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Professional services firms have undergone dramatic shifts in the last 10 years, and many are predicting complete disruption in the next 20.

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As automation, broader access to information and other trends converge, smart professional services firms are looking to aggressively transform themselves.

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Perhaps one of the more ambitious firms in this regard is KPMG. My guest today is Fiona Grandi, National Managing Partner for Innovation & Enterprise Solutions at KPMG.

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In this conversation we discuss how KPMG organizes itself internally to pursue innovation initiatives, how they embrace a bottom-up approach to surfacing and executing on ideas, the impact things like automation will have on professional services in the future, and much more.

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(Full disclosure, KPMG has been a client of Manifold, and we’ve been able to see first-hand how Fiona’s team thinks about enabling consultants to use technology to deliver better work. After seeing our team interact with theirs, it was fun for me to hear directly from Fiona on the "why" behind what they do and where she sees them heading. It was a fascinating conversation and I think you’ll get a ton of practical value of out it.)

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• Innovation at KPMG
• Unified Theory of Innovation
• Extending Your Business Model
• Designing Your Innovation Portfolio
• How to Incentivize Innovation
• Embedding Innovation Into Your Company DNA
• The Politics of Innovation
• Balancing the Need for Efficiency Improvements and Billings
• Innovation Benchmarking Study
• “Overnight Successes” and Failing Fast
• Bringing innovation back into the core
• The future of professional services

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Innovation at KPMG

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Manifold: Why don't we start with your role and your mandates at KPMG? What's your group charged with doing?

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Fiona: I’m the National Managing Partner of the Innovation and Enterprise Solutions group at KPMG. I lead our research and development function on a national level.

One of the cool things about KPMG is that we define innovation as one of our firm’s strategic objectives. Our CEO sets our mandate in our Executive Committee. Innovation is directly tied to our growth, our brand and our culture.

I have a national team in all parts of the country. We do research, solution development, and a lot of education of our professionals and partners at large. We also do quite a bit of enablement, we try to bring what has been built into the marketplace. So, I have a pretty cool job.

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Extending Your Business Model

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Manifold: One of the things that you've talked about before is extending from the core and building from what you're best at, rather than just completely doing new to the world, blue ocean types of things. There's a ton of value in taking what we're already good at and finding more ways to profit from them.

Are there any particular approaches that you’ve found to be particularly effective? Whether that's pursuing new segments with existing service offerings or, layering complementary products in or even just awareness internally around cross-sell initiatives. How do you think about extending the core broad layers? 

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Fiona: It’s important for companies to stick to what they do best, while still trying to innovate the ways in which they do things. By that, I mean there’s not much that KPMG truly focuses on, outside our core business model.

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That’s where our network comes in and is really important. If you think about it, there isn’t a Fortune 500 business that KPMG doesn’t understand, because we serve every one of them in some way, shape, or form. We’re seeing companies approach us saying “we’ve got a new product” or “we’ve got a new angle to attack the market” and often, we have to turn those away and think about where we can leverage our assets, which really come from our people.

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Some of the best success we’ve had is when we partner our domain expertise with our business understanding, and excellent tech skills, then we can build something really cool.

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Manifold: In an organization where you have such broad exposure to client problems in every industry, it would be easy to do things that seem relatively close to your business model. But then, you wake up ten years later and realize that you went down these rabbit holes.

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Are there and rubrics or statements of value that you’ve codified to say “here are the frameworks we use to avoid the subtle pivots that can potentially take us down a bad direction?”

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Fiona: We certainly use guiding principles around innovation.

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Strategy from the top level helps make those guardrails. We have a really strong committee of very senior leaders who help jump in when we’re making some big shift in innovation. That keeps us honest.

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We’re also pretty good at unpacking where it hasn’t worked well. Thinking back over the last decade, there have definitely been some things that didn't impact our overall annual performance, but a couple of things that we explored and thought “that's not really in our wheelhouse. Let's not do that again.”

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Designing Your Innovation Portfolio

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Manifold: I want to dig a little into portfolio design. Embracing a portfolio approach is something that a lot of folks talk about when they're trying to be innovative. It’s something we do ourselves at Digital Intent. For us, it comes from our background in venture capital, but there are a bunch of different views on it.

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How do you think about portfolio design, allocation, and balancing incremental innovations with more transformational innovations. How do you approach constructing that portfolio?

