Sometimes fields change so fundamentally that all our training, instincts, conventional wisdom and well-grooved habits just don’t serve us well. Such revolutions don’t happen often, but when they do it is especially important to be vigilant.
Such a pattern is now playing out in the global accountancy field. The disruptions are occurring at the highest end (driven by firms of scale) and at the lowest end (driven by tech-based startups). The tectonic shifts are slowest to arrive and hardest to spot in the middle of a sector.
Repeated patterns
Most people are unaware that innovation happens in reliable, repeated patterns. Worse, they are plagued by clichéd and wrong-headed assumptions, most especially that it stems from creativity. In fact, innovation is fundamentally about discipline – anyone can learn it.
In our study of powerful innovations throughout history, we made a remarkable discovery: they are all built from some combination of 10 discrete types of advance (see graphic).
In the diagram, the colours are significant. The stuff in blue (configuration) is the subset of innovation that has to do with how you make money – through partnerships, special algorithms, the talent you use, or how you get paid. These topics are mostly taught in business schools.
The two elements coloured orange (offering) cover the ideas, systems and capabilities you actually sell. Nearly every naive innovator assumes this is the entirety of innovation, and typically calls it the product. That is an idea woefully out of date. Nearly every field the world over is being reshaped by a wide array of digital platforms that make it easy to do hard things. These concepts are mostly taught in engineering schools.
The four types of innovation in red (experience) are the bits that make your services or offerings distinctive and a joy to use. With virtually every product category being heavily contested these days, these types of innovation help you get an unfair share of attention. They are typically taught in design schools or social science faculties.
Basic principles
Here are the key elementary innovation principles you should know:
- Innovation is a team sport
Standalone inventors are scarce today. You need people trained in different things who know how to collaborate. - Simple innovation dominates
Simple innovation consists of up to four types of innovation (typically including the two in the offering subset, coloured orange in the diagram). Such innovations are routine and can be done swiftly – but are then very easy for others to copy. - Sophisticated innovation is key
These rarer types of innovation are the ones that change categories. They consist of five or more types of innovation, including at least one from each of the three subsets. - No firm has ever successfully used the same process to develop both simple and sophisticated innovation
Your processes matter. You’ll likely need at least two process innovations.
Innovation in accountancy
Ever wondered why there are four giant firms that lead the accountancy field globally?
Giant firms need service functions that can match their scale and meet their complex requirements. None of the Big Four is a single firm – they are all complex service networks, and can each do remarkable things for clients.
Great accountancy firms can close a period (month, quarter, year) and tell within minutes or hours that something is off in a particular geography. They won’t immediately know precisely what is wrong, but they can tell from pattern recognition alone, that the numbers are way out of norm. This is why predictive analytics are key algorithmic tools in the modern accountancy toolbox.
How does this drive innovation?
Great accountants today will work to install the sophisticated systems that permit ‘automagic’ to happen. They may, for example:
- help a company manage all expense systems in partnership with a single payment platform, such as American Express, to streamline, automate and secure all the analytics, end-to-end
- standardise on a partnership with Uber or Lyft for local travel, ensuring all receipts are easily tracked and managed (unlike cash payments)
- build blockchain-based logistics systems for complex contracts so that they know the contents of a shipment are correct, while payments, taxes and even the global documentation are automated
If you are trying to perform audit (or help risk-engineer, supervise compliance or manage cybersecurity) for any huge global firm, doing business in many currencies, subject to complex regulations everywhere, simple innovation just won’t cut it.
Xero hour
Now let’s take a look at the low end of the field. In 2015, Forbes Magazine gave Xero Accounting its award for the most innovative company of the year. Xero is essentially a platform company, providing software rather than services. As disruptors tend to do everywhere, Xero focused on small and medium-sized enterprises – the ones that can’t afford a great controller or in-house accountant.
This highly sophisticated startup used six types of innovation: network, structure, product performance, service, channel and customer engagement. The rule of thumb is that five or more types represents a breakthrough, especially if all three innovation subsets are being used. And sure enough, Xero’s growth has been steady, both in revenues and in the partnerships it has been building with other technology platforms.
What this means for you
If you work at a mid-sized firm, you may think such exotica is not for you. Your clients are not asking for it and your colleagues wouldn’t know how to build it. It’s egghead stuff.
This is a mistake. Innovation tends to emerge at the high and low ends of markets, then relentlessly crowds out the middle. At a minimum, be curious about what the Big Four are doing. Over many years those services will be mainstreamed.
Even more, pay close attention to what the tech platforms now promise, especially to small firms that cannot afford you. They will be trying to codify expertise, use machine learning and build algorithms – and will ultimately move upstream.
If you assume that your charm and relationship skills are what matters most, you may get blindsided. Your personal charisma really is important – software can’t do that – but also pay attention to the remarkable things that tech can do and you can’t. Try to imagine new sophisticated services you can build for your clients using tech’s capabilities.
You may find you can build deeper relationships with your current clients, and even growth businesses, implementing capabilities in platforms you don’t have to invent. That is a great way to get your own future to show up ahead of its scheduled arrival.
