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Ron Baker - 06/29/2008
I don’t know Michael J. Daillak, CPA, from Bakersfied, California, but he recently wrote a letter to the editor of Accounting Today (June 16-July 6, 2008) that I found quite interesting, especially in light of my previous posting of Tim Williams’ article on the death of the advertising agency.
Essentially, Michael is arguing for audit-only firms, otherwise the CPA profession could slip into irrelevance (a condition I would argue, along with others—such as Thomas Stewart, Editor of Harvard Business Review—has already happened). He states the case for the CPA profession having a monopoly on audits:
The given for this profession is that the only thing—I repeat, the only thing—that a CPA can do that no one else can do is perform and report on an independent certified financial audit.
This is our raison d’être, our reason to be!
From there he leaps to this conclusion:
Audit fees should be sufficient to pay CPAs who choose to be so employed an attractive, competitive professional income to do the only thing that they can do that no one else can do. The future of the world’s financial system may be at stake.
This is hyperbole at its finest. I have a thought experiment: which would be noticed by society first—1) if garbage men went on strike; or 2) if CPAs stopped doing audits?
To believe that the world’s financial system would grind to a halt unless auditors continue to publish historical financial data is beyond belief for anyone who understands economics. Using audits to run a company—let alone a financial system—is like timing your cookies with your smoke detector. Audits are lagging indicators, and they can only explain about 15% of a company’s market capitalization. Coca-Cola’s brand is worth some $65B dollars, but you’ll look in vain to find it on its GAAP-based audited financial statements, which is why Thomas Stewart of Harvard Business Review refers to the traditional financial statements as the three blind mice.
But what’s worse is that Michael actually believes that auditors having a monopoly in auditing is a good thing. Economists don’t like monopolies; we prefer competition. Why not remove the attest monopoly from auditors and open them up to competition from banks, insurance companies, etc. The market would innovate new and better financial models, audit insurance, and a host of other innovations we can’t even fathom since we are constricted by a one-size-fits-all government granted monopoly.
I wrote an article on this very issue years ago.
But it’s really the second comment that disturbs me the most. It appears that Michael believes simply because some people choose to be CPAs who perform audits they should be guaranteed a living wage. That’s not how capitalism works, but it is how the former Soviet Union operated, as well as Cuba, and North Korea today.
We could have government mandate oil companies drill using corkscrews and create all sorts of employment, but it wouldn’t be very effective, nor would it create any wealth.
If auditors can’t make a decent living providing a government backed monopoly service it’s a testament that they aren’t adding much value. Innovation and competition are the answer, not a further mandate for audit-only firms.
Ignorance in economics is one of our most expensive commodities in this world, as this letter attests.
Ron Baker - 06/29/2008
VeraSage senior fellow Tim Williams, founder of Ignition, a consultancy devoted to helping marketing organizations create and capture more value, recently wrote an excellent article. I’ve had the great good fortune of working with Tim now for several years. He is constantly innovating and challenging agencies (and me!) to be better than even they themselves think is possible. It would be hard to find a deeper and better thinker than Tim in the advertising world.
He graciously gave me permission to publish his article, which I believe can be applied just as easily to law, accounting and technology firms. There’s nothing sacred about a profession, folks. They can die, especially if they are not constantly innovating and adding value. Take Tim’s following thought experiment to heart:
Account planners have an innovative research technique they call “The Obituary.” In individual interviews or small groups, planners ask consumers, “Let’s say this brand just died. Write an obituary for the brand. What did it die of? Who will miss it? Who will come to the funeral?”
Respondents are asked to put the brand’s obituary in writing. Out of these responses come some fascinating insights about how consumers really feel about brands.
In seminars we teach around the country, we sometimes engage advertising professionals in an obituary exercise for something that’s near and dear to their hearts: the advertising agency. What do agency executives say when asked to write an obituary for the agency?
- “Here lies the advertising agency. It struggled for years to remain relevant in the face of changing consumers, media habits and fierce competition. It was too big and too slow to be nimble, and reluctant to walk away from its heritage of thirty second spots. It died stubborn and alone.”
- “The advertising agency passed of a narrow mind. It died from a lack of understanding that there is no such thing as “new media”. There is just media, and it is everything and everywhere—countless opportunities to create a connection with consumers beyond that which people used to call “advertising”
- “The advertising agency, previously known for creativity, innovation and understanding consumer behavior finally died today. This was a long, slow death, prolonged by bad habits such as always taking orders from clients rather than solving problems; becoming production houses rather than developing ideas; and going after any and all new business rather than deciding who we are and what we want to be.”
These responses came mostly from young professionals in their 20’s and early 30’s. It’s telling that even this age group believes our industry is headed for extinction if we don’t change our ways.
To breathe new life into our business, we need to focus our attention on key questions like these:
- What is the real value we should be delivering to clients? What do clients really pay us for?
- How can we address client perceptions that the traditional account executive role has lost its value?
- How can we break down the traditional department silos and get all functions engaged in developing media-neutral, cross-channel solutions?
