A framework for managing disruption in professional services
"Prediction is very difficult, especially if it's about the future."
Nils Bohr, Nobel laureate in Physics
Artificial intelligence, machine learning and blockchain technologies have significant scope to disrupt traditional professional services businesses. Anyone in the advice business is at some level of risk – law, accounting, wealth management, even, medicine. Of course, exactly how much risk and when the impact will start to be felt are still largely unknowns.
Although of course, in some areas, like accounting and wealth management, we are already starting to see the impacts with much lower level technologies.
In accounting for example, online book-keeping businesses like Xero are making their presence felt with what is really just automation. The role of book-keeper is close to being fully automated. As services like Xero begin to use smarter and smarter algorithms not only will more and more of what accounting firms call BAS be absorbed, but we'll start to see something that looks like analysis, insights and effectively, advice emerge from these technology platforms.
What place then for the traditional accounting firm? Genuine business advisory will grow to fill the gap, suggest many accounting firm leaders. But if their clients have shown no interest in this service to date (or at least, no interest in paying for it at a significant scale) why suddenly, will they develop an appetite for it now?
In wealth management the current threat is not really technological, it's something called indexing. A combination of historically high fees for money management, a lack of connection between fees and results and deteriorating trust in the profession in general has brought the value proposition into question. If investment managers aren't consistently beating the market average, or if they are, but the benefit of this difference is eaten up in fees, why not just bet on the market itself?
So, what to do about disruption threats? The first step is probably to simply recognise that the threat is real. Include 'disruption' as an agenda item on executive meetings and offsites. But what then? How do you begin to have the discussion.
Reach a consensus and raise awareness
Executive decision making in professional services organisations is problematic. This is old news. Managing Partners are not CEOs accountable to a board and empowered to make the big decisions. Perhaps, in a way, they are closer to committee chairs. The bottom line is that reaching a consensus is key.
The first steps have nothing to do with developing an action plan. It is instead about understanding the diversity of opinions that exist around the room. Opinions will likely vary from – this is a waste of time even discussing it – to – let's just wait to see what the big firms do and then we'll copy – or, this is serious, we need to be proactive, we should be investing in this area ourselves.
Allowing people to see the diversity of opinion on the subject and hearing people out on their reasoning is vital. A well functioning executive will accommodate the existence of different views. But ideally it will be based on mutual respect and a recognition that everyone at the table is smart, experienced and has something to offer.
The best approach, and this may take some months to unfold, is simply to share and listen. Invite experts to address the group or brief internal experienced staff to collect examples and stories of emerging technologies. Gradually raising awareness and understanding is a key component of consensus building. Opinions are better when then they are informed.
Perhaps, over time, with improved awareness and understanding of the issues, a consensus emerges that some level of action is required. What then? How do we begin to manage the almost infinite level of uncertainty?
Below is a suggested model to frame the discussion. If an emerging issue has the potential to have some impact on the business, the key questions become:
- How big an impact could this issue have on our business? and
- How quickly could this impact be felt?
In order words, what percentage of our business could be impacted by this issue and how quickly?
Let's take an issue like government taxation services pre-filling tax returns from data links with banks, employers and the like. If your accounting business consists of mainly doing mum and dad annual tax returns this is likely to be a very high priority issue.
As you move up to high net worth individuals and businesses with more complex affairs the pace and scale of impact is lower but still very real. You may decide the risk profile still fits into quadrant 4 in the figure above. As well as developing a mitigation strategy, this risk assessment should be reviewed regularly with the firm maintaining a 'watching brief' over key Strategic Signposts:
- Technological breakthroughs – sudden shifts in development that cause rapid adjustments in timeframes
- Changes in client sentiment and behaviours – keeping your finger on the pulse of client sentiment is recommended because it is a good place to get early indications of disruption, and
- Moves by competitors – such as a significant investment in technology or launch of new lower-cost, more automated services.
Changes in the Strategic Signposts would cause you to either increase or decrease your rate of response to the threat.
Let's look at a legal industry example. There is a lot of talk about blockchain and AI as the ultimate disruption threats, but what about something a little less low tech? What about the rise of unbundled legal services? For a long time a lack of transparency in legal services has made it a profitable place to be. Both price (not just an hourly rate, but the ultimate price you will pay) and service quality have been enigmas. Increasingly, new entrants are coming to market boasting more transparent and competitive offerings, such as fixed pricing and competitive bidding.
In the old days of litigation for example, firms used to make a lot of money out of photocopying, with teams of in-house photocopiers operating around the clock. This non-legal service eventually became unbundled and moved to speciality providers such as law-in-order in Australia.
The next developments might well be in unbundling legal services (though some regulatory changes might also be needed). Let's take divorce. In an example of a more or less amicable marriage break-up among reasonably savvy adults, what do they really need from lawyers? Perhaps simply some expert advice on the likely range of division of the matrimonial asset pool a court might order, based on their personal circumstances. Could this be done through an online service? Perhaps a clearinghouse that obtains two independent advices (perhaps from barristers, not legal firms). The couple meet, read both advices and settle on the compromise position. They summarise this and lodge it with the Family Court themselves.
Is this a far-fetched example? Perhaps not. How significantly could it impact on a firm's bottom line? Well that would depend. The key point is that spending some management time discussing what might lay just over the horizon is a good idea. And just because 'prediction is very difficult' doesn't mean you don't try.