The firm is evolving and there have been some casualties

Today’s post is about the evolution of the accounting industry, which is something that continues to gain momentum to the point where it’s unrecognisable compared to when I started in the industry about 17 years ago. If you haven’t noticed much in the way of evolution (at least as far as things you can actually see) then you might be interested in this post…

Those cardboard boxes ares always dead giveaways aren’t they?

I’ve written before about how jobs are under threat in our industry, with some of the key reasons for this situation being the rise of cloud accounting, fixed fees changing affecting our revenue and the prospects for growth, and the general desire to automate whatever can be automated. As with all such changes, the effect of these initiatives has been somewhat delayed, to the point where their effect has only recently been seen in our little part of the world.

Casualties at management levels

As is probably the case in most firms, we tended not to have much turnover of people at management levels historically, largely because these people are earning fairly decent money, and there aren’t always jobs paying similar coin that they can just go out and get with the click of their fingers. So when leadership of the Australian firm decided that management numbers in our particular office were too high, we knew that we would be looking at a redundancy outcome rather than relying on natural attrition to solve the problem.

There is of course the opportunity for performance managing people out of a business, but this tends to be much harder for management level people. When those same management people are actually reasonable performers but are working in areas of the business that aren’t performing as divisions or need to be strategically downsized, performance management probably isn’t an option anyway.

In our business we had never dished out redundancies in the past (well not since I’d been at the firm anyway), so when we needed to make five senior people redundant over a period of 5-6 months it came as quite a shock to the system. Most of the people who were made redundant would have had an idea that it was coming, as they were after all working in divisions that weren’t performing, in specialist roles where the work simply wasn’t being generated, or in senior internal support roles where there was rationalisation happening across the country. Even so, the whole process felt terrible for all involved, almost as if we were doing the wrong thing by the person since we’d never done it to anyone before.

Most of the people who received the redundancies were quite understanding, but I’m sure they’d still have a bad taste in their mouth about it even now. Of those made redundant, from what I know none of them have gone on to new roles that are particularly inspiring or paying anywhere near what they used to make with us either, which would just compound their feelings even further I’d say.

While the senior people themselves were no doubt affected by the redundancies, there was also a particularly damaging effect when it came to the general staff. Since they often didn’t know or understand the reasons for the redundancies, and we could only go into so much detail, they could be forgiven for thinking that senior people were dropping like flies and it was all a bit unfair. After all, for many staff there would be an view that once you’re into those levels then you’ve “made it” and are treated “-like royalty”. To then see someone from that club made redundant (and often leave on the same day that the redundancy is announced) it must have been particularly confronting. Thankfully redundancies at senior levels are done for now (as far as I’m aware), and I hope that we don’t have to deal with this issue again any time soon.

Another cliched redundancy picture. Why would you be taking a plant with you anyway? Sure, take the photos of your kids, even a bottle of scotch that a client gave you, but a plant?

Casualties at staff levels

Fortunately for us in this particular area, non-management people tend to have a much higher level of natural turnover (or “natural attrition”), and so when it was determined that we’ve just been over-resourcing for a number of years the solution didn’t need to involve redundancies. We just had to wait until people left anyway and then we wouldn’t replace them.

Now while I’ve been a critic of the historical over-resourcing approach that the firm has taken for probably the last 6-8 years, I was never exactly sure at what level we should actually resource. You see, we might have historically resourced at about 108% of our budgeted revenue, with the theory being that if more work came in then we’d always have the people to get it done. Unfortunately this was good in theory, but not so good in practice, as if the work didn’t come in, then you got all of the negative effects of people not having enough work to do and the contagion across a team. Some staff and managers would “hoard” work to protect their own numbers, and the people that needed more development (not because they were dud staff, but because they were inexperienced) just didn’t get the opportunities.

So I’ve always thought that too many staff was bad, but what was the good level of staff? 100%? 98%? Well, we’ve actually dipped below this, probably down around 90-95% in recent times, and so that means that we’ve probably shrunk our workforce by over 10% which has had a huge effect on the general feel of the place. People now have to work harder to get work done, and we’ve moved away from being a business that just grows and grows and grows. instead, we’ve moved back to being a business that is just consolidating in line with significant revenue pressure that the firm is exposed to at the moment as well, and gone are the days when we can wow clients with the significant growth in staff numbers every year.

What does it all mean?

Australia’s Hawke-Keating labour government of the early 1990s is famous for the “recession we had to have”. Maybe we had the “redundancies that we had to have”?

At the time of the redundancies I was fairly pissed off with the whole thing actually, as were my peers also, but looking back on it we can see why they needed to happen. And the reduction in staff numbers also makes sense as well, especially given that revenues are under significant pressure and we’re seeing fairly decent contraction in top line year on year.

All of this certainly does make you wonder where everything’s going, but a lot of the firm’s revenue really was unsustainable, with opportunities being over-milked for a long time and no one wanted to own up to it all. Now that there’s been a changing of the guard at partner level in recent years, I feel like we’re just having the “consolidation that we had to have” (that sounds like a Hawke-Keating government line doesn’t it?), which will really only stop once we’re back to a revenue base that’s actually more solid and sustainable.

I just hope that the “consolidation” doesn’t last too long as it would be good to get away from redundancies and start hiring again!

IA.

2 thoughts on “The firm is evolving and there have been some casualties

  1. Lots of good considerations IA. It does seem as though automation of processes does reduce the overall time-need of accountants, so there were going to reductions somewhere. Xero and others have a lot to answer for in this regard!

    Tristan

    • Thanks Tristan

      Yeah Xero does have a bit to answer for I guess, but I don’t blame them really. I probably blame the people that can’t /won’t adapt instead. After all, if you’re harvesting ice for a living and have just seen a demonstration of a refrigerator/freezer, then you had better find something else to do quickly rather than wait for someone to tell you to do it (or for them to make you redundant)!

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