Over 10 years ago, Paul Dunn and Ron Baker co-authored a book, "The Firm of the Future." The book focused on the nature work accountants should provide, the distinction between service workers and knowledge workers, and effectiveness as the key measurement for the professions.
We are now in the “future” – measured chronologically, based on the publication date of the book.
So, Joe Woodard interviews Paul Dunn in a “look back” approach and asks him the key question: “How has the accounting profession embraced, or failed to embrace, the key challenges presented by this iconic text.”
Due to the conversational nature of the discussion, the transcript has been edited for readability. For the full flavor of the conversation, listen to this episode of the Scaling New Heights Podcast at Woodard.com/Podcast.
Thank you for tuning in to this episode of the Scaling New Heights Podcast.
Full transcript of the episode follows:
Joe: Thank you for tuning in to this episode of the Scaling New Heights podcast. During this episode we will talk with Paul Dunn. Paul is a 4 time TedX speaker, a Senior Fellow of one of the world’s leading think tanks, and holds a Lifetime Achievement Award for Service to the Accounting Profession in the UK. He was honored as a Fellow of Singapore’s Social Innovation Forum in his new home of Singapore, something he shares with film star and philanthropist Jet Lee and Walmart chairman Rob Walton.
He was one of the first 10 people in HP in Australia, and he then created one of Australia's first computer companies. Paul then created the Results Corporation, where he helped develop and grow 23,000 small and medium size businesses. His first mark on the accounting profession came through the radical Accountants' Boot Camp. That enabled 17,000 accountants worldwide to work with their clients in new and innovative ways.
Paul Dunn continues to push the boundaries. He was recently featured in Forbes magazine, alongside Sir Richard Branson, in a global piece on disruptors in business. You might know him as the co-author of the book with Ron Baker, The Firm of the Future, which is widely regarded as a breakthrough book for professional firms, and one that has definitely made a huge impact on me personally in the way I coach accounting professionals across the country. He's the chairman of the revolutionary B1G1 Business for Good, a company that has already enabled businesses to create over 87 million giving impacts around the world. Now this is a very interesting fact, he clocks 1.2 million air miles every year, and he tells me his baggage does nearly 2 million miles.
Paul, welcome to the podcast.
Paul: My baggage made it safely as well.
Joe: It does make it eventually, I hear that!
Paul: Joe, it's awesome to be with you. Thank you for inviting me and for taking the time.
Joe: Well it's a real honor. I'm a big fan of the book, and it's the book that I want to talk about on our podcast episode today.
Joe: The book is titled The Firm of the Future, but it was written about a decade ago. Here we sit chronologically in the future, and I have this nagging suspicion that we have reached the future chronologically, but not quite reached the challenge you gave us about a decade ago. The book is so full of challenges. Folks, I recommend that you go get it, it's available on Kindle, Firm of the Future. Paul, there were very specific challenges that you made to us 10 years ago. I’d like you to address these issues and maybe give some advice for us today on how we can fully embrace them.
Paul: Sounds great.
Joe: The first comes with this obsession our profession has with efficiency. There is a model for profitability in an accounting firm that is based on people power x hourly rate x efficiency. We've been living by this model now for decades, some might argue for centuries. Why do you in the book say that an efficiency obsession, or an efficiency focus, is less than ideal?
Paul: It’s funny. When you mentioned the equation - the hairs on my skin stood up! That equation could have been designed a hundred years ago, because of the business model that existed back then.
We are now in a place where it's very different. Yet we still persist in using this really, really outdated, outmoded, nothing-to-do-with-the-future-at-all model that locks us into efficiency. The problem with that is it forces us to measure entirely the wrong thing, the thing that the client or the customer just is not interested in. We focus on it to our detriment. In the book, we kill that thought and say, "There should be a brand new model that firms have to come to embrace." In this time where technology is so pervasive, firms think, "Oh my goodness, I've embraced the cloud; therefore, I'm innovating."
No, you're not! We need to be very, very clear about it. No, you're not, because you're still stuck in this model focused on efficiency that Joe was talking about before. In The Firm of the Future, we said, "No, no, no. It's time to put that to bed.” It really is.
Joe: If it is time to put it to bed - meaning that the standard equation we based all of the economics of the professions on is people power x hourly rate x efficiency is economic success, if all those are firing well ... By the way, the obsession with efficiency comes because you can't do much about hourly rate. If you're billing by the hour, that's set by your market, right? You can only push it so far. You can't do much about the people power cost because there's a cost of living that's required, and you have to market your firm in terms of being an employer. Those are relatively fixed in place ...
Joe: You can move them slight degrees, but the only one where you can create massive movement is efficiency. The only way that you can increase margins in significant ways is to get highly innovative around efficiency. By the way, we’re not saying not to do that. But what you're saying Paul is that is not the ideal. If efficiency isn't the measurement, what is?
