Adding value proves taxing
Accountancy firms are making huge efforts to stand out from the competition, writes Peter Carty
Wednesday 15 February 1995
According to the trade journal Accountancy Age, the big six now audit 92 per cent of the UK's 500 biggest plcs. But carving out even larger shares is becoming ever more difficult. In a climate of ferocious price cutting, even holding on to existing clients is getting harder. Selling services on the basis of quality, rather than price, is the obvious solution.
This month KPMG and Price Waterhouse have unveiled initiatives which each is banking on to yield a unique selling point. With more than 25 per cent of the top 100 plc audits, KPMG is innovating from a position of strength. This may be fortunate, because at first sight its new strategy appears odd. In essence, the firm wants to further develop the concept of the lead partner. Every large client is to have a lead partner who will be an expert in its industry and oversee the delivery of all of the firm's services to it.
Hang on a moment, isn't this a good description of what many clients think they are paying for right now? "At our best, we're already doing this," Colin Sharman, a KPMG senior partner. "What we want to do is to make sure that we get best practice everywhere."
Such candour is refreshing, but KPMG's initiative might send out the wrong signal. "We've had to make this change because, quite honestly, we haven't been as close to our clients' businesses as we should have been - that is a possible claim they're making," says Phil Shohet, managing director of the marketing and public relations consultancy Buckmans.
Meanwhile, Price Waterhouse's partners are placing their faith in a new analytical software tool, ValueBuilder. It will be available to clients on all major assignments - audit, tax and consultancy alike.
ValueBuilder aims to yield better share price performance for clients. The software assesses performance against industry benchmarks and identifies areas for potential improvement. "You can actually show the results in pence per share on the share price," says Mike Maskall, Price Waterhouse partner and ValueBuilder project leader. Price Waterhouse's professionals can then assist in the implementation of solutions.
The model emphasises future cash flows rather than earnings per share. Price Waterhouse says this is in line with the way analysts are changing their approach to company evaluation. The modelling is a variant of shareholder value analysis or SVA.
SVA, wait a minute, is this the same SVA that appeared in the United States in the late 1970s and crept over here in the 1980s? Indeed, it is, and other firms have been marketing SVA consultancy tools for years.
Indeed, one obstacle in Price Waterhouse's path is that many of the largest companies might already have similar tools in-house. "You're not going to attract the FTSE-100 companies or even hang on to them with a gimmick like this," says Mr Shohet. Mr Maskall disputes this, pointing to the extensive benchmarking data ValueBuilder draws. He also emphasises Price Waterhouse's ability to implement improvements, saying that this is where strategy consultants fall short.
Naturally, strategists rebut this. "We are the only consultancy in the world that publishes a stock-price chart of our clients to demonstrate that we get results," says Stan Miranda, a director of Bain & Co.
If KPMG and Price Waterhouse's efforts seem unoriginal, consider the difficulty of differentiating audit services. Most audit work is documented in working papers that clients cannot access. Though managements normally get more feedback than a letter outlining weaknesses uncovered by the auditors, the audit is basically a compliance exercise with uniformity imposed on it by regulation; genuine enhancement is not easy. "Large firms are trying to find some point of business difference, whether it's cosmetic or otherwise," says Mr Shohet.
KPMG's attempt to improve its services involves readdressing the basics. "The way in which you differentiate an audit is through the way in which the client experiences it," explains Mr Sharman.
Developing the role of the lead partner builds on the firm's Vision 2020 reorganisation a couple of years ago. This divided the firm into industry divisions, rather than by professional specialism. Now the partners themselves are to become closer to their clients' businesses. Hopefully, this will improve client relationships.
"I'm not claiming there is a large amount of originality in this," says Mr Sharman. "What I am saying is that we are going to do it quicker and we're going to do it better."
Price Waterhouse's solution is more novel, providing a complementary product with its audits. "It's the first time any professional firm has ever launched a brand," claims Price Waterhouse's Mr Maskall.
Bain's Mr Miranda is not impressed. "Consultants are at an all-time peak in terms of fads and buzzwordy products," he says.
Mr Sharman is also sceptical. "I don't believe you can successfully differentiate yourself in the eyes of your clients through the tools you use. It's the way in which they experience them that is important," he says, generously adding that ValueBuilder may bring real benefits to Price Waterhouse clients.
Which approach is more successful remains to be seen. In the meantime, one thing is certain. Accountants are finding auditing an increasingly lacklustre product. "It's a very high risk commodity, very hard to service," says Mr Maskall.
Tinkering with audit service alone, then, is not the solution. Selling other services off the back of audits is also essential and, unsurprisingly, is integral to the Price Waterhouse and KPMG repositioning of lead partners as conduits for additional services to clients. Mr Shohet says: "If I was a desperate cynic I would be saying to myself, `This is just a way to flog that client extra services'."
Mr Miranda says he admires this aspect of Price Waterhouse's initiative. "Most companies have problems cross-selling across their business units," he says. "It sounds as if Price Waterhouse has figured out a clever way to transcend organisational bureaucracy and get one end of the business to help another."
For his part, Mr Maskall views it as an essential manoeuvre. "Firms have got to do other things," he says. "Audit is no longer going to pay our rent."
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