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How TQM worked for one firm.

Several years ago, we realized our early leadership in the computer field had diminished and our 20-person firm was becoming indistinguishable from other CPA firms. As the managing director (we don't use the title "partner"), I attended a total quality management (TQM) seminar in 1990 in the hope it would provide us with a new focus that would improve our competitiveness and our client service. (For an overview of this subject, see "TQM and CPA Firms," JofA, Jul.93, page 59.)

CUSTOMER NEEDS

That seminar encouraged us to put greater emphasis on continuous conformance to customer expectations and needs. In the past, we had measured our success as most CPA firms do--without much input from clients and often in terms that had no real significance for them, such as number of new clients, total billings, etc.

Furthermore, in the initial client proposal meetings the proposal team set high goals without regard to the prospective client's desired service levels. On examination, though, we found that once hired, we rarely kept all those promises. We were continually setting ourselves up for a fall.

For example, we typically offered to perform analytical reviews of and calculate ratios for internally generated client financial information. Frequently, though, we had difficulty getting the information from the client and delivered the product late. We disappointed the client in a service its managers never would have asked for if we hadn't offered it.

Later, as part of the TQM process we asked clients--which are mostly closely held businesses--what they wanted. Their real needs usually were very simple and easy to satisfy, such as prompt delivery of financial statements or the opportunity to meet with us and talk about business.

The TQM process we implemented was an attempt to fill those needs and create the kind of change that would make us more profitable and service-driven and enable us to provide higher quality services.

EMPLOYEE TRAINING

Although much of the TQM literature is still centered around manufacturing, we found it applied equally well to our firm. We did, however, hire a consultant who helped us understand TQM and how to implement it in a service-oriented business.

He suggested we send all our directors to a one-week quality management training program at 3M in Minneapolis, but we opted instead to schedule two and a half days of training for the entire firm spread over six weeks at our own office because we would lose less client time and fewer billable hours. We scheduled the training after October 15, the final extension deadline for individual taxes, to minimize pressure on the staff and delays in service delivery.

Everyone in the firm participated--we hired a temp to answer the phones during the sessions. We found it very beneficial to gain perspectives from owners and clerical staff on the same issues. We began by selecting topics, such as communications, and then we split into groups to identify problems and possible solutions. We eventually created the firm's vision statements during these sessions. (The terms "mission statement" and "vision statement" sometimes are used interchangeably, but we prefer the latter because we believe it describes us at a certain point in time.)

Carl Jenkins, one of our directors, went to Minneapolis for a one-week 3M "train the trainer" session so he could become our in-house facilitator and create a process for training new staff. We still turn to our outside consultant at times to stay focused, but we felt so strongly about TQM's potential that we hired a full-time non-CPA, Lucy Douty, as director of quality services, once Carl Jenkins had launched the process. She heads our TQM efforts, trains new employees in TQM principles and researches and proposes further advanced training when needed.

We found that our focus on TQM enabled our firm to achieve a number of positive goals.

PROCEDURAL AND ORGANIZATIONAL CHANGE

We made major changes in how we do our work and how we communicate with customers--both internal (firm members) and external (clients).

Improving communication. We have stepped up our efforts to communicate regularly with clients, in part by encouraging relationships between employees and client personnel at all levels, not just between business owners and directors. We also spend more time listening to clients and less time talking.

Client surveys. To develop customer loyalty, we solicit feedback through client surveys, a new step for us. They are conducted at the end of each engagement and used to improve our work and gauge existing clients' interest in other firm services (See exhibit 1 on page 75.)

EVIDENCES OF SUCCESS

All firm members helped develop our "evidences of success," which are indicators of where we are in relation to our goals. The goals are considered from the points of view of clients, employees and firm owners, and the evidences are common-sense indicators. As an example, client satisfaction is one goal, and one way to determine it's been achieved is to see if clients are paying their bills on time. If they are, common sense indicates they probably are satisfied.