Paul: Effectiveness is the measurement that we need to be concerned with, not efficiency. We need to understand that the old model works in all sorts of cases. It works if you consider yourself to be a service worker.
The problem with that is that's not actually what you ought to be. That's not what your clients are screaming for you to be. What your clients are really saying, and what we need to embrace, is the whole concept that you're a knowledge worker. When you embrace that, then you suddenly realize that that particular equation has to be replaced.
Joe, you said it beautifully. If you are using the old model, then you're going to be focused on that whole efficiency thing, because it's the only thing you can move. If you change what the equation is, then all of a sudden you get different levers that you can start to pull.
Joe: All right, Paul. Since efficiency is not the component of the correct equation, and effectiveness is, - I'm just going to pull the equation you gave us right out of the book, profitability = intellectual capital x price x effectiveness. In the book, you say this equation creates an obsession with intellectual capital, an obsession with knowledge. I want you to delineate between price and hourly billing in just a minute, but can you drill down a little bit on why an equation based on effectiveness would create an obsession with knowledge?
Paul: Oh, because all of a sudden knowledge is what you're getting paid for. You're getting paid an entirely different way, you're getting paid for advising. You're not getting paid for reporting on history, you're getting paid for creating history.
You know Joe, I'm not sure that we really mentioned it in the book, but the more I get into this, the more I see it, the more I understand the role of the accountant. I don't think there is any profession better than the accounting profession that does this, and we need to understand that. Accountants change lives, that's what actually happens, that's what accountants do.
They do that, not because they spend time on things, but because they have certain knowledge and when they bring that in a particular way to their clients, it just changes everything. We need to understand that as a profession, unless and until we seriously understand that what we do is change lives, we're going to be locked in the past as far as I'm concerned, driven by that old equation. What the new equation does - and yes, it's a beautiful equation - is paint an entirely different picture of the value that accountants bring.
Joe: I agree, because it's focused not on me, it's focused on the client.
You guys make this really, really cool point - and I can't remember if it's in the book or something I heard Ron Baker say in a presentation once - that the client is actually the product. The service we provide isn't. When you are a knowledge worker, I like the way you phrase that, when you're a knowledge worker, it means that you aren't delivering knowledge, you're leveraging knowledge in order to transform a client. There's a thought leader here in the US who works with a lot of the larger firms named Gary Boomer ...
Paul: Oh, Gary.
Joe: I'm sure you know Gary very well. Gary's come to ... Everybody's trying to come up with a very effective way to describe trusted advisor, and he's calling them “transformation agents”. I think it really hits the point. And what I'm hearing you say Paul is, if we're going to be transformation agents, we can't do it unless we have the right kind of knowledge that we are leveraging on behalf of the client in a way that is effective.
Paul: Exactly correct. Exactly, exactly correct. I wasn't aware that Gary is using that term. It's awesome that he is, because it really nails it, and it gives you a totally different relationship with the client.
Joe, I know that you have this interesting distinction around service workers. The guy who comes to fix your broken TV or your broken refrigerator isn't going to transform a life, he's going to keep it the same as it is, and you're going to be concerned with efficiency and not effectiveness. There's another way of thinking about that when you move into the knowledge phase where people are going to give you brand new things, which are going to help you do brand new things in brand new ways. Not just transform the firm - that's very important - but actually transform the clients. We really need to understand this; we transform the economies of which we're a part. It is a huge thing to understand that accountants do that.
Joe: You brought up the TV repair person, and it's very easy for us to distinguish between that person who we might call blue collar or a field service worker. We definitely wouldn't consider that a member of the professions, right? But then there are the people who fix more complex machinery - architects, engineers, or if you want to consider our bodies a form of a machine, doctors – and all of a sudden the level of the complexity of the machines that they fix thrusts them into the profession. But this was a myth that basically you and Ron taught me. This is what you guys said, “Just because my machine I repair is more complex, doesn't ... It may mean that I'm in the professions, but it doesn't mean I'm a knowledge worker.”
Joe: It means a surgeon is a service worker.
Joe: Give me an example then of how a knowledge worker operates. If a service worker is the tax return preparer, the auditor, the bookkeeper, then what's the role of the knowledge worker?
Paul: The knowledge worker begins in a totally different place. They begin by trying to find out where things are at, and trying to find out where you want to be. This is how knowledge workers essentially capture the value; they understand that the value has everything to do with the extent to which they move the client forward. That's the value to the client.
Some aspects of financial work, if you like, have really understood that for decades. The problem is that accountants haven't, because we've been locked ... Actually, talking with you now makes me see it even clearer. The moment you're locked into the equation, that old equation locks you into being a service worker. It absolutely locks you there. That's not where the client wants you to be. They want you to be doing very, very different things.
