This is the third in of a series of blogs on the subject of accounting firms and their operating models:
Centralized Model , Locally Integrated Model, Regionally Integrated Model, Nationally Integrated Model, Federated Model
The Regionally Integrated Model:
Firms that take this approach establish offices in major cities in a given geographic area. A good example of this is where a Houston firm establishes additional offices in Dallas, Tulsa and New Orleans — locations that are not within commuting distance of Houston.
Here are the advantages of the regionally integrated model:
This approach can make firms attractive to clients with multiple locations – e.g. regional banks or retailers.
This model greatly expands the number of acquisition targets that are geographically friendly and can be folded into existing offices.
The firm will be close to more universities, expanding the potential for “local” recruiting.
The firm will have access to more channel partners such as banks and law firms.
This approach can open the door to mergers with other firms adopting this model, setting the stage for becoming a national firm.
It may position the firm to expand its client base into new industries – e.g. high tech, or manufacturing.
This approach may bring some counter-cyclical geographic diversification.
This approach can allow for shared support function costs.
These can be meaningful advantages.
There are also some key success factors that need to support the regionally integrated model:
It will take work to become “one firm” with a consistent culture. And, the culture that emerges is unlikely to be that of the original firm that drove the expansion. Some firms readily accept this result. Others struggle over how to make the new offices part of the “mothership.” We can’t overemphasize how critical it is to consider this issue before taking the regional expansion plunge.
It will take careful planning to make firm governance work properly. Each office will need to be properly represented on the firm’s executive committee, and the members of the executive committee need to put the firm first, rather than thinking locally. Often, when firms adopt this model, they consider using a nominating committee to appoint executive committee members to de-politicize firm governance.
Partner compensation, a sensitive issue in any firm, will need extra care. There are some well-known examples where regional offices split from larger firms over the issue of partner compensation. Once partners in a regional office determine that they would be far more profitable as a separate firm, these problems can arise.
There are many examples of successful firms that use the regionally integrated operating model. It has distinct advantages. But don’t underestimate the challenges that can arise where firms adopt this model in the name of growth without thinking through and addressing the potential pitfalls.