KPMG has made a potentially game-changing move. By investing £40 million in its Enterprise programme, which includes subscription-based cloud software driven accountancy support for small businesses, KPMG has gone head to head with the likes of high-street accountants, and the mid-tier accountancy firms that focus predominantly on the SME market.
The software – which allows businesses to benefit from tax and accounting services delivered via a cloud platform – also signals KPMG’s intent to aggressively grow its mid-market business, traditionally a stronghold of smaller firms such as Grant Thornton, BDO and Baker Tilly.
So why has KPMG chosen this strategy? What has driven its bold thinking? BDLN met Iain Moffatt (pictured above), head of KPMG Enterprise, to find out the motivation behind this pioneering move…
How did your decision to enter the small business accounting arena come about?
“We needed to behave differently because of the way the market is changing. Today, companies are growing more quickly, their lifecycles are getting shorter, digital technology is improving exponentially, and client sophistication is increasing.
“We had three options. We could do nothing, we could react, or we could lead. If we did nothing or reacted, we could grow by around 2 to 3% but then we would eventually start to decline. So we chose option three: to lead, to get ahead of the game and to invest in strategic initiatives. The SME market offers a superb opportunity for us to expand into and lead the way.”
We chose option three: to lead, to get ahead of the game and invest in strategic initiatives
Can you tell us a bit more about your thinking?
“The challenge was how to transformationally change our mid-market business in a structured, integrated way. When we talked about doing that, we considered our competition. Obviously, we thought about firms like PwC and EY. But then we paused and asked ourselves, is that really our competition? In the next five years, are big accountancy firms going to be our competition, or is it actually going to be Google, or Amazon, or somebody else?
“The reason I say that is because today, our profession is all about data. The more data you have, the more powerful you are. With big data you can create more-effective KPIs, better benchmarking, and more accurate insights. That’s the secret. That’s what the future holds.
“Our recent deal with McLaren [in November 2014, KPMG struck a deal with McLaren Group to use its predictive analytics and technology] wasn’t about racing cars; it was about harnessing their fantastic data analytical capability.”
It’s all about data. That’s the secret. That’s what the future holds
Why do you say Google may eventually become competition?
“Well, what is Google? An IT company? Media company? No, fundamentally it’s a data organisation. That’s what it sells. And what’s stopping Google becoming a provider of advice based on data analysis in the future? The only thing stopping it is that it doesn’t currently have a recognised or trusted brand in that field. But in five years’ time, that might be different. If you’re a new company, are you bothered about whether you deal with KPMG, Google, ABC, or XYZ? No, you care about what that company can do for you.”
In the next five years, are the big accountancy firms going to be our competition, or is it actually going to be Google, or Amazon, or somebody else?
How big a move is this for KPMG?
“This is the biggest investment KPMG has made in the SME market in the past 30 years. The small business accounting platform allows us to enter a market that we haven’t previously had access to. It’s a transformational change in our business. For the first time, a Big Four firm can offer services to start‐ups and small businesses for a similar price as high-street accountants.”
This is the biggest investment KPMG has made in the SME market in the past 30 years – it’s a transformational change in our business
In its story about your cloud software launch, the FT quoted a partner from Grant Thornton as saying: “The dynamic growth is in the mid-market. The Big Four know that and have started looking for it. But they will return to the big businesses when that work picks up.” Is he correct?
“We will continue to work with larger organisations but we have made a conscious decision to invest in the SME market – particularly the lower end. We’re building a new arm to our business here and we’re recruiting new people to run it. This is not an either/or – it’s a both.
“The perception is that the Big Four are more interested in the HSBCs and BPs of this world. However, 35% – that’s £600 to 700 million – of our revenue comes from smaller businesses. We operate in that space already and we do it well.
“Our upper middle market share is around 25%; our lower middle market share is around 10 to 15%. We want to push that latter figure up to 25%. We’ll do that by saying to small businesses: “You can pay us the same as your current accountant but we’ll give you more.”
“We want to work with companies all the way through their lifecycle. We’re building a fully integrated business proposition.”
Tell us more about the service that you are offering through your cloud platform.
“What would it be like if you could get your iPad out and see exactly what your business’s bank balance is right now; instantly see how your cash flow is moving; or how a payment or receipt will impact on your cash flow over the next three weeks? That’s what we’re offering.
“Instead of bundling up your bank statements and sending them to your accountant to produce a set of accounts at the end of the year, wouldn’t it be better to get something on your iPad’s dashboard that gave you immediate insight about how your business is performing across a whole variety of measures?”
And you will use the cloud system to harness data?
“Absolutely. Think about how we can extend it. If we got to the stage when we had 10,000 businesses on the platform, we would have the ability to benchmark how each one is doing compared to its peer group. We could then offer advice based on that information. We want as many companies on the new platform as possible, from timber merchants in Yorkshire, to digital start-ups in Cambridge to retailers in Truro.
“From there we plan to provide extra digitised services. For example, we may offer an add-on that allows you to get a valuation of your business based on certain parameters, enabling you to track the value of your business over several years.
“We will also use the platform to identify high-growth businesses to which we can offer more detailed advice and help them to grow. As the platform evolves, we may be able to use it as a networking tool, as a way to raise finance within KPMG’s SME network, and as a way to share expertise.”
For the first time a Big Four firm can offer services to start-ups and small businesses for a similar price as high street accountants
It is a very ambitious vision. How did you win the doubters round?
“First, the basics had to be right. It was important to be clear on what we were trying to achieve, clear on the marketplace, and clear on the business plan, which obviously had to stand up to challenge and scrutiny. Those things put an initial tick in the box.
“Next came the sell. For this, the advice of Simon Collins, our senior partner, was spot on. He told me: ‘When you’re coming up with a plan like this, first you have to explain it to them, then you have to explain it to them, then you have to explain it to them again. Then when they tell you they’ve got it, you have to explain it to them again.’
“He was absolutely right and that’s a lot of effort!
“Finally, when you’re selling the vision, the message has to be consistent every single step of the way. You must always say the same thing. If you give mixed messages then the doubters will pick you apart.”
About Iain Moffatt, KPMG head of enterprise
Iain Moffatt joined KPMG’s Darlington office in 1983, having studied at Newcastle University. He stayed for six years, and then spent time at the firm’s Bradford, Hull, and Leeds offices, remaining at Leeds for 10 years and becoming senior partner. In 2012 Iain came to London to run the middle market business.