VS1 Cloud Blog
The traditional professional services industry will likely be radically different in ten years. Changing clients’ demands, employee expectations, rapid technology developments, and other external factors will change the nature of jobs and skills required in the future. Ultimately, these factors, with technology in the lead, may even challenge the very nature of the “practical expertise” that professionals deliver.
An Age of Disruption
Many industries and business models are at risk of being disrupted due to rapid technological developments, enabling new business models, replacing old distribution channels, and changing the way people and businesses interact with each other.
At this moment we see groundbreaking disruption taking place across most industries. When you take a look at the Fortune 1000 over the last 40 years, starting from 1973 you see that major changes have taken place. By 1983, one-third of these companies have fallen off the list. By 2013, only 30% of the original companies are still on the list. This pace of change will continue to increase as only a third of today’s major companies are expected to survive the next 25 years.
These changes are driven by megatrends that have far-reaching, interrelated consequences for business, economies, industries, societies, and individuals. Combined they are causing massive transformational shifts.
Digital technology developments are the leading disrupter, fed by social, mobile, cloud, big data, artificial intelligence, and growing demand for “anytime-anywhere” access to information. Other causes include changing global demographics; increase entrepreneurship and innovation, which close the gap between mature and developing economies; and the movement of economic centers from West to East and North to South.
Professional services like accounting, legal and consulting have so far not been highly impacted by these technological developments, but all signs are there that real change is coming and that the industry is at the gates of a digital transformation process. The biggest impact might not just come from new ways of organizing and delivering professional services, but also the very nature of the “practical expertise” that professionals deliver are being challenged.
But first, take a step back!
Why do Professional Services Exist?
Ongoing specialization has been a decisive factor for the current state of our society. The effects of specialization is such a broad concept that it touches upon almost everything in our daily life. And our natural urge for specialization is also one of the main reasons why professional services exist. Society and businesses cannot know everything and therefore need specialists with practical experience to help and guide us.
Historically, technology developments changed the course of our specialization in important ways. Now everything points to the fact that technology is to drastically change the way we actually use professional services. Some even think that technology will eventually replace these service providers because technology enables more efficient ways of knowledge sharing, which is the core of professional services.
Main Sectors Impacted
Professional services are a major part of the overall economy, especially in the Western world, whereby it is a fast-growing sector in the rest of the world. So it is likely that any change will have a considerable impact on our economies, let alone what a drastic change in the professional services industry will mean.
At the level of the professional services industry, in general, there will be an increasing skill shortage and it will be more difficult to find the right person for the job. It is also expected that medium-sized firms are likely to face the biggest challenges, especially at the level of compliance-related services. Some expect that mainly the bottom part of the professional services pyramid will be impacted. Technology will replace much of the hard work of discovery, analysis, and comparison of information which is mainly done at the low end. Furthermore, low-end services can be replaced by self-service platforms or will become commoditized services, especially when technology enables direct tapping into the flows of client data as needed for instance for accounting and audits.
Accounting firms and professionals will face new challenges caused by new technology, new platforms, new services, and changing customer expectations. Some services may be automated, commoditized, or will be done in-house by the client itself due to new technological ways for clients to make sense of their own financial data, which data, in the end, is not much more than a registration of its business transactions.
While the legal profession went through some changes in recent decades, major changes are expected across the legal industry over the next ten years. The transformation of the legal industry will likely be radical due to rapid technological developments, shifts in global workforce demographics, changing client demands, and the need to offer clients more value for money. Within four years a tipping point is expected for individual firms that will impact the competitive landscape and the role of talent.
For the consulting profession, the same external factors as for accounting and legal will have an effect on the shape and form of the consulting industry. However, part of the consulting industry may also benefit from this disruption age. As a result of the disruption, clients are rethinking their own purpose and business models. Therefore, there will be an increased demand for technology-based strategy consulting and this will likely go hand-in-hand with new parties entering into strategy consulting.
Main Causes and Disruptors
Increased Competition – Enormous increase in competition is expected as new players enter the market or alternative business structures are being used. Examples include:
What you already see happening is that traditional accounting firms are entering the legal and consulting market as their core audit market sees signs of turbulence, with increasing price pressure and a growing readiness to look beyond the usual suspects for this kind of work.
The growing importance of competitors from emerging markets. Mainly the top US and UK firms have benefited from globalization, however, large firms from emerging markets are creating serious activities in their own countries and western markets.
Private equity-backed commercial law firms challenging the traditional partner based law firms.
Other recent new business models applied to the legal market include Elevate, Conduit Law, and Lawyers on Demand.
Deregulation – The increasing trend of deregulation will reduce restrictions on almost all aspects of ownership of service providers and the way they offer their services. This will open up the market to innovative business models which were not possible before due to regulatory restrictions.
Globalization – Further globalization and a continuous trend of outsourcing professional services to emerging markets especially in the fields of compliance and other low value-added services.
Changing Client Demands – Changes in desires and the way clients buy their services. Corporate buyers increasingly focus on value, requiring fixed fees, and more transparency on pricing. Services are also being purchased via the à la carte model – choosing different providers for different tasks. Clients will also have access to more information enabling them to compare the cost of professional services, via online marketplaces for example, and search for alternative options more easily.
By: Consultants 500