In 1993 when Cheng & Co was established, our firm had three employees and was just one among thousands of accounting firms in Malaysia. But even then, with our tiny bank balance and short list of clients, we dared to set our minds on becoming the leading firm in the country and expanding regionally in Asia-Pacific.
In this article, I share our strategies for sustainable long-term growth, including the use of the balanced scorecard and pursuing mergers and affiliations, that I hope will be useful ideas for small business owners.
When we first started, we knew that in order to be unique we had to offer something different. As our clientele expanded, demand for a single firm offering multiple professional services began to rise. Clients were looking for convenience. This was the opportunity we needed in order to become more than just an accounting firm.
Our expansion approach was centred on diversifying our business model. Upon carefully studying the pain points of our existing clients, prior to introducing a wider range of services to address their needs, we made the transition. We began to look at various methods to measure performance and achieve synergies within the firm thus enabling the realisation of our vision.
We found that the balanced scorecard (BSC) is the most fitting strategic management tool for our stated objective. The BSC is a method that uses data analysis to help an organisation achieve enhanced performance of employees, increased cost efficiencies, and improved client satisfaction to realise better performance measurement. It also bridges the gap between top management and staff of all levels, as it is a transparent technique that communicates the expectations and desired outcomes of the stakeholders effectively..
“Financial, Customer, Internal Process, as well as Learning and Growth” are the four perspectives that are the pillars of an organisation’s success as outlined by BSC. Incorporating these pillars illustrated our commitment to all our stakeholders.
The BSC also plays an important role in our firm when it comes to incentivising employees based on key performance indicator achievements. High-achieving employees are given attractive incentives to spur them on to greater goals. Learning is also crucial and a constant feature in our industry.
It is important to note that the BSC is not merely an internal strategic performance measurement. Our clients, and the industry at large see the benefits of the methodology.
A practical example is a client of ours in the shoe manufacturing business. The company had traditionally prioritised the school shoes segment. Recently, with government policy changes such as changing shoe colour from white to black as well as institutional closures due to the COVID-19 pandemic, the company’s sales plummeted and the management sought guidance from us. Our BSC training identified the need for the company to diversify into other shoe segments to spread their risk well. Reducing expenses by moving from costly high-end packaging to more cost-effective, eco-friendly options was also advised.
Approximately 95% of our clients are SMEs and our experience with them has given us a good understanding of their needs. Thus, we designed solutions for critical issues such as restructuring, disputes, and succession planning.
For the BSC to be successful for an SME, all employees need to be in sync to be able to close the expectation and performance measurement gap. Each employee must understand their value in achieving the long-term objectives. The transparent nature of the BSC helps the whole company understand the overall action plan and each other’s responsibilities.
Mergers and affiliations for expansion
We knew very well that mergers and acquisitions would play a key role in our ambitions to become a leading accounting firm in Malaysia. We were also aware that as a small firm, we did not have the financial might to expand rapidly like the more established firms.
Generally, mergers and acquisitions are not an easy process to navigate, they are considerably time consuming and a sensitive issue for many companies. They don’t like the impression that they’re being taken over, although quite frankly, this is the case with a merger and acquisition exercise. As such, some firms prefer to work in a collaboration arrangement rather than a complete takeover. Therefore, we have taken the mergers and affiliations route by getting the other party to join us as a member firm initially, working together and building a relationship. At this stage, the company will be able to experience the full range of our services, which enhances their own capabilities.
If all works out well between both parties, mutual deliberation on a full buyout of the member firm occurs. The patient nature of this process has actually helped us identify the right partners to become a part of Cheng & Co.
We have developed a structured mergers and affiliations mechanism for our proposals. It comprises of a minimum outlay of upfront deposits followed by 36 monthly instalments. The purpose of the instalments is to protect both parties in the interest of fairness when it comes to the yearly review of the goodwill adjustments.
While this may not seem as attractive as mergers and acquisitions, our belief is that this structure will help us identify genuine merger opportunities with smaller firms which prioritise financial gains as well as the wellbeing of their clients. It is also important that they see the value in partnering with us.
The strategy has gradually helped us to improve our efficiency as a service provider and has given us the required competitive edge in an increasingly tough market. After completing mergers in various states, we have presence and leadership in these locations to serve local businesses and communities promptly through affiliations.
The geographical advantage gained from this exercise increases the speed of our services and solutions as opposed to having just a single operation in the capital. Time is of the essence, thus less time is spent travelling around the country. Furthermore, the cost of our services and solutions has become more competitive due to our availability in various locations, which improves client retention and attracts new clientele. Upon switching to mergers and affiliations, we have merged with more than 20 firms and practitioners while continuing to explore new collaborations of this nature.
A successful merger can help create stronger synergy structure in a firm while giving access to a larger pool of human capital and technical resources. Such resources usually require a lot of funding initially. However, one of the biggest challenges has been integrating the newly acquired workforce into our team. Many mergers become problematic precisely for this reason.
To solve this issue, we created a guide we call “Growing Vision Tree” for existing and new employees. The vision tree is used in training to give employees the Edge and Energy to Energise and Execute (4Es) all professional services with great passion. It also encourages all our employees to embrace diversity in areas such as culture, education, and belief.
Implementing this culture required many hours of training and team interaction activities. Within a year, all newcomers were fully immersed into the Cheng & Co culture. Additionally, we were able to integrate new personnel in subsequent mergers relatively quickly.
Beyond accounting and audit
As part of our strategy to widen our market segment and presence, we decided to embrace new business models to diversify our services and penetrate new customer bases to increase revenue streams. However, it is crucial to remember that the company’s core strengths and expertise are to be retained as the main focus. In our case, that is accounting and audit.
Over the last ten years, we have expanded into global business services including consultancy in; initial public offerings, Australian property management, company secretarial services, and enterprise resource planning.
Another key aspect of our strategy is the Professional Entrepreneur Programme (PEP) designed to develop entrepreneurial skills in our leading professionals. In 2017, the Malaysian government outlined its goal to produce 60,000 accountants by 2020. This gave us incentive to contribute towards nation building and the accounting profession by training innovative accounting practitioners and entrepreneurs.
After discussions with key stakeholders and industry experts to devise a development plan, the PEP was introduced as a platform for young accounting students and graduates to hone their entrepreneurial skills and gain invaluable real-world accounting experience. Today the PEP has evolved into a crucial driver of our Blue Ocean strategy. It helped us identify eight project directors with each driving their own project in line with our 10+10+10 business growth strategy. Through this programme, we were able to establish essential business clusters that comprise of a few business units and are led by those who completed the programme. These clusters are crucial to our overall revenue generation.
A never-ending journey
Starting a business, particularly an accounting practice, is not easy. The key is to always ensure that there are feasible plans for growth, development and unfavourable seasons. Coupled with patience and perseverance these lessons can easily be applied to any business.
Tough times don’t last, but tough people do. Every entrepreneur should dare to dream and dare to fail. While not all dreams will materialise when expected, or at all, they will drive determination to continue pushing, embracing change, and looking forward to the success to come.
Note: This article originally appeared in Financial Management Official Online Magazine on 18 Dec 2020.