- How can we better adapt to the changing nature of client relationships (shorter engagements, rapid client turnover, etc.).
- What capabilities do we need to effectively make the transition from mass communications to one-to-one communications?
- How can we retool the production function to be more versatile and creative?
- How can we demonstrate the accountability today’s clients want from their agency relationship?
The advertising agency as we know it is changing in revolutionary—not evolutionary—ways. Remember, you can’t cross a chasm with incremental steps.
Ron Baker - 06/29/2008
Thank you to friend of VeraSage and fellow CPA Brenda Richter for sending us her recent blog post on a country music video with a poignant message.
Since we here at VeraSage discuss business issues, especially pricing, and pricing is the best way to increase a firm’s profits, it may appear sometimes that that’s all we care about. That disturbs me, because we care far more about quality of life and bettering the professions for posterity.
But that message gets lost in the nitty-gritty of dealing with the issues we deal with on a daily basis.
My colleague Tim Williams and I recently presented to an advertising agency. At the end of the day, we played this music video by Jamey Johnson, entitled “The Dollar.” I’m no fan of country music, since mostly it seems to deal with your woman leaving, you still blowing up, barn burning down, etc. But this song is different. This one strikes at the heart and soul.
After the song finished, there was silence in the audience. Then someone blurted out, “That was a low blow.”
A low blow indeed—against the labor theory of value. This is why there is nobility in pricing on purpose, in getting paid what you are worth.
Wealth, and pricing, is not a zero-sum game, like poker. No one has to lose in order for someone else to win. Both sides win. I wish more people understood that, as I wish we’d do a better job explaining why VeraSage is so insistent on burying an obsolete pricing policy.
Watch the video to find out what it’s all about.
Ron Baker - 06/29/2008
Hat tip to Reed Holden’s newsletter for calling my attention to the $200 hamburger—from Burger King! There are lots of articles on this, but a good one is from the Ultimate Foodie blog.
I love what he writes:
I was blown away...my thoughts are conflicted. On one hand, I am thinking to myself:
“What kind of rich a%&hole can afford to drop $200 on a burger of all things...you could feed 4 families in Africa on that for 4 months.”
Then, on the other hand I was thinking:
“How in the heck can I round up a flight to London and $200...I have to try one.”
How many times has this blog pointed out that high prices tempt? Even if Burger King never sold one, look at the publicity they are getting. Of course, they are selling them, but only in London, and surprisingly well some of the articles report.
Stanley Marcus of Neiman-Marcus fame used to carry a lot of different $50 Christmas gifts in the stores, reasoning that some of the magic of the famous Neiman-Marcus Christmas Catalog would rub off on those gifts. Victoria’s Secret does this when it showcases a $12,000 bra. Even if no one buys it, it places a halo around its other offerings. In other words, not only smart pricing, smart marketing.
What is your firm’s version of the $200 hamburger?
(By the way, Burger King is donating all the proceeds to a London youth charity).
Ed Kless - 06/26/2008
I am not sure how I ended up at this site today, but I did.
It is pathetic. If there was ever any doubt that a professional knowledge firm is based purely on intellectual capital, this proves it.
This is what remains of Andersen.
Ed Kless - 06/25/2008
Friend of VeraSage, Steve Orleow, sent me a link to a three-part series featuring Maestro Itay Talgam. Over the course of 90 minutes, the famous conductor compares and contrasts several other conductor’s management styles. It is quite interesting to listen to Talgam’s insights as well as those of the participants in this session. Presumably, they are not music experts, so it is most interesting to see that even an “untrained” ear can pick up on what is going on from a leadership standpoint.
Here are the notes that I made while watching. They are not meant as complete thoughts, but only to assist my thinking. Notice how they can all be applied to leadership at a professional knowledge firm.
- What makes harmony possible? Harmony can only be two people but still requires lots of effort.
- Before a concert, each individual must prepare alone and then, in a split second, when the conductor indicates go from chaos to organization. A naive conductor might think it is because of them.
- The audience makes the performance.
- Interpretation is one role of the conductor. A piece that is frequently played is often harder to interpret then one that is infrequently played.
- One conductor called the orchestra 110 minds not instruments. Only one person sees the light or is he the central enabler. A musician said, “we want someone to consolidate our individual thinking.”
- Orchestra without conductor. “Without a conductor there is no one to blame.” Rotational leadership systems.
- Burnout among players is very common.
- Moody (1st Conductor) conducts so there are no mistakes but there are “wrong mistakes” which lead to creativity. To him the podium is an island of solitude.
- Without order, nothing can exist; without chaos, nothing can grow.
- For Kliber (sic, another conductor), the music came through him rather than from him. He creates such strong forces that he holds the orchestra together. However, when the soloist plays, he clearly relinquishes control.
- Strauss (conductor) - please no interpretation, just play by the book. “Never look at the trombones, it only encourages them.” Worst thing I can do is give a strong downbeat. He gives them responsibility but no authority.
N.B. I apologize if I have misspelled any names above.
