An interesting phenomenon is happening because of digital transformation. As enterprises collapse their technology and functional stacks through digital, it disrupts their talent model and leads to a new organizational risk. At the same time, it’s starting to drive a new market for service providers. Let’s take a closer look at this developing trend where it’s currently most evident – in the Finance and Accounting (F&A) processes in small and mid-sized enterprises.
In collapsing the technology stack, companies move from running financial management software on their servers with a license update to cloud-based SaaS systems (such as Intacct or NetSuite) that provide the software and a more flexible set of reporting functions. The standardization and functionality benefits are great.
But it becomes necessary to retrain the accounting team, whose skills are for the legacy Great Plains packages or the SMB’s proprietary accounting system. Many of these people either don’t want to or can’t change to a newer environment. And there is a big learning curve for the new software packages.
Moreover, small and mid-sized enterprises often are complicated in that they have multiple divisions or multiple companies under a holding company. So, this retraining problem is replicated several times.
The challenge – and risk – comes once the accounting team is retrained. Legacy software skills were not in high demand and the accounting team previously had very little mobility. But once they gain skills for Intacct, NetSuite or other cloud-based financial software, they are in high demand and enterprises can’t keep accountants in the new environment. Often, they also have cross-functional capabilities.
The new digital technologies create a new risk for SMBs. The former risk was ending up stranded with legacy systems and difficulty to find qualified people to run those systems. But it had the benefit of a stable accounting workforce of about 10-30 people.
In contrast, the new risk has modern technology and a smaller but more productive accounting team of five to six people, but they are a more mobile workforce and in high demand by other companies, and they are higher paid. The company is more vulnerable in this new situation. Turnover on this team is much more frequent because their skills are in high demand and there are many opportunities in the marketplace. The small size of the new accounting team is a critical factor, and losing one of the five to six accounting folks can disrupt a business.
Thus, the new model introduces different risks. Mitigating those risks is causing SMBs to look to third-party services for their F&A work. Although the SMBs do not need a larger accounting team in the new digital environment, they need the support of a larger team that can absorb the turnover.
Historically the SMB market for accounting was not a productive area for service providers to focus on. But the organizational people disruption caused by the technology disruption creates an attractive new market for services. In a recent blog where I analyzed how the historic managed services model fits in the digital space, I said I believe we’ll see the emergence of new opportunities for ongoing services.
We’re now seeing the F&A area for SMBs is one such opportunity. A lot of companies that previously never would have considered turning to managed services outsourcing now find that strategy attractive because of their risk situation after implementing modern financial management technology.
