John Harris is the CEO of Olive & Co., an Indianapolis, Indiana-based law firm. We asked John to talk about his blueprint for the future: why it was necessary, what the firm sacrificed to achieve it, and what it stands to gain as a result of a very specific, very resolute strategy. John identifies why a commitment to developing strong industry-focused practices is the only way a professional firm, professing to truly serve their clients, will go in the near future.

By the time you read this, the American Bar Association will have finished deliberating on whether to issue a new Model Rule to accommodate multidisciplinary practice and, with it, the ongoing entry of the Big 5 into the legal market. It's an epochal incursion and one more reason the 1990s have truly been a stepping stone to the millennium.

How the ABA decides is important only in the short term. Cherry-picking by the Big 5 has stepped up in the United States as some of the top law firms in the country are losing tax practice heads and other honchos to the multidisciplinary interlopers. The long term promises more of the same.

It was on the eve of the ABA decision that we spoke to John Harris, CEO of Olive & Co., the 15th largest accounting firm in the country. It was a most appropriate moment to discuss with him the key issues facing his firm. Olive couldn't care less about selling legal services, but its own recent history offers a salutary lesson in adaptability.

Such firms have been wrestling with the Andersens and Deloittes all their lives. They've learned how to prosper as juggernauts much bigger than they can ever hope to be ratchet up the global advance.

Attorney terrified of the Big 5 should remember that the accounting profession has itself undergone massive changes as threatening to them as the current invasion is to law firms. There was the dissolution of one of the world's largest accounting firms, Laventhol & Horwath, a decade ago. Then, there was the consolidation of the remaining Big 7. Today, Arthur Andersen is still wrestling with the split in its ranks between auditors and consultants.

For others like Olive, there are the same persistent economies of scale to wrestle with, the same challenges facing midsize and regional entities that we find in the legal profession. What's noteworthy about Olive has been its ability to define and implement change--even though it was clear to Harris and his partners that the process would be costly and painful.

Headquartered in Indianapolis, Olive & Co. is a regional accounting firm with 13 offices in Indiana, Illinois, and Ohio. There are 58 partners and 340 other professionals and staff generating $60 million in revenue, nearly $1 million per partner. "Assurance" comprises around 40 percent of current practice; by that, the firm means audits, reviews, etc. Around 25 percent is Tax, narrowly defined as any work that leads directly to the filing of a return with the IRS or state and local agencies.

"Compliance and Consulting" represents 35 percent but bear in mind that, say, estate planning, or the tax aspects of a merger or acquisition, fall into this general category as well. In fact, such divisions by overall category aren't really the best way to understand the firm. Olive has, in fact, totally redefined itself by industry group.

Compared to Olive, most law firms today are only tinkering with industry-based groups as alternatives to substantive practice area disciplines. By contrast, the industry orientation at Olive is nearly pandemic.

We asked Harris to talk about this blueprint for the future: why it was necessary, what the firm sacrificed to achieve it, and what it stands to gain as a result of a very specific, very resolute strategy.

Edge: We know from your Web site--a very good one, by the way--that your firm dates from the turn of the century, and that it recently changed its name from Geo. S. Olive & Co. That name change, as I understand it, is an important symbolic part of a larger strategy to communicate clarity and simplicity in how the firm delivers client service. "Simpler" is the first word visitors see when they visit your site.

Expand on that. How can a firm that does auditing, tax and consulting at every level of client operations, and that has to balance so much expertise within its own tent, possibly be anything but complex, if not convoluted?

Harris: Simplicity is all about what the client sees. It's not about the work itself being simple or complex. What we mean by 'simpler' is that, when the clients look at us, they don't see disparate practitioners, some of whom do a little bit of this or a little bit of that. In an environment like that, two percent of the people in a practice team know something about the issues confronting your industry--but don't worry, we can always call in a few people from another practice group or another office who may know a little more, if they're not too busy.

By day's end, all that the client has is a labyrinth of technicians, each one of whom can answer a single question and solve a single piece of the puzzle--and hopefully someone else will know where the piece fits. That's complex. And, of course, that's inefficient.

