Great Moderates In History?

Evolutionary biologists have proven that the more adapted (i.e., comfortable) you are in your existing environment, the less able you are to adapt to environmental changes. 



Struggle is good for us. Rigidity is what organizations manifest when they are faced with either superior competition or outdated business models.

This is the history of business. New ideas, inventions, and business models from the tinkerer in the garage change the world, while rendering obsolete the existing modes of production, infrastructure, and business models.

The automobile replaced the horse and buggy, the calculator replaced the slide rule, and the personal computer replaced the typewriter, iTunes replaced CDs, and so on in a never-ending "perennial gale of creative destruction," as described by economist Joseph Schumpeter.

Harvard professor Clayton Christensen writes:

"Generally, the leading practitioners of the old order become the victims of disruption, not the initiators of it."

Change and creativity always take us by surprise. If it didn't, we wouldn't need it, because we could simply plan on it and incorporate it into our existing strategies and processes. Nassim Nicholas Taleb makes this very point in his book, The Black Swan:

"We do not know what we will know. Invention and creativity is always a surprise. If we could prophesy the invention of the wheel, we'd already know what a wheel looks like, and thus we could invent it."

The professions, however, have been slow to adapt to the realities of an intellectual capital economy. Never before has this mentality been such a hindrance to success in today's rapidly changing, globalized marketplace.

Business Model Innovation

In a meeting with professor Clayton Christensen, former Intel CEO Andy Grove made the point "that disruptive threats came inherently not from new technology but from new business models." Perhaps this is why Grove titled his own book, Only the Paranoid Survive.

I am defining a business model as follows:

How your firm creates value for customers, and how you monetize that value.

Thinking about the history of innovation, creative destruction, and business models in the context of professional knowledge firms, in combination with the radical business model proposed by VeraSage--from "We sell time" to "We sell intellectual capital"--the diagram below provides an interesting look at where any firm can be at a given point in time. Since competitive advantages are built based on effectiveness, not efficiencies, I have chosen to highlight each as the axes of the diagram.

Luddites: Firms that resist technological advances and other innovations that are merely table stakes risk being Luddites. They have both low efficiency in doing things right, and low effectiveness at doing the right things--not a bright future.

Fortunately, not many firms are in this category. If you are here, you are dead already and the funeral is a mere detail.

Buggy Whips: Usually when an industry is at the apogee of its efficiency, it is at risk of being made obsolete by new technologies or business models. As Peter Drucker said, no amount of efficiency gains would have saved the buggy whip manufacturers from the automobile.

Innovators: As George Gilder wrote in Forbes, "Knowledge is about the past; entrepreneurship is about the future. If creativity was not unexpected, governments could plan it and socialism would work. But creativity is intrinsically surprising and the source of all real profit and growth." 



Innovators are firms that are willing to invest some of today's profits into tomorrow, while at the same time sacrificing efficiency for effectiveness.

Innovation, creativity, and excellent customer service are the antithesis of efficiency--ideas such as Google Time (where Google employees can spend 20% on innovation), experimenting with new ideas, investing in education, all reduce efficiency metrics.

But if firms do not make these essential investments they are simply coasting on their existing intellectual capital, and in today's economy, knowledge becomes obsolete more rapidly.

Humpty Dumpty: This is a precarious future. This represents firms that are highly efficient and effective. 



I am arguing if you are here, you better be sliding back to the Innovators position and start sacrificing some of that efficiency for innovation and making the firm more valuable to its customers over the course of their lifetimes.



Humpty Dumpty eventually falls and ends up like the industries mentioned under Buggy whips. Efficiency is not the answer. Effectiveness is.

Firm of the Future or Firm of the Past?

Embracing a new business model requires leadership and vision. It requires knowing you are doing the right things, not just doing things right.

It requires focusing the firm on the external value it creates for the customer and simultaneously building the type of firm people are proud to be a part of and contribute to--the sort of organization you would want your son or daughter to work for. 



It requires a sense of dignity and self-respect that you are worth every penny you charge, and you will only work with customers who have integrity, whom you enjoy, and respect. 



It requires an attitude of experimentation, not simply doing things because that is the way it has always been done. 



It requires less measurement, less fear, and more trust. It requires boldness and risk-taking--there has yet to be a book written titled Great Moderates in History.

As science fiction writer William Gibson quipped, "The future is here. It's just not widely distributed yet."
 


Skeptics will call for an incremental approach, which is how they maintain the status quo. 



But how will these optically challenged skeptics make incremental changes to an existing business model that is already dying? By making it incrementally less dead? 



The late economist John Kenneth Galbraith wrote, "All successful revolutions are the kicking in of a rotten door," not--I would add--merely oiling the hinges to make it swing more efficiently.

There is no limit to what we can achieve, as long as we do not lose faith in ourselves. It is the difference between remaining a firm of the past, or, like a chrysalis, emerging as a firm of the future.

The choice is yours.

 

(Excerpted from the book, Implementing Value Pricing: A Radical Business Model for Professional Firms, published by John Wiley & Sons, Inc., December 2010).

This blog

VeraSage Institute is the most revolutionary think tank for professional knowledge firms-we challenge the professions to break free of practice methods that hurt the professions, undermine their purposes, and fail their clients. Among our quests: burying the billable hour and archaic timesheets; pricing on purpose; recognizing that professionals are knowledge workers, not machines; and improving the professions for posterity.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.

48690

Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.

81971

Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.

53862

Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

97378
Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.
24571

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".

61246

William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.

87085

Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (www.ubcc.com), a software development firm of high-volume, high-productivity accounting and payroll technology.

28499

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

70012

Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

38217
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
110127
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.
29985

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

58229
Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
31999
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.
36625

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.

108982

The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.

37883

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.

120159

Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.

67395

Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

43680
Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.
71413

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors.

98379

AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish AccountingWEB.co.uk share their ideas, insights, and perspectives from across the pond.

58944