View and Counterview

Professional Practice: Is it all about size?

Is size the pre dominant criteria
for professional services firms (PSF)? There are niche firms and then there are
those mammoth full service firms. Some focus on the markets that require size,
scale and spread, while many others focus on select clients and hyper focused
personalised services. What are the pros and cons? Is one better than the
other? Is size, distribution and scale greater than niche, personalised and
boutique? 

This sixth VIEW and COUNTERVIEW
tells the story from both perspectives. Both writers have been on both the
sides and in practice for decades. They share their perspectives from two
vantage points, so that the reader can get the whole picture.

VIEW: It is not all about size!

Ketan Dalal
Chartered
Accountant

Life is becoming increasingly
complex and it is very difficult to have one view without having a counterview
to any dimension of life, and the subject of this article is no exception.
Whether it is from the perspective of an experienced professional(s) or clients,
it is a very tricky choice! The purpose of this view is to bring out the
critical dimensions of size vs. niche and to discuss the case for niche
practice in certain circumstances.

What is Size?

To get a perspective, the global
network revenue of the smallest of the Big 4 entity would be in excess of USD
26.5 bn and the largest would be close to USD 39 bn (i.e. anywhere between Rs.
1,85,000 cr to Rs. 2,70,000 cr). As a global network, all of them employ in
excess of 1,80,000 people going up to 2,65,000 people. That’s size and scale!
As far as India is concerned, all of them in some form or the other would
employ between 8,000 – 15,000 people (excluding employees of global network
deployed in Indian operations, usually a back office); India contributes
anywhere between 1% to 2% percent of the global network revenue. Being a part
of such a global network enables professionals to access global knowledge,
global resources and global practices and also provides potentially significant
opportunities for global growth.

The big issue!

A key issue faced by the majority
of small-sized firms is the spectrum of services that it seeks to provide with
relatively limited skills and relatively limited strength. For example,
consider a 30-40 people firm seeking to do audit, tax and consulting work. It
would be very difficult for such a firm to make any meaningful impact in each
service line, since the size of the firm and levels of complexities involved
are unaligned. In fact, even if one looks at tax as a subject, it is an ocean
in itself; the complexity of international tax vis-à-vis domestic tax, the
depth of knowledge required for GST, the developments in the field of transfer
pricing such as CbCR, APA etc., means that each sub-domain itself can
constitute a practice and therefore, even the word ‘tax’ is fairly broad for a
small firm to meaningfully handle. While professional organisations of all
sizes are grappling to tackle the issue of complexity vis-à-vis specialised
skill sets in some form or the other, however, as Indian companies grow in size
and sophistication, the quality of the services and depth of knowledge required
to service them will still demand significant upgradation.

If one takes the example of audit,
there is not only statutory audit and internal audit, but there is Information
Technology audit, forensic audit, due diligence and others, and each of these
segments requires very distinct skill sets.

Another example beyond the usual
professional practice is consulting- another ocean in itself; there is strategy
consulting, which is very different from operations consulting, whereas
technology consulting and human resource consulting are two different worlds!
Within each are again various dimensions, and clients are now seeking experts
who understand their specific needs, rather than talking to generalists.

Significance of sector knowledge

Additionally, and very crucially,
an important aspect is sectoral knowledge. Most sizeable firms have sector
specialist teams. A few important examples where sectoral knowledge is
particularly important are financial services (within which banking, insurance
and private equity are sectors in themselves), infrastructure (where roads,
ports, power and airports are again sectors in themselves), shipping and
logistics (shipping being again different from logistics and logistics, in turn
has different sub-sectors such as CFS, warehousing, third party logistics
etc.), real estate, FMCG and several others. Clients in each such sector often
require professionals to have detailed sectoral knowledge to service them. A
comparison that always comes to my mind when I look at these sectors is
cuisine- a few years back, one used to think of going to a restaurant, but
today one first wants to first think about specific cuisine – is it Oriental,
Continental, etc., and amongst Oriental, is it Chinese or Japanese and so on…

The bottom line is that
specialisation, in terms of both domain and sector, is extremely important and,
to some extent inevitable, in client servicing. To put it in perspective,
knowledge needs to be deeper as opposed to being broader, although this
approach itself has its own challenges – for the professional, for the client
and also the organisation.