So "simpler" means streamlined. The client is in such-and-such an industry, and he or she wants a team of consultants who can just walk in and deal with problems they've dealt with before. If the problems are unique, they'll at least have a very informed frame of reference from which to begin solving them.

Edge: It would seem that every strategic marketing and practice management move you've made in recent years has something to do with this emphasis on industry groups. It seems to define what Olive is now all about.

Harris: We have five groups: construction/real estate; manufacturing/distribution; not-for-profit; financial services; and health care. They represent 70 percent of our total practice, which is a lot, but we're not there yet, not where we want to be. It's only been a year since we formally adopted this configuration--but we know where we want to go, and we're definitely going there.

Most of our clients are also closely held, often family-held. That's another important way to niche. We're not structured around industry groups just to make it easier to market ourselves, just to make it easier for a health care group to write a health care pamphlet and buy a list of health care providers to send it to.

No, the whole point is to be really expert in what we do, to both manage and market our services by knowing as much as we possibly can about the client's business. So, the more specialized, the better: not just a health provider, therefore, but a closely held health provider. The art of it is to then make sure you don't specialize yourself out of business. Obviously, you need to know your market, and to make sure you've got a big enough pool of potential clients to draw from.

Having said that, here's my criterion for industry expertise: I want my senior partners to have the capability to be the CEOs of companies in the industry they work for.

Edge: That's a very significant criterion for most accounting firms. Maybe even radical, because it means you want your partners to be no more, and no less, hands-on than a CEO. You're really talking about consultants now, not auditors. People with broad views of the businesses and industries they advise.

Harris: Indeed. Remember too, family-held businesses are sorely in need of advisors who know as much about their industries as they do. That's why I believe we have a very strong niche. The president of a $25 million private company simply needs us more than Jack Welch or Bill Gates needs us. The smaller guy needs a single point of contact at Olive, and a seamless delivery of services. He can't get that from Arthur Andersen, while GE and Microsoft are too big to get it from anybody.

Edge: You said before that you're only 70 percent there. Why does it take so long?

Harris: Because we're talking about something new. We weren't always configured like this. As I said, the firm only formally adopted a client industry-based structure in 1998. We'd begun moving in that direction in the late eighties and by 1993 we were really resolved to go forward. We said so to the partnership. But the final step wasn't taken for another five years after that.

So the process has only just begun and the real challenge at this stage of the game is to integrate partners into the new culture. Our goal is that 80 to 85 percent of total practice will be industry-based in the near future.

Edge: Why not 100 percent? Are partners simply obstinate? Or do they resist change because it's just simpler to do things the way they've always done them even when the marketplace clearly says it's time for something new?

Harris: Oh no, they've got damn good reason to resist. It's called self-interest.

Let me preface this by saying that industry-groups are, from an internal perspective, a much healthier way to do business. They bind practitioners and create cohesion. I think you'll find there's less turnover among members of industry groups because they're not all over the map, off in a corner of the office refining some esoteric specialty and doing client business on an ad hoc basis whenever their expertise is required.

Those kinds of people are easy pickings because they have no more reason to be at Olive than anywhere else. Once in a health or manufacturing group, however, they're part of something larger than themselves. In many cases, they'd have to start rebuilding their practices from scratch if they left.

But converting a firm to an industry group system in the first place involves significant dislocation and sacrifice. You're not just asking partners to do things differently. You're asking them to give up clients. A partner may be doing work for three manufacturers and two realtors. So you stick him in the manufacturing group and--woops!--he loses two clients.

Edge: Indeed! Some firm cultures, cultures where top-line revenue generation rules, could never do it. They'd have to change their cultures altogether. Our experience with law firms certainly suggests that.

Harris: I wouldn't say we changed our culture altogether, but we certainly knew we were in for a significant alteration. Not that we were ever an eat-what-you-kill firm, but we expected that a number of big revenue-generators simply wouldn't go along. We expected to lose them once we imposed discrete industry groups on what had been much more diverse practices. But impose them we did and, well, we did indeed lose those partners.

That's why, when you look at our numbers, you'll see some recent dips in revenue. But those dips were expected and, because we were moving to a better and more competitive set-up, they were necessary.