If we use Gary's term, transformational agent, that's where you need to go. The only way you can do that is by conducting the work that you do in a totally different way and finding out where the client is and finding out where the client wants to be.
Here's another way of thinking about it, finding out the impact of what it is you're doing. Because when you quantify that impact, then what you're really getting a hold of is the value in a totally different way. When you quantify that impact, you will discover something very interesting - that the impact that you bring has nothing whatever to do with the time that it took you to get that impact. It's an irrelevance to measure it any other way.
That then leads us into this whole concept then of if that's true, and if price is an important component here now, then that means that we really seriously have to start to price in a totally different way. The good news is, that the profession has understood that billing in arrears is a crazy, crazy way to do things.
You're seeing lots of websites these days where people say, "Oh, there's 3 ways to buy our services." Everyone's got the bronze, silver, platinum. They think, "Oh, look at that. We're really innovating." No, no, no. You’re not doing that at all, because fixed price, whilst it does solve some issues, still does not solve the major issue. That's just being like a refrigerator technician who's figured out normally it costs me X dollars, and so I'm not going to measure time, I'm just going to say on average it's going to be Y dollars to fix this thing. That's not moving in the right way.
Now, there's some interesting numbers from the United Kingdom right now where something like 60 odd percent of the profession are moving to that so called fixed price thing. The problem is, they're thinking that they're innovating by doing that, and they're not. Only about 10%, according to the UK numbers, are moving to a true understanding of value pricing.
When you move to that true understanding of it, and a true understanding of your position, when you understand that you change lives ... I mean Joe, if you really got that you as an accountant change lives, how on earth could you charge for that in 6 minute units? I mean, come on. Even MasterCard is smart enough to say that's priceless. It really is, and it's priceless because we're delivering it in a brand new way.
Joe: What I'm hearing you say, Paul, is the hourly model - and I think a lot of people have heard arguments as to why that's broken on so many levels, philosophical, practical, and I couldn't agree more - if I'm hearing you correctly, you're saying we have to be careful of fixed fee and then calling it value pricing, because fixed fee is really just a way of averaging out and amortizing an hourly bill rate.
That quite frankly may be more sell-able, but it just puts risk on the firm in a costless model where we might have fluid cost, but controlled revenues.
Joe: So, you're saying with value pricing, you create an effective result. In the book you guys call it an increase of wealth.
Paul: That’s what we call it, yes.
Joe: Absolutely. You create an increase of wealth, and then you price how against that wealth? I mean, what's the way it works, how does it work?
Paul: The judgement of value is always with the client in some way, right? It's an entirely different discussion where you are quantifying that impact, you're quantifying it and then you're saying this is what the fee should be for bringing that. It has nothing whatever to do with the time in which you created it. It has to do with the knowledge and the insights and everything else that you were able to bring to create that kind of output, that kind of wealth for the client. Obviously, when you do that, there's a couple of interesting things. One, the more value you create, then the more the price can be. You see there's also a downside. Once you get that you're not creating value, then what are you going to do for that? The answer is you're not going to charge for it, at all. Not too many people talk about that, but there's that interesting paradox.
It's not just about, “When I adopt this particular model, I actually can charge more.” In one sense, that's an attractive proposition. There's another sense in which we can live better, if you like, and we can sleep better. That is to understand this whole thing … The way I describe it Joe, and Simon Sinek and others talk about it as well, is about being on purpose. Where we talk about truly understanding why it is that we get out of bed every morning. One way of saying that is, "I get out of bed to create value for the people that I serve."
Once you understand this whole thing about being on purpose, and understanding why it is that you do things - specifically, you get up every morning to create value for the clients you select to work with - the moment that you do that, you'll start to measure new things, you'll start to free up your time in interesting ways, and you'll have a much more purposeful firm. A firm that now instead of measuring time is actually measuring something quite different.
Another way of thinking about that is you're measuring the value that you create. Just by doing that, you're adding something very important into your accounting firm. What you're adding in - and we didn't really mention this in the book in quite the depth that I think we need to mention it now in these times - what you're adding in is meaning and you're adding in purpose to what you do.
The moment you start to add in meaning and purpose, then what's interesting, you will attract ... One of the ongoing discussions is, "Oh my goodness, how do you attract new talent?" Well, I can tell you how you don't. You don't attract new talent by saying, "By the way, we're going to measure every 6 minutes of your time." We're not going to do that.
Joe: And then sell that 6 minutes. I mean, that's the other part of it then, not just measure it and put you in that prison, but sell it.
Joe: Yeah, we're going to sell that actual six minutes you work, not what you did, not how it impacted the client, not what the value was, not if it accomplished anything, just that you had the clock running for six minutes and were focused on the client somehow mentally, or with your fingers.
Paul: That’s right.