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Fiona: I’m a huge advocate of the portfolio theory and the best way to describe it is that KPMG is really multidimensional.

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For example, we have the build, buy, ally strategy. We do a combination of those three things as opposed to just going down one path.

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There’s also other dimensions, for example, dimensions of our network. It is really important for us to have relationships with startups and accelerator networks because they inform us on what we’re doing. Sometimes we identify targets we want to acquire, sometimes we identify businesses where we want to jump in and make investments.

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But we can’t just network with the startup community though. We also have to have ties to big global enterprise companies, and all the companies in between.

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Another dimension of taking a portfolio approach is the fact that we do big innovation work streams, but we also do ground level innovation with our more junior team members.

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We try to innovate in really small ways. It’s amazing how micro-innovations can bubble up and springboard an idea that we never would have seen from a high level.

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Embedding Innovation Into Your Company DNA

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Manifold: KPMG has thousands upon thousands of people trying to do these micro innovations. How do you determine what you’ll roll out more broadly to embed into the larger KPMG DNA?

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Fiona: Innovation happens in all parts of KPMG, not just in my group.

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In my group, when we make an investment of dollars in some way, it is well governed with stage-gates. We have a committee of senior leaders who represent all aspects of the firm and help make the decision about whether we’re going to spend money on something or not. That works really well.

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We try not to put too much governance in the grassroots activity or the innovation that's happening out in the functions. We have innovations that are happening out on engagements every day, and rather than trying to govern it, we’re more concerned with trying to capture it.  

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For example, on a transfer pricing team, say someone comes up with a better way to do something. Once that engagement is done, my fear is that it’s lost and not taken into consideration for every future transfer pricing engagement. We have governance on the bigger bets, but on the grassroots side, we’re really just trying to gather those insights and share them out. 

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The Politics of Innovation

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Manifold: I know you’re interested in the politics of innovation and the myriad ways that folks can derail great ideas. What are some of the more common things you see, and do you have any suggestions for how other teams can try to navigate them successfully?

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Fiona: The “It’s Not invented Here” syndrome is a very real thing.

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I was recently at the Innovation Leader Conference in San Francisco, and we talked about this in some groups with representatives from a broad set of companies. It was amazing to see how everyone related to this.

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There are two parts to it. One is that you end up with trying to launch something and people don't accept it. That's the antibody effect.

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The other thing is that you have groups within an organization that just don't talk to each other, and you end up innovating the same thing or tangents of the same thing in many places, and that’s so inefficient compared to collaborating as a team.

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In the Benchmark Report, 52% of people said the politics of innovation was their biggest impediment to successfully innovating.

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Building consensus is a balancing act. If you spend all your time building consensus, you’re going to lose market speed.

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On the other hand, if you plow ahead too fast and people don’t buy in, you’ll never launch. We try to find that common agenda to avoid what I call “foot draggers.” Don't expect people to jump in and help you with your innovation for no reason. Everybody is running around with their task lists and packed schedules. You must articulate what's in it for them, and what they're going to learn from it or how they may benefit from helping you down the road.

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The real differentiator for us is our senior leader committee support which gives us a lot of buffer and permission to do what we want to do. 

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Manifold: When folks throw out the word “incentives” their mind often goes to money. When you're talking about equipping some of the more junior team members who don't have a lot of political clout, there's a lot of organizations that don't necessarily have the power to provide that. What are some of the other types of incentives that people should be thinking about when they're trying to recruit internal allies?

Fiona: We do a lot of different things. For example, if you were to file an application for a patent, trademark or copyright, that gets or national attention. Our CEO will spend time with the partner who lead that initiative because it is so important, and you can't get better recognition than your CEO having a meal with you and thanking you for the work you did.

Another thing we do is really try to celebrate success. We do give monetary awards, we call them spot awards. Awards are great, particularly with the younger professionals. We’re pretty liberal in sharing those as well. We don’t just tell one person “you did great, here’s your Spot Award” but we announce it to the whole group. We’re not just trying to encourage one individual, but rather the whole team, department, or network. We want our employees to know this is the kind of behavior that we really celebrate.

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Balancing the Need for Efficiency Improvements and Billings

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Manifold: Along the same lines of running incentives and finding tension there, you mentioned automation awhile back. When you’re more junior, the incentives to innovate a process are in alignment because you’re doing most of the delivery work that will ultimately be automated. When you get to the senior or partner level though, I imagine there’d be some hesitation because it’ll either bring your prices or your book of business down.

