Whilst I pose this question about competitive forces in the context of accountants, you might also find the concept helpful when talking with clients.
Michael Porter first published his five forces model in a 1979 article published in the Harvard Business Review.
In the context of an accountancy firm looking to the future, I’ve summarised the five competitive forces in general terms below. How will they specifically affect the future strategy for your practice?
You probably consider your competition currently to be largely those accountants in the same locality or those with the same specialist focus as you.
It is these competitors who you may consider are setting ‘the going rate’ for compliance services (although often there is no such ‘going rate’ in reality).
Your competitors may be qualified or unqualified, in smaller or larger practices and some may have bigger marketing budgets than you.
There’s also those firms that might look to merge with or take over your practice.
NB: You may think (mistakenly I would suggest) that you are competing with accountants all around the UK when a prospective client searches online for a new accountant. I think this is mistaken as most people look for an accountant local to them or who specialises in a particular niche.
At some stage in the future you will need to assess the potential competition you face from bookkeepers and more unqualified ‘accountants’ entering the marketplace to compete with you as regards the compliance services you provide to clients.
For as long as you focus on compliance work so you will continue to be susceptible to new entrants who will quote lower fees – even if they don’t really have the skills, training and knowledge to do all the required work. Indeed, are there any barriers to prevent this happening?
It seems to me that it is only going to get easier for new entrants and thus you will face more competition – not perhaps when it comes to keeping your existing clients, but certainly when you try to win new clients in the future.
Your competition for other areas of work is already wider than just other accountants. And the range of such competitors will only grow as it becomes easier for them to obtain access to clients’ financial date through new tech, apps and software.
Depending on the type of advisory work you offer in the future your competition may also include financial advisers, business coaches and management consultants.
End Users/ Buyers
Historically few clients would choose to stop paying an accountant and start preparing their own accounts and tax returns. This is set to change in the near future.
Some of your clients (perhaps) and certainly some of those who would otherwise be prospective clients will attempt this. At present such people will later find they do need an accountant after all. But this won’t always be the case.
So even if all your existing clients choose to stay with you, you will, at some stage, start to find it more difficult to pick up new clients once more people find they can do without the services of an accountant on a day to day basis.
I see adverts almost daily in the media, on transport services and on billboards encouraging small business owners to go the DIY route. We know that such adverts understate what is really involved but the impact of this trend is only going to increase as the technology becomes more advanced, with the advent of 5G connectivity, more machine learning and increasingly accurate AI.
What will happen once clients and prospective clients are able to use cloud based software to produce accounts and to file tax returns directly with HMRC with minimal input from an accountant? Whilst it’s not yet possible it will happen within the next ten years – possibly sooner.
And let’s not forget the increasing bargaining power of clients and prospects as they become less loyal, more aware of the low cost of switching and require less and less input from their accountants
Will you be materially affected by the bargaining power of software suppliers? Probably not.
This may be more relevant to some of your clients when they assess their own competitive forces. For example when supplies of one or more elements in the supply chain diminish and the price goes up, or when a supplier has such a large share that it can dictate the terms of the deal.
The 5th of the original five forces is also less relevant in the context of an accountant’s traditional compliance services.
This is because clients typically appoint accountants to enable them to satisfy their legal filing obligations. There is no substitute for this – other than those referenced above.
However when it comes to advisory services, there are plenty of substitute solutions available – from clients having direct access to advisory software, to consultants and business coaches. Clients may start to believe that any of these may offer a better, cheaper or more experienced service than you. And this may then reduce the demand for you to provide such services.
How many of these 5 competitive forces are likely to have an impact on your practice over the next few years – and what are you going to do about it?