Need for Niche!

Necessity is the mother of
invention! This statement cannot ring more truer for a niche/boutique firm
where the need for a niche is an outcome of the need to tackle the challenges
mentioned above, particularly the need for deeper skill sets and more
integrated thinking, as well as more senior level attention. Incidentally,
there is no clear definition of a niche/ boutique firm, nor there are specific
attributes to define a boutique firm, but they are obviously small in size and
typically operate in specific domains or sectors and offer specialised
services; for example, management consultancy, litigation support, transaction
support or valuation. Incidentally, the fact that, very often, a boutique firm
is established by a professional with a proven track record is a very
comforting factor for the client as well as potential employees.

One key issue in the context of a
niche/ boutique firm is that there may be a niche in the market, but is there a
market in the niche? To elaborate, there may be a niche for a practice, dealing
with say, co-operative societies, but from a revenue perspective, it may be
difficult to say that there is a market in the niche!

The philosophy of a boutique firm
is a critical aspect. Elements like the area of service, kind of work, types of
clients, people etc., are important facets of firm philosophy. For example,
whether to service comparatively smaller assignments or to service a few large
assignments is a matter of firms’ philosophy.

Let me elaborate some situations
where a boutique firm could be a more compelling proposition. 

•    Internal audit: a boutique
  firm with internal audit expertise, especially where there is direct partner
  involvement at a much intense level can often be very valuable.

In some of the examples mentioned
above, such as that of M&A restructuring, tax litigation or valuation, the
boutique firm can possibly be even a 10-20 people firm or even smaller, but in
situations like, say, internal audit where client size is not very large (say
up to 300 cr to 400 cr), a small-sized internal audit boutique firm could often
do a good job. Obviously, this assessment has to be done by the client, but as
a general proposition, in most examples given above, a boutique firm can serve
the purpose better from a client standpoint.

Niche practice – the client dimension

Usually, big organisations with a
global network are better placed to service MNCs. In fact, with most large MNCs
already in India and a large number of smaller MNCs having entered into India,
often a need for boutique firms is faced by smaller companies, which may not be
MNCs in the true sense. In a sense, smaller MNCs or smaller foreign companies,
may find that, in the Indian context, a boutique Indian firm is easier to deal
with, provided it has the relevant expertise. A good example is that of regular
tax work where smaller foreign companies find that boutique firms can give them
more attention and very often, would be less expensive; another advantage is
quicker turnaround time and more customised advice.

A similar situation from a client
standpoint is that of a domestic client which can be again divided between the
very large ones (say top line of Rs. 10,000 cr and above), the large ones (say
Rs. 5,000 cr to Rs. 10,000 cr) and those below Rs. 5,000 cr. In the last
category, there could also be sub-segments and without going into needless
details, the point is that in the 3^rd category (and very often, even
in the 2^nd category), there is a significant need felt by Indian
clients for attention from senior advisors and that is where boutique firms can
play an important part; this is especially so where relatively small teams are
required to work on client matters, as opposed to the need of a large team
(examples have already been given above in terms of M&A structure,
valuations, forensic audits etc).  One
additional dimension is that Indian companies are often promoter driven and
they feel more comfortable dealing with a boutique firm where they are directly
talking to, and being serviced by, the founder(s) of that firm and where there
may be existing relations or easier to build relationships.

An important concern for any client
is confidentiality. For example, in assignments involving family arrangement or
succession planning, even with non-disclosure agreements (NDAs) in place, the
potential exposure levels in a big organisation can be high, as such data/
information can be (and often is) accessed by multiple people for a variety of
internal reasons. This is again a reason why clients may choose to explore
retaining a boutique firm.