Edge: How many people did you lose?

Harris: Twenty or so, mainly in Compliance and Consulting. They were partners who had evolved their own fiefdoms and could not see themselves as parts of the larger redefined practice groups.

Edge: The organizations that are really fit to survive are the ones that can shoulder some sacrifice at the partner level. Again, based on our experience, we see some firms able to forge that kind of consensus, but not a whole lot.

Harris: I believe the accounting firms that survive the first decade of the next century will all be industry-based. That's what you have to tell your partners, and convince them it's true, if you expect to build a consensus for sacrifice.

But, alas, you need more than partners savvy enough to see where their own long-term interests lie and that a little change today will achieve those goals even if it's a little painful. You also need partners who can figure out which client relationships they want to break and which client relationships they can afford to break.

Nor is that necessarily enough either. No matter how much your people get with the program, you've still got clients that have to be taken care of. Sometimes your partners just can't disengage. They have professional responsibilities that have to be honored. Some of our clients will therefore slip between the five categories, so, no matter how successful the transformation to industry groups, some percentage of total practice will always lie outside the new configuration.

Even if there is another industry group into which the client can fit--say, a financial services partner wants to disengage from a health care client--you've got to have a health care partner who has the time to take on the new work. So what am I saying? I'm saying you need critical mass to make such radical practice group transformations work. You need the flexibility that comes with critical mass. Them that's got shall get.

Edge: Are other accounting firms as far along as Olive? To put it another way, does your emphasis on simplicity, on a readily comprehensible internal practice group structure, differentiate Olive from competitors?

Harris: I don't have positive knowledge of what a lot of other accounting firms are accomplishing in this respect. It's my sense that there are a lot of conversations about industry groups going on, but not a lot of follow-through. I wouldn't be surprised to learn we're way out in front on this.

We are also a regional firm, which is another way we niche. Regionally, we are certainly differentiated because of what we've done.

Edge: Do you intend to stay regional? It might seem you've really narrowed your draw, maybe too much: only closely held business in five industries in three states.

Harris: We intend to stay regional in terms of our client base, but you're right in the sense that, at our size, we have to be able to work outside the region. Our clients do indeed take us around the country because their work is often national in scope.

You also have to be prepared to deliver services internationally and we solve that problem, not by overextending ourselves, but by affiliating with an international network of accounting firms. Ours is called British International-Moors Rowland International. These kinds of alliances are very efficacious. They allow professional services firms to extend their reach without abandoning well-defined strategic plans.

Edge: You're also set up regionally within the region.

Harris: Correct. There are four sub-regions. Indianapolis itself is one. Second, there's Northern Indiana, which also includes West Ohio and Chicago. I might add that we've been doing pretty well in Chicago lately. As firms in Chicago get acquired by bigger firms--and there's a lot of that going on--they lose their hold on the industries and clients we both used to compete for. So now we've really been able to target those businesses. It's another example of how firms in our tier succeed by niche marketing. We've kept the niche. They haven't.

Another sub-region is Southern Indiana/Southern Illinois, which has about the same number of professionals as Northern Indiana. Central Illinois is the smallest but still has critical mass with around 70 professionals.

Edge: What is the management structure encompassing the four regions?

Harris: There's a CEO, COO, and CFO in Indianapolis with firmwide responsibility. HR functions are delivered out of Indianapolis. Each regional office has a managing partner, and each practice group has an "industry director."

Edge: Expansion even within a region must still be a problem, especially when you need to have consensus at a very crucial time, as when you made the move to an industry-based practice. Accounting firms your size grow via merger. Olive has had six important mergers since 1990, including contingents from the Big 5.

Harris: They weren't full-scale mergers. They were more in the nature of discrete acquisitions.

Most important--and this speaks to the point you made about the difficulty of getting partners at rainmaker-dominated firms to relinquish their clients--we never acquired on the basis of books of business. Not primarily. We looked at the people themselves, and at their skills, and that eventually served us very well when we did take the big plunge last year. We lost revenue-generators, but still had a very strong equity core after the dust settled. There was no palace coup.

