The Era of the Mediocre Hire Is Coming to an End As Firms Look to Slash Headcounts

For as long as this website has existed — 16 years next month, to be precise — and, frankly, going back many more decades before that, the public accounting model has functioned like an insatiable sausage grinder, demanding to be fed large quantities of fresh meat (accounting graduates) without caring too much about whether every bit of meat is superior in quality and taste. Unless we’re talking artisan sausages which we aren’t because we’re talking about public accounting.

Actually, it’s more like a hot dog factory. You can make some decent hot dogs out of meat scraps that would be horrifying to see on your plate by themselves. According to National Hot Dog & Sausage Council — surely a trustworthy source on hot dogs that couldn’t possibly have any bias — hot dogs consist of “specially selected meat trimmings of beef and/or pork” unless they are explicitly labeled as having “variety meats,” the example of variety meats being hearts according to them. OK but chicken hearts are kind of good ngl. Point being, hot dogs aren’t made of the premium stuff and it takes a lot of trimmings to make them.

Getting off track here. In the early years of public accounting hiring, it’s all about numbers. Sure, firms want to get their hands on high performers but given the nature of early grunt work they don’t necessarily need a bunch of them because at that point in one’s career it’s mainly about following directions and learning the ropes. Except now the grunt work is disappearing, handed off to automation and overseas staff who work for a third of the cost and half the complaining. We’ve been asking for a while now what will happen to new hires going forward, how they’re supposed to learn now that the tasks they used to learn on have been taken from their plates and I think we have our answer: It doesn’t matter.

Indiana CPA Society recently released a paper called “Transforming Your Firm’s Business Model: Workforce Transformation and Talent Management Strategies.” [PDF] You’d think it’s about culture or some such practice management buzzword and you’d sort of be right except the report calls out the drastic change underway at accounting firms in a way that tells us things are moving quickly. Let’s check out the executive summary:

Talent, technology, and other massive forces are affecting every professional services firm. The impact is upending business models and providing just as much opportunity as challenge. While no one has a crystal ball to predict the future of accounting, this research can help CPAs and accounting professionals make more informed and confident decisions about the future of their firms.

We surveyed hundreds of accounting professionals representing firms of all sizes from 31 states. From their responses and feedback, four key points stood out for firm leadership to consider.

1. Most respondents expect their firms to shrink in headcount by 20% or more in the next five years. How will accounting firms continue to see growth and profitability with smaller teams? This prediction alone seems to be enough to consider restructuring accounting firms now to prepare for the future.
2. This dramatic reduction, driven by technological advances and a talent crunch, will upend the pyramid practice structure that accounting firms have successfully leveraged for a century to sustain growth and profitability. An important driver to success in the future will be retaining the best performers within accounting firms. The pyramid practice structure was not designed for talent retention. In fact, it functions in an opposite way: filtering talent out. What other options are presenting themselves to firms that are willing to change?
3. To be successful in the future, accounting firms will need a new practice structure that accommodates and focuses on the “6 Ps” of Business Model Transformation: Precision hiring, Proactive retention, Practical technology implementation, Pricing expertise, Practice area expansion or focus, People acceleration
4. Other industries have success stories to tell. Companies in manufacturing, health care, technology, and other industries have all faced similar workforce challenges and have been able to reshape their professions. The key has been recruiting, retaining, reskilling, or upskilling parts of their staff as specialists through technology-based training and innovative and personalized professional development. These companies saw improvements in productivity, company growth, talent retention, employee engagement, client/customer satisfaction, and more.

They lose points for framing all of this through the lens of the profession’s self-induced talent shortage that firms and the thought leaders firms listen to are using as cover for salary stagnation, layoffs, and offshoring but we’ll give them a pass this time. A little further down the report says:

75% of accounting professionals believe their firms will need the same amount or more staff to meet client demand in the future. Simultaneously, more than half expect that their firms will be at least 20% smaller in the next five years. The math just doesn’t add up.

Doesn’t it though? Just make people work more. Hey I’m no mathlete, maybe that equation is beyond my underdeveloped left brain.

Let’s see this section and its accompanying Figure 2 to make the point I’m trying to make:

With an anticipated future focus on specialization, many of tomorrow’s staffing requirements shift from expansion to efficiency and specialty. In fact, 60% of our survey respondents anticipate reductions due to automation, with entry-level roles being most at risk (Figure 2). Accounting firms need to start looking at talent acquisition, talent retention, and workforce transformation in terms of “What kind of skills do we really need?” instead of “How many people do we need?” Firms expect to need more senior- to partner-level professionals, especially in tax and advisory. These staffing shift changes from traditional skills to specialized skills and from expansion to efficiency are why accounting firms need to rethink how they are structured.

OK but how do you get experienced professionals? No one pops out of college ready to do partner-level work. Up until recently, the above mentioned busy work trained the good meat for the upper levels and the “variety meats” went off to go be government hot dogs or something once they’d put their requisite couple years in public in. This analogy is falling apart, I really should let it go.

A Pennsylvania Institute of Certified Public Accountants (PICPA) report released in February had similar data, so much so that we skipped the overly verbose Oniony headline we’d usually use and went with RIP Associate Work when we wrote about it. A screenshot from that report:

And now? Have we formulated a plan for what the next few years will look like? Did we think offshoring all the way through and prepare an alternative training ground for young talent? Or is the profession just flying by the seat of its Dockers and hoping this will all work out?

Either firms are being uncharacteristically reckless or they just aren’t worried about it because they’ve figured out some plan to eliminate most associates altogether and still get the upper levels of the ladder staffed.

Before I go, here’s a related post from 2021 for no reason: PwC Manager Believes Associates and Senior Associates Are Going the Way of the Dodo Bird