As such, as would be seen above,
there are several aspects of a professional service practice which necessitate
deeper expertise, more integrated thinking and personal attention; the ‘silo’
ecosystem of large firms often creates a challenge, in terms of integrated
advice, coordination and turnaround time.

Niche practice – the people dimension

From the perspective of
professionals who are evaluating between a boutique firm vis-à-vis a big
organisation, there are several aspects to be considered. A boutique firm often
offers an opportunity to work directly with a ‘grey-haired professional’, a
rare possibility while working in a big organisation. A niche/ boutique firm
provides a professional an integrated learning experience, more client facing
exposure, and importantly, understanding the approach and thought process of a
senior professional. As such, it offers young professionals a platform to defy
the “boxed thinking” approach and innovate. Yet another important dimension is
the fact that large organisations have stringent processes for client acceptances
and formalising assignments, and rightly so from their perspective; however, it
does reduce the time available for actual client work and therefore, learning
opportunity (alternatively, it lengthens the hours of work significantly!).
Needless to say, a key consideration would be the financial and non-financial
benefits which needs to be weighed while making the choice. Thus, depending
upon the above aspects of career trajectory that a professional is looking for,
the choice should be evaluated!

Concluding Thoughts

There are often two (if not more)
perspectives to everything possible and the above discussion, as I mentioned
earlier, is clearly not an exception! Having said that, a particular view
cannot be viewed in isolation; there needs to be a relative comparison between
the two viewpoints to come to any conclusion. What one should really evaluate
is how much of one outweighs the other in a ‘relative’ sense.

Clearly (as this view has
presumably brought out), there are several services needed by the business
community where niche/ boutique firms not only have an important role to play,
but indeed could be preferred over a big organisation.

counterVIEW: Full Service firms can deliver holistic solutions

Milind Kothari 

Chartered
Accountant

When the Accounting profession was
formalised by the ICAI Act, 1949, the expectations from Chartered Accountants
were largely centered around providing Audit or Accounting service. Also, with
the Income Tax Act nearing completion of 100 years, providing tax service also
has been a mainstay for our professional community. Back then, these services
were largely availed by individuals and small businesses.

In the past 25 years, India’s
economy has taken a definitive shape, more than any other time in its history;
the influx of MNCs post-liberalisation in 1990’s to win a slice of large
domestic market, becoming the services hub of the world, thanks to the
domination of Indian IT companies, shared service centers (‘SSC’) being set up
by large global corporations and so on. This has catapulted Indian economy to
bring it in the reckoning to become the 5^th largest economy in the
world.

The global economy itself has
transformed rapidly with the epicenter shifting to internet-driven business
models and new businesses being created with supply-chain modeled on creating a
borderless world. While there has been a recent push-back to globalisation in
many countries reeling under staggering challenge of refugee-crisis, the
businesses seem unmindful of this rethink and it appears that globally
delivered business models are here to stay. There has been no better time in
the history to set up a global business in the shortest possible time than
today. 

Most business groups are globally
focused, technology dependent and most likely, confronting overdose of
introduction of new tax laws and regulations. The list of new regulations being
introduced at a rapid pace is quite extraordinary as the Government and
Regulators are also trying to cope with the change unleashed by technology. The
process of disruption has been quite severe on economies and companies that
were unwilling or could not embrace change. On the other hand, people loose
jobs as companies that provided jobs shut down or they are unable to reskill
themselves. The word ‘disruption’ has suddenly acquired a cult-status.

So why is the history and the
present state of economy relevant to Chartered Accountants? Needless to mention
but Chartered Accountants are required to follow the trend of the business to
remain relevant.

In the present scenario, the
expectations from our professionals have increased multi-fold. We need to
provide answers to all the questions that would arise from parallel play of
multiple tax laws, regulations and changes in the accounting standards, while
mindful of the business challenges of clients. We also need to understand the
new laws and regulations that emerge around ‘data’ (considered as the new
‘oil’). However, in reality, an average professional finds it hard to cope with
significant change sweeping our profession; new Indian accounting standards,
introduction to GST, insolvency and bankruptcy reforms, industry regulations
such as RERA, data privacy laws and the list goes on. Then again demand of our
clients for forensic services, cyber security solutions and tech-driven
services such as data analytics, big data, predictive analysis, data mining, is
unending. We need to realise that there is no finishing line for technological
progress.

