Tuesday, December 21, 2010

Howard’s Inner Circle, No. 25: 1+ 1 = …

I noticed a significant, surprising, and welcome change at the recent New York State Society of CPAs’ 2010 Practice Managing Conference. All four accounting firm managing partners freely shared on a panel and in roundtables at lunch their views on firm mergers and acquisitions. It wasn’t a discussion in the clouds as they didn’t play it close to the vest as many managing partners normally do. They openly shared providing extensive details on all aspects of the merger process including their individual firm’s merger philosophy, retirement funding, capital requirements, payouts, and method of integration.

Here is my take on their cumulative M&A wisdom:
1. A Real Due Diligence--Determining compatibility of cultures requires “dating.” It goes beyond financials, getting firm information, and meetings with the managing and other partners. It can involve walking around a firm unaccompanied and going with a prospecting partner to present a proposal to a possible client.
2. Use of Guarantees--To get needed buy-in and alleviate anxiety, incoming partners can be guaranteed in the first two years that they will earn at least what they previously earned. Some firms have a no-harm, no-foul one-year period that allows for a quiet unraveling of the merger or the departing of an unhappy incoming partner. This option is rarely exercised and included to provide comfort that the merger isn’t cast in stone.
3. Maintain a “No-Jerk” Zone--Closely evaluate incoming partners so a problem partner isn’t brought aboard. Interestingly, the other incoming partners are usually happy that individual is gone.
4. Pay Attention to Integration--Transition should begin quickly and be comprehensive. Benefits, culture, career development, and opportunities should be detailed. Training is instituted right away as well as meetings are conducted to provide quick and effective integration of practice areas and niches.
5. Belief in Increased Value--There is a significant distinction between an actual merger and an acquisition. Just calling something a merger doesn’t make it so. A real merger is based upon a substantial potential for increased value. 1 plus 1 equals at least 3. For example, it might be that growth is identified by the offering of more services to key clients of the firms. This is in contrast to an acquisition which is simply a retirement payout to retiring partners. The ultimate actual payouts with regard to mergers and acquisitions significantly reflect the differences.
6. Individualized Guidance--Professional coaching should be given to each partner so they fully understand and acclimate to the new firm.
7. Understanding Why--The reason for a firm merging in often involves succession issues such as retirement funding or an inability to grow. In contrast, the more dominant firm might need a niche, more staff, or expansion into a new geographic market. Both should understand why the merger is being sought by the other. A merger should always be part of a comprehensive strategic plan.
8. Better Usage of Staff--A merger allows a firm to reassign staff and place them in more suitable positions. Larger firms permit greater specialization whether it is a particular practice area like taxes or a niche like litigation support.
9. Greatest Difficulty--There are always problems incurred with a merger or acquisition. Even if everything is done right expect some. The most common one involves software, such as when the two firms were using different tax software. It can take a full one-year cycle to rectify.
10. Be Realistic--In a merger there is usually one dominant firm and that firm’s culture and processes and procedure will, with minor exceptions, normally control. It is rare to see a real merger of equals. The reason is for that to be successful there needs to be the creation of an entirely new culture with attendant new processes and procedures.

I walked away from the conference with the distinct impression that each of these managing partners represents a new type of firm leader. One who really understands that win-win is an integral part of their successful firm business model.
© 2010
The above may be reproduced in full if that fact is stated and Howard Wolosky at http://howardwolosky.blogspot.com is credited as the author.

Thursday, December 16, 2010

Howard’s Inner Circle, No. 24: Outsourcing as a Revenue Center

For many years, the local branch of a nationwide bookstore, upon request, gift wrapped the book that you purchased. There was a choice of at least five wrappings and a cute little bow was attached. This week when I purchased a book, rather than the cashier wrapping, it I was directed to two individuals in pink at the end of the counter. They were obviously affiliated with a foreign dance company. I knew this because there was a video playing by them. As one took the book to wrap the other began to talk to me and gave me a brochure with performance information for the dance company. Neither understood when I asked if they had wrapping paper other than holiday wrap. When I picked up the wrapped book I noticed much cheaper paper was now being used, the wrapping looked amateurish, and there was no cute little bow. As I left I wondered if outsourcing of the wrapping is a revenue generator for the store.

Outsourcing is increasing, often hidden, whether it is a mattress delivery by a leading mattress seller or service provided by the support staff of a technology company. At first cost cutting was the primary motivator for outsourcing, now that is coupled with a motivation for revenue generation. I am still getting calls from the technology company’s so-called support staff trying to sell me a product for my computer.

Increased efficiency and continued effective delivery of a quality product or service should be the primary objective when outsourcing is utilized. If the focus is too much on cost cutting and revenue generation quality may suffer. Is this bookstore ensuring a deterioration of a number of long-term customer relationships each time a book is wrapped?
© 2010
The above may be reproduced in full if that fact is stated and Howard Wolosky at http://howardwolosky.blogspot.com is credited as the author.

Thursday, December 9, 2010

Howard’s Inner Circle, No. 23: “Customer Crazy Glue”

I first saw it when I was with Practical Accountant. Tax research companies began purchasing tax prep software companies followed by the acquisition of those companies specializing in payroll software and CRM systems. The acquisitions allowed for suite offerings. The suite business model is based on the idea that it is more difficult for a somewhat unhappy customer to leave if they are getting more than one service or product from the company. The problems for suite customers are that quite often the new product isn’t best-of breed, the acquiring company has little prior in-depth understanding of the new product, and integration with existing products is slow and often poorly done.

This isn’t the only form of “customer crazy glue” that I detest. There are the customer loyalty programs in which you are urged to join, some of which have an annual fee. An example is those offered by airlines which rate passengers on miles flown to determine the different baseline of service they will give to a flyer. It reminds me a bit of the different passenger classes as portrayed on the Titanic in movies.

My least favorite “customer crazy glue” is the customer support offered by technology companies which are marketed so beautifully when you purchase the product. You soon find out this support is outsourced, that a charge is often incurred, and a good portion of the call, which takes numerous prompts and a long wait, is consumed with a pushy sales pitch for an additional product that you supposedly really need.

Perhaps I hate this “customer crazy glue” retention because I grew up working in my father’s store where a customer didn’t have any special ties encouraging them to come back. It was a time of “The customer is always right.” So when someone complained that a mop they purchased disintegrated on its first use we would replace it at no cost with a cotton mop and explain that disintegration probably occurred because they use used bleach and that wouldn’t happen with this, a cotton mop.

Customers aren’t always right but they also aren’t fools and they will become more aware of customer glue traps and how to avoid them. It will be interesting to watch the marketplace reaction to this.

© 2010
The above may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.