Nor am I being a Pollyanna about recruitment. The six acquisitions you mention were not based on portable business. But they were people strong enough to build a revenue base after they got here. We were $23 million in 1990, about a third smaller than we are today. I doubt we'd have done much better had we simply gone big game hunting rather than focus in on quality, and on people we really wanted to work with
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Edge: Now that accounting firms are cherry picking lawyers, I wonder if they won't be making the same mistake as their more rapacious brethern in the legal profession.

Harris: Oh, there's already plenty of rapacity in the accounting profession. Hopefully, though, the marketplace is now saying that the firms that are paying more attention to quality and infrastructure are the ones who can be the change masters.

Edge: What is your personal history at Olive?

Harris: I'm practically a lifer. I was with a small firm after I graduated from Ball State in 1969, which soon merged with Geo. S. Olive & Co. But I think it's all to the point about how readily small acquisitions can get integrated in the accounting profession that I still think of myself as having been here my whole career.

Edge: There is still the question of what kind of work you want your five industry groups to be doing. We talked before about how senior partners with the capability to be CEOs in their clients' industry are more like consultants than accountants.

Why then has Olive's tax practice, when strictly defined as only work that leads to a return, enjoyed a 34 percent increase in recent years? Why has it grown faster than consulting? Shouldn't we expect consulting to at least keep pace and, ideally, exceed that other work?

Harris: A lot of it has to do with a real uptick in the volume of state and local tax work.

Edge: I won't let you off the hook that easy. No story in your industry is more important, or at least more conspicuous, than the contentious bifurcation of auditing and consulting at Arthur Andersen. What effect has that saga had on the thinking at firms like Olive?

Harris: It is a very common situation and Andersen is only the most obvious example. As accounting firms found they had to expand their markets, and sell new services, a disdain between auditors and the so-called consultants sullied the waters profession-wide. I wouldn't say the situation at Andersen precipitated discussion at all, at least not at Olive. We had our own problems.

Our expectation is that industry groups alleviate this problem because they create a new kind of teamwork. Some team members are auditors, some work on clients' strategic plans, some do the taxes, some redesign benefits--but now it's the client, and the client's industry, that's the real focal point for everybody. But I'm not just talking about peaceful coexistence. I'm also talking about retooling.

If I go walking down the hall at a large accounting firm, and I say to some auditor, "Look, my friend, it's time you changed careers because we can make more money billing you out as a consultant...' Well, you can imagine the disruption, rancor and anxiety I'd cause. But that's exactly what some of the top accounting firms in the world have done. Maybe most of them.

On the other hand, what if that auditor were now part of a manufacturing/distribution team, working closely with the consulting and tax people. It's a natural expansion of intramural team relations when that auditor starts picking up new skills and new interests. Industry groups provide a shortcut to fungibility. And that, I think, helps solve the biggest problem this profession faces today.

That's how we hope things develop at Olive. Now, to finally answer your nosy question...In fact, we intend to practically double the percentage of total practice represented by Compliance and Consulting simply because we've set up industry groups. We want to reach 60 percent by the year 2,002, and we believe the retooling which industry group collaboration encourages will make that possible. So, we're talking about a four-year transformation after the formal implementation of the industry groups that happened in 1998.

Edge: Let's talk a little more about these actual practice dynamics. How are industry groups formed at Olive? What do you do with freshly minted accountants who may know tax or accounting but haven't got a clue whether they'll enjoy the financial services or construction industries?

Harris: We assign them to an industry group when they arrive and then they see how they like it. In fact, we give them two to four years to switch. But, by the time they're ready to assume management duties, they must have made up their minds. At that point, they can't switch. If we allowed that, it would open a floodgate and defeat the whole purpose of guaranteeing consistent client industry expertise.

Edge: How are the five group directors picked? What do you expect from them in terms of responsibility for group performance? Do you hold them to revenue targets?

Harris: I pick the group directors, and I expect them to meet very specific goals for bringing new products and services to market. We don't necessarily have precise dollar quotas, but the group leaders are evaluated against measurable criteria.

Edge: Which are?