In this rapidly changing world, how
are Chartered Accountants going to keep pace with change and remain relevant?
Will the conventional service model of Audit and Tax see us through for the
next several decades? Let’s deep-dive and assess the situation on the ground as
well as peek into the future that would unfold for us. Also, before we
recommend a professional to join a large professional services firm or pursue a
niche as two clear career options within the profession-fold, it would be good
to understand the DNA of both these options.

Like in business, the past few
decades have seen flourishing of large accounting firms globally. The large
professional services organisation working as a team, provide all answers to a
client through deep expertise and support the client across the globe. A
one-stop shop for all the needs! To get this right, they invest in top talent
(relatively easy to get as they pay well), use technology extensively, build
world-class infrastructure and are connected globally through their partner
firms in nearly every country. They are well-placed to cope with change as
their ability to adopt to new demands of services by clients is extraordinary
and therefore, also less at risk for becoming redundant. These firms are
thriving and getting bigger as their clients are getting richer and more
complex and need myriad of services.

On the other hand, professionals
with niche expertise deliver well for a small part of a large puzzle but are
unable to provide a holistic solution across varied demands of clients. Again,
like in business, the small and boutique firms are getting squeezed out of the
profession as they are unable to sustain the momentous challenges that they
face on nearly every front. Inability to attract top corporates as clients,
retaining existing client-base (audit rotation has played havoc with mid-sized
Indian accounting firms), coping with technology, fight a losing battle to
retain talent, inability to invest to remain relevant and most importantly,
coping with the constantly evolving landscape of professional opportunity with
ever-changing legal and regulatory framework; the list of woes is unending and
growing.

In the recent past, one has
witnessed several top-class professionals who were independent for most part of
their career and achieved excellence, only succumbing to join the large
accounting firms. While the demand from clients for service is becoming
complex, such professionals realise that it is impossible to provide a
well-rounded service across several laws and regulations more so, when they are
unable to retain talent. For traditional tax practice, competition is coming
from different directions; in-house tax teams, management consultancies,
software developers, the business information providers are all increasingly
interested in conducting tax work. The biggest challenge is coming from
technology service providers who are first of the block as Government introduce
digitisation like in the case of GST.

Over time, a niche service
provider, at best, becomes a trusted advisor to the promoter but not to the
company he has promoted. Individuals with niche are much more at risk as
changes in law hit them hardest for them to reinvent their expertise. The
recent phase-out of all indirect law with GST is the classic example. Their
ability to reskill themselves remains limited and their years of building expertise
on a subject suddenly becomes redundant because of change in law or technology
taking over.

In a very subject relevant
publication, ‘The Future of the Professions’ the authors, Richard and Daniel
Susskind examine how technology will transform the work of human experts. The
authors observe that for centuries, much professional work was handled in the
manner of a craft, individual experts and specialists – people who know more
than others and offered essentially bespoke services. Their research strongly suggests
that bespoke professional work in this vein looks set to fade from prominence.
They observe that for a long time, professionals found it important to have all
sorts of information at their fingertips; in books, technical papers and case
files. But they say that a different need is arising and this is for the
professionals to have mastery over massive bodies of data that bear on their
disciplines with the help of many technology tools. As the boundaries of the
professions blur and service becomes more focused on meeting client’s overall
needs, it is probable that multi-disciplinary practices will be formed and
re-establish themselves as commercially viable. In the book, the authors have
given considerable insight into the current and future state of audit and the
tax profession.

Lastly, the key question remains,
is it about me or about us? Niche practices have always been about ‘me’ and
therefore die with the professional at the helm, whereas the large accounting
firms is about ‘us’; they survive the founder and become an institution. It
consistently fulfills demands for jobs for well-qualified and smart
professionals. They also fulfill a social responsibility for a nation that is
so starved of jobs for the millennials.