Here are some examples of the initial goals we set for ourselves in our five-year strategic plan:

For clients:

1. Ensure that satisfaction is rising by achieving a rating of at least 93 out of 100 on client surveys.

2. Improve client satisfaction, as evidenced by

* A 50% reduction in client-initiated billing adjustments.

* A 30% improvement in accounts receivable days outstanding.

* A 200% increase in referrals from clients.

* A 50% improvement in the client retention rate.

For employees:

1 . Decrease turnover rate.

2. Work to improve satisfaction by 10% each year. Our basis of comparison is an initial satisfaction survey of current employees to gauge their feelings about the firm.

3. Lower absenteeism.

For owners:

1. Over the next five years, achieve

* A 200% growth rate in number of clients and revenue per client.

* A 200% increase in per-shareholder profits.

2. Gain recognition by winning the Malcolm Baldridge National Quality Award for outstanding achievement in quality service in the small business category.

QUALITY IMPROVEMENT PROJECTS

During our group training session, we brainstormed and came up with 52 possible quality improvement projects. We decided to tackle the top 5 projects and set up teams to determine feasibility, develop budgets and create timetables and action plans required to accomplish each one over the next year. The projects are to

1. Network office computers.

2. Develop a strategic account process for managing client relationships.

3. Improve the time and billing process.

4. Improve the firm image.

5. Manage the overall TQM process itself.

Of course, the first four points are part of the process, but our consultant advised us to include this so TQM would remain in the forefront of our activities.

QUALITY STEERING COMMITTEE

The quality steering committee meets once a month, which forces us to make progress toward our goals.

After some trial and error, we staffed the committee with directors and managers. It first had been made up of directors, with rotating spots for a manager and a staff member, but we found short rotations offered too little time for input while long ones limited the feedback we got from other staff. We receive outside input from the quality improvement teams, which are made up of staff at different levels.

QUALITY ANNUAL PLAN

Our annual plan is both a business and a quality plan for both areas that covers goals created by all of our departments. It includes the evidences, or indicators, of success and serves as a game plan for the entire firm. The quality side is developed by the director of quality, with input from the quality steering committee, and distributed to all employees for input. It is reviewed monthly by the director of quality and summarized at the firm's annual yearend meeting.

We use it to measure our progress and report on the results. Each year, the plan is reviewed by the quality steering committee and changed as appropriate.

NEW SERVICES

Our own success with the process has made us recognize that this new approach is a service we can offer clients and other CPA firms. We are surveying our clients' TQM needs by distributing TQM awareness surveys that cover their possible needs (see exhibit 2 on page 78). We ask clients to fax them back to us and, using the information we glean, we now perform cost-of-quality analyses and activity-based costing to help clients improve profitability and gain a competitive advantage. This is the kind of proactive approach we have found our clients really expect.

With another consulting group, we also offer seminars in Boston that help participants understand how quality and profitability can be achieved, given the layoffs and cost efficiencies most companies have faced.

VISION STATEMENT

During our initial group training session with all employees, we developed our vision statement. It reads: "We are an acknowledged leader in business and financial services, recognized for our dedication to providing valued services to our clients, our employees and the business community by consistently meeting their needs and exceeding their expectations."

This statement hangs in the reception area and appears in all printed corporate capabilities materials and all newsletters. We had it framed and gave one to each employee. It is a continuous reminder that our goal is service to both internal and external customers.

THE COSTS

Our out-of-pocket start-up costs for training and implementation were just over $13,000 (see "Costs of TQM implementation" for a breakdown). Firm members also devoted a great deal of nonbillable time to the process, but nonbillable time is inevitable in a CPA firm. We believe we've simply shifted how we spend it from areas such as general administration, for example, to preventive maintenance.

