By L. Gary Boomer
Does firm size matter?
Iget questions daily from CPAs asking if their firm should consider a merger or if it is possible for their firm to compete as an
independent or local firm. My current answer
is, “It depends!”
I question whether these mergers are
properly motivated, or if they are motivated
under the outdated “Push Economy,” where
scale has produced efficiency.
Is efficiency going to be the primary driving factor in today’s rapidly emerging “Pull
Economy?” The truth is that we probably
won’t know the answer for several years, but
history and the current economy are providing some insight as to what the keys to a successful firm will be.
I believe that firms from $3 million to $30
million are faced with exceptionally difficult
choices today as they develop their strategic
plans. (I use these benchmarks because 90
percent of firms in the U.S. are below $3 million and the Top 100 firms break at approximately $30 million.)
There are many reasons that firms merge,
but I find there are three primary reasons for
firms to look at upward mergers:
1. Lack of succession;
2. Lack of leadership and talent; and,
3. Lack of technology.
The first two reasons have probably been
the primary drivers of recent mergers, but
technology is becoming increasingly important both culturally and from the fact that it
is an enabler in moving from the Push to the
Pull Economy. Push strategies are built upon
one key assumption: the ability to accurately
forecast demand in order to ensure that people can be pushed to the right places at the
right time. The uncertainty and instability of
the economy, along with increased global
competition, have reduced firms’ abilities to
accurately forecast demand. Couple that with
the fact that many firms are under-managed
— and I make this statement due to the fact
that recent metrics show that less than 50
percent of total time was charged and even
less was billed and collected.
Pull is focused on the ability to access resources. Access involves the ability to find,
learn about and connect with resources on
If history is
an as-needed basis in order to address unanticipated needs. The firm’s ability to change
in order to meet client demands in the future
will be far more important than size.
BEYOND CORE KNOWLEDGE
Firms should look outside of their walls for
access to resources and knowledge. This
comes at a time when many firms have become more inwardly focused in order to reduce expenses. They have reduced training
budgets and travel that in the past resulted in
increased knowledge and relationships.
It has often been stated that knowledge is
power. I believe that access to that knowledge
is the key to future success and that knowledge is changing at an increasing rate. There
is core knowledge (know-what) that most
CPAs focus on, and then there is tacit knowledge (know-how) on the edge. Most knowledge starts as tacit knowledge. This is the new
knowledge that is occurring at the edge of the
knowledge spectrum. Firms need to be able
to access these innovative thinkers.
Knowledge on the edge (tacit) is produced
by relationships and held by individuals, not
firms. Firms typically have an inventory of
core knowledge in their people, and especially with the partner group. Collaboration
is critical and firms need access to this edge
knowledge in order to survive.
In the past, there was comfort in the fact
that core knowledge was adequate-stable,
and what was happening at the edge was
not that important or critical. We are now
in an era where edges emerge and rise with
astonishing speed. I believe that firms could
be exceedingly more profitable if they just
knew what their employees know. (This is
why knowledge management systems are so
important, and firms are finally starting to
implement these systems.)
Gary Boomer, CPA, is the president of
Boomer Consulting, in Manhattan, Kan.
Back to the question.
Is it best for smaller firms to merge or re-
main independent? In order to stay relevant,
we all must find ways to learn faster and often
in areas that were once viewed as peripheral
to our profession. Some might say this is in-
dustry knowledge, but it is far broader than
just specialization. Push is no longer the
dominant paradigm in our lives, businesses
or educational systems.