Peter Drucker, the management expert who in 1959 coined the term “knowledge worker,” said in the late 1990s: “The most important contribution of management in the 20th Century was the fifty-fold increase in the productivity of the manual worker in manufacturing.  The most important contribution management needs to make in the 21st Century is similarly to increase the productivity of the knowledge worker.”  He then dedicated much of the latter part of his life to problem of knowledge worker productivity.

Drucker 21st Century

CGMA Magazine reports, “Accounting and finance salaries will rise 2.8% next year, according to the 2017 Salary Guide published by Accounting Principals, a recruiting firm. That’s an increase over the previously forecasted rises of 2.4% for 2016 and 1.2% for 2015.”  Recruiting talent and keeping them interested, especially millennials who have little patience for inefficiency, is more difficult and costlier.

Large audit firms are spending a great deal of time satisfying and ultimately not performing as well as they desire on PCAOB Inspection Reports.  For the most recent period (2014 audits) the PCOAB reported deficiency rates for Deloitte, PwC, EY and KPMG of 21%, 29%, 36% and 54%, respectively.  The firms are appropriately reacting by demanding more clarity and evidence of control execution and especially the activities of the reviewer of the control and related evidence of review.  The results of these efforts should hopefully lead to improved internal controls but will certainly lead to higher audit fees and greater internal costs of compliance.

Why do I mention the three subjects above?  The increasing compliance demands coupled with the rising cost of those equipped to help organizations meet these demands makes realizing Peter Drucker’s challenge for management to increase the productivity of the “knowledge worker” vital.  Fortunately, current technology combined with planning and some innovative management thinking can address these issues to improve internal controls, reduce cost and, an added bonus, retain and develop talent.

Every compliance professional has seen the eye-roll when mentioning policy and procedures, especially procedures.  Sadly, the immediate perception is a set of procedures binders that sit on a shelf collecting dust and become outdated as functions adjust to address organizational needs.  Technology can bridge this gap, making procedures an integral part of activities.  Cloud and/or browser-based technology transitions written procedures into on-line assigned and time-bound tasks.  Executing these tasks within the software provides a direct link from the procedure (which is referenced to one or more internal controls) to the execution and evidence of review with electronic sign-off and time/date stamps.

Managers, roll your eyes with caution because the procedures that you do not document wind up in narratives created by auditors or co-source partners, costing you a pretty penny.  In addition, these parties take significant time with your staff, costing you more.  Why not document the procedures, execute these consistently, improve the detail and clarity of these procedures over time and then hand these over to the auditors/partners as the first advanced draft of the process narratives?

Standardization and specificity of control procedures supports assigning these tasks to lower level employees.  A staff accountant can easily execute more complex tasks with step-by-step procedures that reference specific sources and reports.  College interns or management trainees can execute tasks currently assigned to staff accountants, not only lowering cost but “building a bench” and resource pipeline for the future.   Specificity of tasks also eases co-sourcing with foreign offices (e.g., Chennai) to reduce cost.  Those who were the doers become the reviewers and they move on to more challenging work previously performed by their supervisors, also supported w/ on-line procedures/tasks.  Challenging employees with more complex tasks at every level and eliminating the drudgery of performing tasks only assigned to their level because they can “figure it out” without procedures positively impacts employee satisfaction and retention.

Innovative management teams will deliver a future with less managers/overseers and more workers/doers executing internal control procedures through the strategic introduction of technology.  The quality of the work can be easily assessed within the technology.  Managers are then free to assign their more senior or skilled employees to strategic initiatives targeted at growing or further improving the business.  Beyond reducing compliance costs, freeing up talent to address strategic initiatives can be a “game-changer”.  These valuable employees are a turnover threat due to the numerous mundane tasks they are responsible to complete month after month.  The best and the brightest become easily frustrated by the mundane.

Related to compliance testing, specificity of on-line tests/tasks supports using employees from one function to perform compliance (e.g., SOX) testing of another function rather than employing dedicated compliance teams, internal audit or co-source partners.  For example, Payroll Department employees can test A/P controls.  In my 30 plus years of auditing, the most effectively controlled operation I audited was a shore-based office in Australia for an off-shore oil drilling company that was required to be ISO compliant and who used this strategy of one function testing the internal controls of another.  We found that this strategy broadens the experience of employees while making their job more interesting and helping them build a resume.  Learning about other aspects of the business operations leads to a better understanding of the organization and an appreciation of the activities of these other functions.  Performing internal control testing deepens their understanding of internal controls, how they are assessed and why they are important.  Testing of another function could lead to an interest and pursuit of future opportunities that develop in that other function, expanding the pool of internal candidates for open positions.  Finally, most functions have busy and slow times.  Scheduling compliance testing of other functions during these slow times, even for a week at a time, will lead to a more effective utilization of your workforce.

The key point is that technology can actuate procedures so they are not just pages in a binder, technology can directly relate the control execution and review procedures with all the evidence of performance and review, and technology enables moving the responsibilities to lower-level workers to deliver on the “knowledge worker” productivity Peter Drucker emphasized as critical to sustained success.  Economist Robert Gordon argues in his new book, The Rise and Fall of American Growth, that America’s future economy will not be nearly as bright as its past mainly because the great improvements in productivity and living standards (e.g., electrical power, transportation, indoor plumbing) achieved in the 20th century have no such counterpart to improve productivity in the 21st century.   Peter Drucker’s challenge to unleash the productivity of the “knowledge worker” presents an opportunity to achieve such productivity and lifestyle improvement gains.  Executing financial, compliance, operational and strategic objectives in a consistent manner, with accountability, documentation and accessibility is one such “knowledge worker” productivity opportunity.  The best productivity comes from good technology that support consistency, clear communication, and ease of tracking thereby supporting moving the work to lower skilled workers thereby increasing productivity per dollar spent.  Let’s use technology to leverage compliance and deliver on Peter Drucker’s call-to-action.