on your business, and your life?
- Do you place enough trust in your gut feel? Do you gain (irrational) comfort from continuing to act within your comfort zone or by following the herd? Do you get distracted by ‘bright shiny objects’ (those things being put forward as the next best thing)?
- Is everything that you and everyone does in the business focussed on your clients’ needs, and nothing else?
- Are you doing enough to make your clients see spending on your services as essential, as necessary to secure the success of their business, as good value rather than as discretionary or commodity spend?
- Are you making it easy for baby boomers and X-gen clients to communicate easily and effectively with you, or are you cutting out half of your potential market?
- Are you creating a close personal client experience second to none in all respects for all your best clients? Do you treat them with the same attention to detail as you would like to be treated if you had booked a special weekend away with your other half?
- What alarm bells are, or should be, ringing for you inside the business?
- Are you avoiding or driving major changes within your practice? Are you hoping to move just that little bit faster than your competitors? Or do you hope to be the last man standing in your particular area? What makes you think your strategy will work?
- Are you getting carried away by just how clever you or what you are doing are? Are you giving enough focus to the basics underpinning the business? Or should you be refocusing what you do, say to simplify your service offering for your client?
- Do you give your clients the impression it’s an impersonal process? Do you communicate with clients by e-mail using an ‘info@’, ‘admin@’, or ‘accountant@’ e-mail address? What happens to your calls when you’re out? Are you making it easy for people to communicate with you how and when they prefer to?
- Are you doing enough to improve your own and your staff’s interpersonal skills? (why don’t I ever see any accountants at any such training courses?).
- What assumptions are you making? Which of these could fall apart at the seams? What makes you think that major client will always be there?
- What challenges should you be posing to those at the head of our governing bodies? Can we really afford to let others, particularly the big firms, dictate the future of the profession?
- Do you know what your clients really think of you? If not, why not?
- What do you do to create a culture of absolute trust, honesty and openness with your clients? What’s not being said but should be?
- Which of your clients are you servicing (and probably pretty poorly) who are a pain? Who diverts you away from spending your time on more enjoyable, more profitable work, where the client pays a good price and on time? Are you allowing problem clients to divert you from spending the time you need developing your practice or with your loved ones? It’s your business, why do you allow it to happen?
- Have you identified the clients you want to retain and have a plan for retaining them, or are you relying on client apathy to retain them?
- Is changing and improving technology something you are ignoring or is it driving you or you it?
- Do you make it easy for people to understand you, even the most difficult technical aspects of your work?
I may not get around to sending out a newsletter in December, unless something pretty spectacular happens in the world. If I don’t, have a great Christmas and enjoy the New Year celebrations. As ever, please let me have your comments on my newsletter,
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