A Guest Post From Professor Bob Graff: The Search For Value

Bob Graff is a retired PricewaterhouseCoopers partner living in South Korea. He worked in the Systems and Process Assurance practice (SPA). It was called CAAG in 1986 when he first started doing technology consulting for clients. He has been associated with the Korean practice since 1995 until his retirement last year. He is currently lecturing to the next generation of Asian business leaders at Solbridge Intl School of Business, Daejeon, Korea.

This guest post, the second in a series, was written exclusively for re: The Auditors.

The Search for Value

Knowing the value your service has to your client will improve your proposal success rate, lead to efficient service delivery and, reduce the potential client demands for “value added” services which, I maintain, leads to undesirable professional behavior.

In my previous article I discussed the auditor/client relationship which illustrates the undesirable attributes of this dynamic.  But seeing a problem and finding solutions to it are separate tasks.  So here, I wish you to join me on the search for value, wherein may lie the solution.

The question of defining “value” could take us on a long journey if we sought an absolute answer.  For example, philosophy leads us to ask, “Does something have value if no one is aware of its existence?”  An economics perspective will lead us to study utility.

For the sake of expedience let me restate a definition which, although it may not be universally accepted, does provide a working model.  “That which moves us toward a goal has value.  The degree of value is determined by the priority of the goal and the extent to which we move toward it.”

There are multiple parties and goals involved with any service.  The service provider, the purchaser and, those who benefit from the service are convenient definitions for our purpose.  A challenge with audit service is when the goals of the purchaser and the beneficiary are different or, in some cases, directly opposed.

If we are to market the service as a value the first step must be to understand the goals of the affected parties. (Audit firms have such a client acceptance procedure where this is supposed to happen, but I am concerned that in most cases the purchaser’s goals are assumed.)

The goals of the service provider are quite universal and straight forward.  Win the engagement, provide the service in a cost effective manner within professional standards and, build a lasting relationship with the client.  The external beneficiaries’ goals are also generally straight forward, to obtain a fair representation of the client’s financial position.

It is with the purchaser’s (management) goals where generalization leads to the service being seen as a commodity, clients fail to see value and, the motive is created for undesirable behavior by the service provider in an attempt to achieve his goals.

So, the focus of identifying value should be on identifying the ways the service assists management in their goals attainment.  In doing so here are two things to consider:

In understanding management’s goals we need to view our service as management sees it and to take actions to change that view of the service from a commodity which any firm could deliver, to a service with value which may only be provided by your firm.  We also need to understand the full affordance provided by the service to use it to support management’s goals.

How does management view an audit?  Start by asking, how do auditors view an audit?  From my experience, the auditor’s views can be divided into four quadrants; methodology (standards), technique (audit approach), business, and people.   From training sessions with over 100 auditors I have found auditors are most comfortable with their skills in methodology and technique and, less comfortable with their business and people skills.

As such, auditors tend to view, market, and deliver an audit as a craftsman would by focusing on methodology and technique.  Unfortunately …

CRAFTSMEN are passionate about doing one thing incredibly well: Their leaders insist on producing the best products for the market, their engineers lose sleep over micrometers, and their quality control staff rules with an iron and unforgiving hand. Details count. Quality is the primary source of corporate pride; it gets rewarded and recognized and is by far the paramount competitive advantage. Indeed, it is what the whole corporate culture is based on. Shoddiness is a capital offense.

But in becoming TINKERERS, many CRAFTSMAN become parodies of themselves. They get so wrapped up in tiny technical details that they forget the purpose of quality is to attract and satisfy buyers. Products become over-engineered but also over-priced; durable, but stale. Yesterday’s excellent designs become today’s sacrosanct anachronisms. And an ascendant engineering monoculture so engrosses itself in the minutiae of design and manufacture that it loses sight of the customer. Before long, marketing and R&D become the dull stepchildren, departments to be seen but not heard. Unfortunately, the bureaucratic strictures that grew up to enforce quality end up perpetuating the past and suppressing initiative.

