The true value of a CPA firm resides in the minds and capabilities of its people and the processes used to harness them.  The ability and effectiveness of a firm to understand a client’s needs, interpret provided information, research possible solutions, and make recommendations will determine that firm’s ability to service that client’s specific needs.  The ability and effectiveness of that same firm to tap into the combined knowledge of its people, utilize optimized methods of processing information and adapt to evolving technologies will ultimately determine that firm’s future success.  This process of capturing, documenting, and making available the intellectual capital found in the firm’s people and processes is referred to as knowledge management and may well be the only sustainable competitive advantage amongst CPA firms in the future.   

Knowledge management has been a difficult concept for CPA firm’s to grasp as an individual’s personal knowledge often differentiated them from other staff members and accelerated their career path within the firm.  The individual’s mantra of “knowledge is power” must be refocused towards the entire firm such that “firm knowledge determines the firm’s success.”  This will take a major shift in culture and must be driven by the firm’s leadership.  Owners must realize that every time a person leaves the firm, that individual’s knowledge of clients and processes leaves with them, unless they have captured this knowledge in some fashion.   

Knowledge management is an extremely broad topic, so firms must begin by focusing on information that has the highest value to firm members and which they would benefit by having immediate access to.  For information that resides in specific applications such as tax, depreciation, practice, or document management applications, best practices for accessing and utilizing this data must be documented and enforced.  These procedures must be in written form, with screen captures and organized such that they can be used for training, and stored in a format that can be accessed by the individual when they need it.  All other data outside of accounting applications must be consolidated such that they can be accessed through a central resource.   

Many firms today have manual or electronic documents disbursed throughout the firm.  They have personnel and policy manuals either in a physical format or stored on the network in an administrative directory.  They have physical human resources forms such as insurance, payroll and 401(k) in a file drawer and firm-developed tax tools on a shelf or another digital tax directory. Many have manual telephone extension lists that are constantly being updated and physically distributed to all firm members.  All these distinct pieces of information can be difficult to maintain and access in their current formats and can benefit from being consolidated as part of a knowledge management initiative. 

While standard directory structures helped organize information in the past, the huge increases in data volume have made this difficult and finding a misplaced document became similar to searching for the proverbial needle in the haystack. To help organize this data, many firms have turned to Internet technology, specifically web site designs that allow different types of data, stored in different locations, to be organized and searched much more intuitively.  These internal websites are known as intranets and can be secured such that all information is only available to firm personnel and other authorized users.  The benefits of intranets are many, but the key issue is that information can be centrally updated and the most current version delivered to all personnel just by virtue of loading that document on the intranet.   

Knowledge management needs for each department vary depending on what information is utilized by that department.  For instance, within a tax “sub-page,” firms could have a centralized listing of all internally developed forms.  These forms can be organized according to firm naming conventions and it does not matter if they are created in Microsoft Word or Excel, an Adobe PDF, or linked to a web site on the Internet.  Everyone’s web site favorites for tax research can be centralized on one listing giving the entire firm access, rather than having each person maintain their own listing in Internet Explorer individually.  For auditors, having the current audit schedule could be the default for the audit sub-page and consolidate audit tools such as a searchable audit procedures manual or a central listing of customized industry audit work programs or resources.  Within administration, the firm’s financial reports can be posted and an email sent to the owners letting them know the information is available.  This is much quicker to deliver and store at a lower cost than physically printing, delivering and archiving the financial statements.  To promote utilization within the firm, many default their browser to the intranet so it is the first thing they see when they load Internet Explorer. 

The most prevalent tool today for intranets is Microsoft FrontPage.  While it is not as robust as some of the professional design tools, it costs significantly less and utilizes many of the same commands as the other Microsoft Office products.  The benefit of this is that training time is reduced and once the initial design is in place, an administrative person with only a couple hours of training can do maintenance for their department.   

Another prevalent tool for organizing and accessing knowledge has been Lotus Notes, which many of the larger firms had invested in the past.  Lotus Notes capabilities have always surpassed that of FrontPage in that it could not only organize data, but it could also build in processes to optimize the use of any information stored within their “intranet” infrastructure. Lotus Notes could pull information from completely different applications such as tax processing and time and billing, do analysis of information and route issues or exceptions to the appropriate person immediately, rather than waiting for month-end analysis.  This level of sophistication took a significant investment in time and training as well as ongoing maintenance, so most small to medium firms settled for the organization capabilities of FrontPage. 

FrontPage has been around for over a decade and Microsoft will be replacing it with their next version of web design tools beginning in 2007.  These tools, which will also incorporate Microsoft SharePoint servers will build on the intranet that the firm has already developed, but will add knowledge management features that were never before available, making it a competitive product to Lotus Notes. The surface is just being scratched on Microsoft SharePoint, but early utilization is showing significant organization and search capabilities, which will allow firms to better capture individual knowledge and experiences, and find it much more easily and within the context of specifically what they are working on.  This will come to fruition with the 2007 release of the next version of Microsoft Windows, known as Vista that will have greatly expanded search capabilities.   

As firms go “less-paper,” many are purchasing document management systems to store final versions of all tax returns, financial reports, and engagement letters.  For documents that are archived within document management systems, the ability to effectively search through the entire listing of documents and find what they need with specific key words, dates or other client attributes is usually a standard feature.  This search capability within the document management application is a form of knowledge management that should not be overlooked, but firms must realize that the search only includes documents stored within the document management system and does not include outside information such as that stored in the intranet or the firm’s email, calendar or contacts.  Firms considering document management products should look to products that have an open database infrastructure that can be integrated into the firm’s overall knowledge management strategy, such that they can be accessed by applications including Lotus Notes and Microsoft SharePoint. 

While Document Management has been the focus of many firms for the past five years, the ability to accept, manipulate, archive, access, and understand the information that the firm has stored in its network will take a quantum leap towards knowledge management in the next decade.  Firms embracing knowledge management within their culture will find themselves amongst the most knowledgeable and profitable firms of the future.  

This article is reprinted with the publisher's permission from the CPA Practice Management, Forum a journal published by CCH INCORPORATED. Copying or distribution without the publisher's permission is prohibited. To subscribe to the CPA Practice Management Forum or other CCH Journals please call 800-449-8114 or visit www.tax.cchgroup.com.