One of the unexpected side effects of the training was the realization that several employees could not adapt to a culture that put greater emphasis on communication and client service than it had before. Ultimately, they made the decision to leave the firm. Prospective employees now are screened using a predictive index questionnaire created by another company that allows us to decide whether someone will function well in the job requirements we have established. As an example of how the survey works, prospective employees check a number of words they believe describe the way they are expected to act by others and words they believe describe them, such as helpful, brave, convincing, responsive, eager, generous and careful. Their responses are compared with the job profile we've created.

We survey prospective employees before initial interviews and proceed only with those who possess the right profile, experience and recommendations for the position and the firm. Because our commitment to TQM involves a great deal of time and energy, the cost of hiring personnel who can't work with our approach is extremely high. Our new procedures give us some assurance that candidates meet our specifications.

CHANGE--THE UPSIDE

TQM isn't easy and it does take commitment. Change is disconcerting even to the most committed participant.

But the process has given us a focus on our clients, on what they expect from us and what they do not want. It has forced us to look critically at our services and ourselves and to find ways to improve performance and profitability. We've also had to provide a means to improve the firm's work quality and solidify relationships with clients.

We believe it has given us the edge on our competition. We have been able to expand during tough economic times when many CPA firms have contracted. The process definitely has worked for us.

EXECUTIVE SUMMARY

* THE LEADERS of a 20-person Boston CPA firm turned to total quality management (TQM) when they realized their early leadership in the computer field had diminished and the firm was becoming indistinguishable from others.

* THE STEPS THE FIRM took to implement TQM included

1 . Get an introduction to the concepts by attending a seminar.

2. Once committed to the process, hire a consultant to train firm members, choosing the most cost-effective training option.

3. Designate an in-house TQM monitor; later in the process, the firm decided to take the step of hiring a full-time director of quality services.

4. Make changes in areas such as procedures and organization, firm quality management and new employee selection.

5. Develop new services to offer clients.

* THE PROCESS PROVIDED the firm with a new focus on clients and forced it to look critically at its services and find ways to improve performance and profitability. Firm leaders believe it has given their practice an edge on the competition.

EXHIBIT 1

A sample client survey Macdonald, Levine, Jenkins & Co, PC Individual tax preparation client satisfaction survey

This survey relates primarily to your experience with us during the tax preparation process. Feel additional comments about your experience with MLJ at the end of the survey.

We will use your input as we continue to improve our methods and processes here at MLJ. That is wh important to get your feedback, both positive and negative. Thank you for taking the time to help us 1. Overall, MLJ's service

[ ] Exceeded my expectations.

[ ] Met my expectations.

[ ] Was below my expectations.
 Strongly agree
Strongly disagree
 5 4 3
 2 1 N/A
 a. Work was prepared effectively. [ ] [ ] [ ]
 [ ] [ ] [ ]
 b. Work was delivered on time. [ ] [ ] [ ]
 [ ] [ ] [ ]
 c. If there was to be a delay, I was notified. [ ] [ ] [ ]
 [ ] [ ] [ ]
 d. The director and staff were readily available when needed. [ ] [ ] [ ]
 [ ] [ ] [ ]
 e. MLJ personnel were prompt in returning my phone calls. [ ] [ ] [ ]
 [ ] [ ] [ ]
 f. I was able to understand explanations by MLJ personnel. [ ] [ ] [ ]
 [ ] [ ] [ ]
 g. I received adequate advice regarding tax planning matters. [ ] [ ] [ ]
 [ ] [ ] [ ]
 h. Advice given by MLJ personnel has proven beneficial. [ ] [ ] [ ]
 [ ] [ ] [ ]
 i. MLJ was receptive to hearing my complaints. [ ] [ ] [ ]
 [ ] [ ] [ ]
 j. MLJ's fee was appropriate for the service provided. [ ] [ ] [ ]
 [ ] [ ] [ ]
 k. The filing instructions were clear and helpful. [ ] [ ] [ ]
 [ ] [ ] [ ]


3. Is a two-week delivery of your completed tax return acceptable? [ ] Yes [ ] No

4. Is the tax organizer we supply useful to you? [ ] Yes [ ] No

5. How can we improve our service? 6. What other services can we help you with? 7. Comments:

8. Would you recommend MLJ to other people? [ ] Yes [ ] No

9. Is there anyone we may contact now?
Name: Phone:
Name: Phone:


Name:

Company: Date:

EXHIBIT 2

MLJ quality awareness questionnaire 1. The concept of total quality management (TQM) is an important element in my business.