Joe: It almost sounds ... If it wasn't so prevalent, so common to us all, and so common to our experience, it would almost sound comical, right? We've just taken it for granted.
Paul, what I'm hearing you say is, pricing is not objective, pricing is subjective. If I asked you for magic formula, right? I'm going to go out, I'm going to increase value for my client, tell me how to price it, and you start talking about perception, life change, purpose, that wasn't by accident. You're telling me there is no formula ...
Joe: It's life impact, and an agreement that you make with the client over what that life impact, the value that they receive. I was just in Austin last week with a consultant who's interestingly not from Austin, he came for one of our boot camps, and he said he made a small change that would normally be considered just a technical improvement in the way that they use QuickBooks for his client, but because of the change that he made, not only can the business measure themselves better, but the spouse who was having to do all of these convoluted tasks, doesn't have to do them anymore, and she was able to get her life back. She had to come and sort of come alongside and work in the company, and she wanted to be 100% focused on her family and her children, and he freed the wife up to do that. In his example, he was not being melodramatic in any way, he said, "I believe I saved their marriage."
Paul: Oh, oh, of course. I'm glad you mentioned it, we just saved your marriage. By the way, it only took us 6 minutes to do that, so ...
Joe: Exactly, not quite 6 minutes, but the moral of the story is, it took him about 6 hours.
Paul: Yeah, I know.
Joe: Right. First, clients aren't buying hours, and second, if we're selling them, we're almost always selling ourselves short.
Paul: Oh, without a doubt. You know Joe? It's very interesting. And by the way, I do want to thank you for this conversation, because it's an important conversation, and just by having it I'm getting additional clarity around the value that accountants bring.
Joe, you're one of the people in the world to think about the impact of technology. What actually happens is again, we embrace the technology, and we think, "Wow, that's really cool." But unless and until we embrace something else, which is what you've been talking about, then we're not really playing the kind of game that we can be playing and that we should be playing, and in my view, that no other profession like this can actually play.
Joe: Very well put, Paul. Very well put.
To summarize what we've talked about here today, we talked about the obsession of the profession with efficiency. Paul, you've told us that that's not a bad goal, but what they need to be laser focused on - the end goal, the ultimate goal, and if they're going to be obsessed about anything it should be - effectiveness. Then, we talked about how in the book, that effectiveness' truest measure is increased wealth for the client.
Then, the example I gave, that wealth could be non-monetary - that was an increase in wealth, that their marriage was saved, and that their domestic life was stabilized, and that the company can measure itself better.
Then, we distinguished between the service workers and the knowledge workers, and we talked about how the complexity of a service worker's role could thrust them from blue collar to profession, but it doesn't make them a knowledge worker just because it's complex. That a knowledge worker leverages intellectual capital to the transformation of its object. Just kind of rephrasing what you said there Paul.
Paul: Yeah, yeah, you got it.
Joe: Absolutely. Then that just all drove us into value price, because if we're going to be agents of small business transformation, or agents of business transformation as Gary Boomer would say, we've got to figure out how to price that crazy thing. This is where you didn't give us a warm spot to land, because there isn't one. I wanted a formula out of you, and you couldn't give me a formula. There's just no formula, you've got to figure it out with the client, but what an awesome adventure you've just challenged us to go down on that subjective pricing. Thank you for that Paul.
It's been great having you on the podcast. I just absolutely love your book. Thank you so much for writing it. I know that you're thinking 10 years ago, "Wow, this is sort of something in my past," but I want you to know that in my life and also in the lives of so many accounting professionals here in the U.S. it's very present for us. Thank you for putting pen to paper.
Paul: Oh well thank you, and I like that thought Joe, that it's very present, and what I understand is that there's more that we have to do on it, because there's so much opportunity that there is in firms right now to do amazing things.
Just as a final observation on that whole transforming businesses, what that actually does is transform lives. Simon Sinek said to me recently, he said, "Paul, you need to understand that all purpose is human." When we focus on those individuals in front of us, and look at the lives that we can change, and we can change them in an effective way by moving to these new models. By God, what a privilege it is to be able to serve in this profession.
Joe: Very well put Paul. The book for everybody is The Firm of the Future, it's by Ron Baker and Paul Dunn. You can get it anywhere that you can buy an eBook, you can get it on Amazon.com, just Google for it. Get it, read it, and begin to apply it. The challenge from Paul, fresh to us today, is be knowledge workers, be agents of small business transformation, price accordingly, and as Paul just so eloquently put, change lives, not just businesses, because every business is run by a living, breathing human being whose life you can impact.
Thank you so much for tuning in to today's podcast and our conversation with Paul Dunn. For more information about today's episode, to explore other episodes in this podcast series, or to learn more about our annual conference visit Woodard.com. As always, we encourage you to stay tuned, stay connected, never stop learning, and scale new heights.