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Do you see balancing the need for efficiency improvements and billings as a problem in professional services firms?

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Fiona: The reality of professional services, particularly public accounting, is that parts of the things that we traditionally do for clients are being monetized or eliminated with the advent of automation, machine learning, deep learning, artificial intelligence, all of it.

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We’re not really worried about that. We're embracing it. I started out 24 years ago as an auditor and I shudder at the work that I used to do. A phrase that I love from a colleague is “soul crushing work,” nobody really wants to do that. Our younger professionals are excited instead of being concerned that they're going to be out of a job because of all these enabling technologies.

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I worry that we get digital natives coming out of college and that we're brainwashing them with our old methodology. I’m trying to do the opposite and give them access to the software and programs where they can explore. We’re asking them to help us find a better way of doing things.

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It’s almost a reverse mentoring concept, the bigger issue is actually at the senior partner level. The younger professionals have to teach them some things. 

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Manifold: It seems like you’re not eliminating the junior positions, but rather you’re elevating them and getting them to think more strategically faster. This may allow the average book of business per partner, or however you measure success, to grow considerably larger from scale. But are there any implications in terms of how corporate ladders work inside a professional services firm?

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Fiona: I think there are some implications from that. When I started out as a professional in our audit practice, audit partners were considered kings or queens in terms of their knowledge. I never thought I could ever be as smart as they are.

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In some way, that’s still true today. Some of those partners have amazing relationships and embedded trust with their clients, and they’re solving some really heavy challenges facing very large organizations.

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Some of those partners might know what a solution looks like, but they can’t put it into practice because the people on the ground are the ones who have that technical knowledge. We’ve been spending a lot of time ensuring that we can bridge that gap.

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I’ll give you one quick example: This happened earlier this week. A major news publication is connecting with KPMG to hear about a technology we built, they want to demo it in one of our labs.

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While I was reviewing the team on board, the lead is a young woman (who I think is just awesome). We have this huge presentation where we’re going to be quoted and published, it’s a huge moment. Who are we putting forward? That young professional.

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It’s interesting because we’ve shifted and we see a lot more training at younger ages now because we know these digital natives can describe how we’re building things in a way that some of our partners or senior professionals just can’t do. We have to train them in public speaking and coach them on confidence and presence, so it’s a really interesting dynamic. There’s a huge opportunity as we continue to bridge this gap.

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Innovation Benchmarking Study

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Manifold: Changing gears a little bit, you mentioned that Innovation Benchmarking study. From your perspective, what was the most surprising thing you learned from the study?

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Fiona: There were a lot of findings that made sense, and it’s interesting to see specific data to support those findings. But there weren’t a lot of things that made me think “oh wow, that was shocking.”

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The thing that was surprising to me was the percentage increase in the transformational efforts. Transformational as opposed to something that’s just adjacent or incremental. It wasn’t a big jump. Last year, it was 20%, this year it’s 25%. For the role model companies, companies that are more mature in their innovation processes, that number actually went up to 35%. 

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But, what I noticed was that many of the participants of the report talked about some of the things companies have stopped or slowed down. There was a lot of acknowledgment that there’s less tolerance for those “third horizon,” long term efforts that take time to go to market.

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So, if you put that together, companies are taking bigger risks, but at the same time, they’re only looking at horizon two or one. They’re expecting faster results. I think that’s indicative of the vast disruption we see across the board in the market.

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“Overnight Successes” and Failing Fast

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Manifold: In the startup and SaaS world, an “overnight success” is really a 10-year journey. It sounds like there might be a misunderstanding of how long it takes for some of those initiatives to see fruit. What do you take away from that?

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Fiona: It's hard to unpack without digging into sort of individual companies and individual strategies. I think it's indicative of the increased pressure. The stakes are just getting higher.

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I don’t think we’re seeing massive business model shifts, at least in larger companies. But in midsize companies, where the fringes of their business are eroding from startups and some of those ventures, they're the ones that are starting to take the bigger risks, trying to get faster results, maintain a speed of growth, and not lose their market share.

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Manifold: One of the things I thought was interesting was this idea of failing fast. You don't know which initiatives are going to succeed. Failing fast became a very common trope within that universe, if you're going to fail, you might as well fail quickly.