The Icarus paradox: how exceptional companies bring about their own downfall, Business Horizons, Jan-Feb, 1992 by Danny Miller

If we were to ask management for their view of the desired value of an audit (within the same quadrants) we see an opposite response.  To management the desired values will be in business and people.  However, management often sees the auditors as craftsmen and the sensation transference is negative.  To change this to a positive perception the auditor needs to prepare discussions directed at identifying management’s business and people goals and respond with affordances the audit can provide towards those goals.

Good discussion starting points might include open ended questions such as, “If the audit were not required what reasons would you have to still want one?” “What do you typically use the financial statement for?”  Simple questions, but the answers to them should open avenues of goal (value) directed discussions.

This is not an easy task for most.  It takes you out of the methodology and technique comfort zones and places you in management’s areas of expertise.  But it also takes management out of the mindset the audit is performed to only satisfy other’s (regulators, creditors, stockholders, BOD) requirements and thus the rewards are significant.  If you can overcome the fear management will come to believe you don’t understand their business (which they already believe, by the way) and demonstrate your desire to work with them toward their goals, they may accept you as an asset.

Each client is different, as are their goals, and so I can offer no formula other than understand their goals and identify how the affordances of your service provide value by moving them toward them.

The search for value has brought us to a question of what affordances come with the service.  Not yet an answer but, a step forward.

5 replies
  1. Brad Na
    Brad Na says:

    Bob, it’s great to see your article that you had emphasized and liked to discuss. I’m still tring to find client’s value in many ways since the project is not the only value to decision maker of client. I am enjoying to learn this and hope seeing you soon.

  2. Craig Barber, Acting Associate Dean, SolBridge International School of Business
    Craig Barber, Acting Associate Dean, SolBridge International School of Business says:

    Bob, I’d agree, however, I’d broaden your point. As an attorney, I would say most US attorneys are also almost paranoid about methodology and technique, and sadly lacking, or even blind, in the business and people skills areas, resulting in ‘tinkering’. And the exact same comments about US medical professionals are too well known to require me to repeat them again for that field as well.

    I wonder, we do NOT have this problem with primary school teaching, for example, or counselling. Is the problem one that goes with “technical” fields, or what?


  3. Jiyoung Kim
    Jiyoung Kim says:

    Good point. I used to stick to the materials or templates without thinking. Sometimes i think a generally described guidance is much better than too specified template for auditors to provide value to the clients.

  4. Alp Malazgirt
    Alp Malazgirt says:

    Hi Bob,

    My professional experience, some 20 years in the Silicon Valley, both in management positions of public companies and COO of my two companies, I have always seen auditors as Craftsmen, and not as Tinkerers. Maybe that is good, because Enron debacle is a prime example of what Tinkerers are capable of doing. When the pendulum swings the other way around, Sarbanes-Oxley is imposed like a death blow to any budding entrepreneurial, innovative company. The result is a devastating blow to finding money via the IPO way. Finding the happy medium between craftsmen and the tinkerers is only reserved to a very few in the world. I have not met any. But, on the other hand, I did not know you. 🙂

    Take care.

    Alp Malazgirt

  5. Ken Biddick
    Ken Biddick says:

    I understand your perspective and would say that your point regarding the requirement factor, “If the audit were not required what reasons would you have to still want one?” is where auditors and management have both destroyed the purpose and value. Quality is something that a selling party will use if they believe it creates a premium of at the very least choosing their product over one that should provide similar utility for the desired purpose. Consumers look for products with a UL mark or Good Housekeeping mark because it designates that an independent third party is attesting to the advertised utility and the product can be trusted to perform to a standard. Sellers willingly obtain these independent listing to compete in the respective space among all other products offerred. Sellers may even perceive that these marks are a requirement.

    Auditors and management seem to have forgotten that the audit attests to managements assertions about quality and adherance to a standard. The product represented in its various forms through; the stock, its contractual indebtedness, the ability to perform on its obligations, and its general value to the community are represented through the financial information it presents to the public. Regardless of the requirement by public filers to be audited, the auditors opinion would be sought after as the universal symbol of trust.

Comments are closed.