Ed Kless - 06/23/2008
Ron has been blogging a lot about ROWE (Results Only Work Environment) lately and with good reason. It is an idea whose time has come. In fairness, I thought I would present the anti-ROWE or, at least, one element of it.
If you need this product, creepily named Spector 360, let me give you some advice — save your money ($2k) and just go out of business! If anyone can make a rational case for using this kind of software in a professional knowledge worker (or really any) environment, please attempt to educate me in the comments below.
Ed Kless - 06/23/2008
As a think tank that believes in the importance of words, we could not let the passing of George Carlin go unmentioned. When it comes to words he was the master.
Here is the introduction to his famous routine on The Seven Words You Can Never Say On TV:
I love words. I thank you for hearing my words.
I want to tell you something about words that I think is important.
They’re my work, they’re my play, they’re my passion.
Words are all we have, really. We have thoughts but thoughts are fluid.
then we assign a word to a thought and we’re stuck with that word for that thought, so be careful with words.
I like to think that the same words that hurt can heal, it is a matter of how you pick them.
There are some people that are not into all the words.
There are some that would have you not use certain words.
There are 400,000 words in the English language and there are seven of them you can’t say on television.
What a ratio that is. 399,993 to seven. They must really be bad.
They’d have to be outrageous to be seperated from a group that large.
All of you over here, you seven, bad Words. That’s what they told us they were, remember?
“That’s a bad word!” No bad words, bad thoughts, bad intentions, and words.
You know the seven, don’t you, that you can’t say on television?
For those of you ok with hearing them, can click here to watch and listen to his 1978 follow-up to the original.
Ed Kless - 06/15/2008
I do not feel your pain. In fact, I do not want to feel your pain. What is more, I think feeling your pain is actually a psychological problem.
Before you start thinking, here goes Kless off the deep end again, let me explain.
Despite the fact that the two words are used interchangeably, empathy and sympathy do not mean the same thing. Empathy means to experience the outlook or emotions of another being within oneself. Sympathy means to understand the outlook or emotions of another being. There is a big difference.
Great leaders (and consultants) exhibit sympathy, not empathy. Empathy implies that the leader would share in the anxiety of the follower. This would hamper the ability of the leader to lead and therefore not be in alignment with great leadership.
Edwin Friedman in his masterpiece, A Failure of Nerve, says of empathy, “...It has become a power tool in the hands of the weak to sabotage the strong. It serves as a rationalization for the inability of those in helping positions to develop self-control and not enable or interfere. The focus on empathy rather than responsibility lessens the potential for survival of both leaders and followers.”
Leaders need to be self-differentiated. They need to exhibit a strong sense of self. They need to be autonomous, independent, individualistic, and, yes, sympathetic. They need to understand the feelings of their followers, but not to experience them.
Me, sympathetic? Hell YES!
Ron Baker - 06/15/2008
I recently sent out a letter to some of the VeraSage fellows that read:
I’m not going to give you any background about this, such as where I learned it, or in what context.
I just ask that you read the entire article, and watch each video from the Washington Post.
The article is a bit long, but very well-written, and incredibly enlightening, giving each of the videos context.
What lessons do you take away from this?
This has generated some very interesting discussions internally.
I’d love to hear from everyone else what they make of this?
Ed Kless - 06/14/2008
Sometimes distorting the truth is a good thing.
I just got back from a speech at the California Accounting and Business Conference. I was asked by the public relations department to deliver a speech since Sage as a sponsor gets a free speaking slot. The title given my talk was Client Accounting Systems. The subtitle was What CPAs need to know to help their clients in 2008.
Rather than give a technology speech on the title, I decided to focus on the subtitle. The talk was a combination of the dangers of solutionism, Blockian consulting theory, and Khalsarian questioning techniques. All duly cited as having influenced me.
The material, while great, is not important. My point here is that had I entitled the session The Dangers of Solutionism or Asking Great Questions to Help Your Customers Understand Value, I doubt that a) the organizers of the conference would have let me give the speech, and b) even if they did, no one would have come.
I had about 100 people who all initially sat in their chairs as if they were in Old Sparky. Most were reading a book or doing email on their crackberries. It was the classic, “I am here for the CPE crowd.” Within seconds, I got their attention, “Do you mind if I don’t use PowerPoint?” Head snaps from the people reading.
Overall, we had a great session, le de coup de grace was at the end when a fine gentleman who sat in the front row came up to me afterwards and said, “Sonny, I am in my seventies and I have never been to a better presentation.” HSD!
By the way, there is no free beer.
Ron Baker - 06/08/2008
Webmaster - 06/02/2008
We are pleased to post the first official podcast from the VeraSage Institute. Please note that it takes a few minutes to download.
In this podcast, which runs a little over 12 minutes, Ron Baker and Ed Kless conduct a dialogue about the basics of Pricing on Purpose (aka Value Pricing). It is our hope that this will be the first of many, but we need your help. Please give this a listen and provide us with any feedback via either comments to this post or email.
Once we have three podcasts released, we plan to submit them to iTunes so that you will be able to manage them more easily.
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