Medium-sized firms silent over 2005 report

Medium-sized firms silent over 2005 report

Most medium-sized firms have reacted to last week’s English ICA 2005 report on the future of the profession with a stony silence. Few firms admit to having received the document, and of those which did, none could offer anyone suitably optimistic to talk about it.

Their silence is not so strange when you consider medium-sized firms were picked out by the institute’s working party as particularly vulnerable to competitive pressures, both from above and below.

The advice to small firms in the working party’s report, Added-Value Professionals: Chartered Accountants in 2005, was clear: specialise in personal financial services, strategic business advice and other niche areas. To the Big Six, the working party said external alliances and multi-disciplinary partnerships would see them through. But to medium-sized firms, all the working party could say was, ‘(they) will need strong management and a clear sense of strategic direction. The most successful will seek to differentiate themselves by focusing on their strengths rather than trying to copy the Big Six.’

It shows that the working party has an understandably hazy view of medium-sized firms. Firms with 20 or more partners usually attempt to cover all the areas of accountancy, as the Big Six do, and at the same time mainly deal with clients outside the top 200 listed companies, like their smaller rivals. So they must compete with the Big Six in areas where a good product will win the business, and with small firms who have small overheads where the issue will be price alone.

Grant Thornton, for instance, is developing a computerised audit system which, it hopes, all firms in the Grant Thornton international network will exploit. It also has a full-time national training centre that takes a continual stream of its staff. These commitments which could be said to mimic those of the Big Six, are huge burdens on the firm’s finances.

Grant Thornton’s training centre costs for 1.5% of turnover by itself.

But what other choices does a firm have?

According to Adrian Martin, managing partner of BDO Stoy Hayward, ‘The market is very competitive, but we don’t feel that we are in any way disadvantaged by size. In the area of audit software, the BDO worldwide network has given us the international structures to feel the benefits of economies of scale. On the other hand the Big Six spent fortunes by rushing into Lotus Notes when it was very expensive. Now the software is much cheaper.

It’s available to even the smallest practice.’

IT spending is still a huge headache. As soon as one problem is solved, another appears. The need to maintain international networks is another pressure which few medium-sized firms find easy to handle. They all have one, but few have the time or resources to maintain them at the level needed to compete with Arthur Andersen and KPMG. Robson Rhodes has struggled to give any prominence to its RSM international network. It provides strong links with countries such as France and Spain, but doesn’t make the grade as a global network.

Robson Rhodes’ managing partner Hugh Aldous has been ruthless, however, in setting a renewed agenda for the firm in the UK. It has specialised in particular industry sectors and spent time finding ways to boost its audit practice. Over the last few years it has been one of the few medium-sized firms to report significant gains in audit revenues.

Part of that exercise has been a clearout of staff older than 50, Aldous revealed. The institute’s report predicts there will be a massive surplus of grey-haired accountants in 2005. BDO also saw this trend developing and ditched most of its oldies. But the firm is in the minority, says the report.

If the firms get it wrong and let ageing partners dictate how they grow over the next ten years, they could ossify. Equally, if young guns spend millions on competing with the Big Six without identifying specialist areas of interest, they could find themselves over-extended.

The report claims that consolidation and merger is the likely result if the hazy picture of medium-sized firms is to become more focused. Certainly there have been many over the last couple of years. But even if tie-ups are on the agenda, the firms aren’t letting on.

Baker Tilly partner Teresa Graham has been named as chairman of the English ICA’s Workplace 2000 initiative. Graham succeeds sole practitioner Susan Gompels, who has held the position since its inception in 1993.

Workplace 2000 was set up by the institute to provide women members with information and advice on workplace issues.

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