[ ] Agree

[ ] Somewhat important

[ ] Not important

[ ] I'm not sure

[ ] What's TQM? 2. Activity based costing (ABC) is a tool of which I have a basic understanding.

[ ] Yes

[ ] More than a basic understanding

[ ] Only a vague understanding

[ ] First time I've heard of it 3. Cost of quality (COQ) is a tool of which I have a basic understanding.

[ ] Yes

[ ] More than a basic understanding

[ ] Only a vague understanding

[ ] First time I've heard of it 4. The concept of continuous improvement through problem-solving teams is important to our company's success.

[ ] Agree

[ ] Disagree

[ ] Not sure of the concept 5. We have started our formal TQM process in the following areas.

[ ] We have a formal assessment of where we are.

[ ] Management has committed and developed vision

statement, mission statement or both.

[ ] We train employees in quality awareness.

[ ] We train employees in problem solving.

[ ] We have a formal quality steering committee or

council in place.

[ ] Written or updated quality manual/system

documentation.

[ ] We have an employee rewards and recognition

system in place.

[ ] We have implemented a vendor certification

program.

[ ] We use a statistical process control.

[ ] We use cost of quality.

[ ] We use activity based costing.

[ ] We have a strategic quality plan.

[ ] We have ISO 9000 certification.

[ ] Other 6. Our progress toward world class quality can be described as follows:

[ ] Progressing on schedule

[ ] Progressing on schedule but not many results

[ ] Not formally started

[ ] Not paying back on our investment yet

[ ] Don't know our improvement in dollars

[ ] Only a passing fad 7. Our accounting/financial reporting systems are not providing effective product cost and/or process management information.

[ ] True

[ ] False 8. Our accounting systems are being modified/upgraded to provide more accurate product cost information.

[ ] Yes, but we have additional needs.

[ ] They provide all the information we need to

manage our business.

[ ] We con produce a lot of paper but not a clear

picture of our product costs. 9. I think it's time to become more involved with TQM concepts.

[ ] Yes

[ ] No

[ ] Maybe 10. Our company realizes the need for TQM and wants to make it successful.

[ ] True

[ ] False 11. We need a better picture of our process costs and product/service costs.

[ ] True

[ ] False 12. We need to take the following action. [Check all that apply)
 TQM COQ ABC
 [ ] [ ] [ ] Follow up with more information.
 [ ] [ ] [ ] Get some awareness training.
 [ ] [ ] [ ] Get some advanced training.
 [ ] [ ] [ ] Need to get started.
 [ ] [ ] [ ] Need to change gears and move
 ahead.
 [ ] [ ] [ ] Let's talk!


Costs of TOM implementation

Hard costs: Firmwide quality
awareness training $4,651
Facilitator training 4,415
Consulting and follow-up 4,146
Total over five-month period $13,212


Soft costs: Nonchargeable time But

* Firms have this anyway.

* Training was scheduled during slow periods.

CONSTANCE LEVINE, CPA, is managing director of Macdonald, Levine, Jenkins & Co., Boston. She will be speaking at the American Institute of CPAs national small firm conference in Nashville, October 27-29.
COPYRIGHT 1993 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:total quality management at a 20-person Boston, Massachusetts, accounting firm
Author:Levine, Constance
Publication:Journal of Accountancy
Date:Sep 1, 1993
Words:2842
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