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But one of the things you all found was that failing fast was not something that your role model companies valued. Why do you think that is, and what did you learn instead that the role model companies did find to move needle?

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Fiona: I personally don’t love the term “fail fast.”

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KPMG is a great example of what we saw with some of the respondents from the benchmark survey. We talk more about pivoting fast and learning fast. The reality is, our teams don’t want to talk about failing. Of course, we analyze failure to learn, but we don’t want to dwell on it. It’s not something we celebrate.

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What we’ve found at KPMG, and what was indicated in the report from other participants, is that failure doesn’t drive the innovative culture we want. What is focusing on clear strategy and top down support? 

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Bringing innovation back into the core

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Manifold: One of the big pitfalls that we've seen in the past is the propensity for organ donor rejection when you try to fold something back into the mothership, whether it was developed in an incubator or an acquisition.

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What do you think are some of the reasons are for that? What are some of the things that you will do to try to increase the likelihood of success when you are trying to pull that back into the larger organization?

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Fiona: The issue is that we have such a strong culture in our way of approaching things. However, we acquire companies because they’re different, not in spite of it. They have something we don’t have.

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We fear that a small entity will lose its uniqueness in a big enterprise like KPMG. We’re hoping to absorb, not overtake.

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We call rolling things back out into the business “graduations,” and they’re really difficult. We’ve worked really hard and improved a lot and I believe that if you’re doing innovation the right way, there shouldn’t really be a “rolling back out into the business.” It should be an organic merging of things. We try to graduate mature parts of an area of innovation one at a time, as opposed to hard flipping something over and hoping that it lands softly on the other side.

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Manifold: We've seen in the past the sheer difficulty of assessing the performance of these initiatives. There are obviously differences between what you’re doing in the core and these very nascent initiatives that take time, but how do you assess them differently? Is there any advice that you would give to organizations when they're going through an ugly duckling phase and they don’t know what it’s ultimately going to be?

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Fiona: We evaluate everything in some way. We use a lot of balanced scorecards, so a lot of quantitative measures, but qualitative measures are also super important.

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We’ve really worked to get our leaders to understand that if we’re investing in something that is truly a long term commitment, we can’t talk about return on investment by default. If we’re getting a return within 12 months, was it really transformational?

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We make sure that we've got the right expectations aligned with the right horizon. I think a lot of leaders get hung up on “how much is this going to make us?” “How much is this going to save us?” That erodes development.

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The Future of Professional Services

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Manifold: It seems like a lot of those Lean Startup techniques lend themselves really well to horizon one or horizon two activities. Things like customer development, design thinking exercises, and customer journeys.

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But some of the transformational activities seems like they often happen as a result of a new technology coming out. Folks try to wrap their heads around what they can do with it, like a solution in search of a problem. Blockchain is a really good example, everyone was psyched about it in 2018, but there’s still a bit of darkness around it.

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How do you advise an organization who wants to invest in something like this to poke around these emerging technologies? 

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Fiona: Blockchain is an excellent example, it applies to all emerging technologies. Technology itself isn’t the solution. When a client asks us to implement blockchain or something like a distributed ledger and they give us specific parameters, that’s not the type of work we want to do. It’s not business enhancing or game changing. It’s a hammer looking for a nail.

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A lot of clients approach us and tell us they’re looking for blockchain because they’re looking for immutability and trust. We might tell them that we understand they have a problem, but blockchain might not be a game changer for them. Instead, we provide other scenarios where technology can help. You can combat problems with a design thinking mindset. Blockchain is perfect for things like contract management, but it’s just one component of a larger solution.

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Manifold: Specifically as it relates to professional services, what do you think the professional services firm of 2030 looks like and what are some of the things that you think emerging tech is going to potentially be able to enable there?

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Fiona: I think a lot of our traditional services will be automated. We'll be doing what I like to call the higher purpose work. I think people are our asset. The skillsets of our team is changing dramatically. I really think the mix of our people is going to change dramatically.

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A lot of companies will become more automated and systems driven. At the end of the day, humans are tweaking the numbers that get into the books, no matter how they get into them. We’ve got to understand what the humans are doing. I think processing speed is going to change a lot, whether it’s quantum or 5g. It’s hard to even fathom what it’s going to look like, but it’s super exciting.