Harris: There are four. The first is practice expansion, measurable in revenue and benchmarked against past performance and what the other groups are doing. The second is people development: recruiting, turnover, training. It's not just growth numbers or attrition numbers that allow us to evaluate industry directors on this score. We also do 360-degree surveys on all our partners, so we get a good picture of how their co-workers, from senior partners to secretaries, feel they manage the human infrastructure.

Third are economic indicators, like realization. That's obviously measurable. The fourth is client service. We use frequent formal client surveys for concrete data on how someone's doing. Of course, losing a big client will have a direct impact on a director's total performance evaluation as well.

Edge: Presumably, compensation is then directly affected by the four criteria. In general, has your compensation system changed since Olive went to industry groups?

Harris: Oh sure. Before, it was much more subjective. It was simply harder to measure individuals' total contribution. They were all over the place. Now they're part of discrete practice groups reporting discrete results. A significant part of everyone's compensation is tied to those results because a bonus pool equal to 25 percent of the firm's total income is set aside for redistribution to the five groups.

Edge: How much authority do practice group leaders have to actually take steps to achieve their goals? Do they hire and fire other members?

Harris: We don't get involved in that; that's totally an industry group decision, though the industry group directors will normally consult with the regional managing partners before they make important personnel decisions. We don't have a lot of committees at Olive, so I'd say the industry directors have considerable autonomous authority.

Edge: And training?

Harris: Everybody has a coach, and, for their first five years, our people spend a lot of hours at out-of-house programs, although it's not always easy to find good CPE programs. Later in their careers, Olive accountants get formal "revenue-enhancement" training to help with their business development skills.

Edge: I'll tell you, it drives law firm marketing staff and consultants up the chimney when we see how naturally accounting firms develop these kinds of programs You just seem to come naturally to it. Even the way you've empowered your practice teams, accountants seem to operate lengths ahead of other professions.

Harris: I'm not sure all that is true. In terms of practice group management, it's possible there are more gorillas at law firms generating big revenues and stifling innovation. That may make it harder for law firms, but it's hard to generalize.

In terms of marketing, we may have been dancing to a more demanding beat over the years. We got to the point where we had to introduce and sell new services, otherwise we'd have shrunk down to nothing. Law firms may have an easier time just waiting for new legal needs to arise, but, again, it's hard to generalize.

Edge: You mentioned client audits as an important way for you to evaluate your partners. That's obviously an important marketing tool for Olive as well.

Harris: To be sure. We have a 'key client program' that requires the firm managers in Indianapolis as well as the regional managing partners and the industry group directors to meet with clients. These aren't just goodwill tours. Every time I go to one of these meetings, I come away with ideas for new products and services.

Edge: This is parenthetical, but it's something that I've wanted to ask accounting firms in your tier: We know that law firms are terrified at the prospect of competition from the Big 5. Is Olive taking advantage of that growing animus, marketing more to law firms with an eye toward capturing their rich referral potential?

Harris: It's not something you have to say aloud, because everybody knows it's there. So all you do is your best as a firm, you get the word out about yourself, and if a law firm then decides it wants to refer some business your way that it used to send to Andersen or E&Y, well, fine. But it's not something I've directly brought up.

I understand that law firms are upset that they have competition. I wish my competition would go away too.

Edge: What is Olive going to look like in five years?

Harris: We've talked about more of our total practice being industry niched as well as our achieving proportionately more growth in Compliance and Consulting work. All that is clearly in the picture, because those are our stated goals, spelled out in our strategic plan. I'd also like to continue improving our people development skills. I'd like to inculcate management skills as early on in their careers as possible.

The sheer number of drones hacking away at some firms is something I find very disheartening. I'm not talking about leverage as an economic strategy. I'm simply saying there are a lot of people being wasted who could be doing more for themselves and their employers. The good news is that the firms that treat their people and their clients better are probably the ones that are going to be successful in the next century.

It's worth stating the obvious: the kind of industry group strategy that we've developed enriches the clients who hire us. And the way we've built this firm by recruiting quality first, training them, making them want to sign on for the long haul...I'm satisfied we've done well by doing good.