ARE PROFESSIONAL FIRMS HEADING TOWARDS EXTINCTION?

The Industrial Revolution 200 years back
completely transformed the way businesses were conducted. Work was standardised
into small repetitive steps which increased productivity not by 20% to 30% but
by a factor of hundreds. The technology revolution is today similarly poised to
transform the way in which professional practice is organised.The existing way
of conducting professional practice is undergoing a paradigm shift and
proactively managing these changes is not a matter of choice but a question of
survival. In this article an attempt has been made to articulate some of these
fundamental changes and how we need to respond to the challenges.

THE OLD WAY

Professionals as a class emerged in the
nineteenth century and today they are an indispensable part of society. They
are highly respected for their knowledge and expertise and the apex body (ICAI
in our case) under which they function has the responsibility to ensure that
those who are admitted into their fraternity are not just professionally
competent, but carry the profession with integrity.There is a tacit
understanding that in return for their specialised knowledge, the professionals
would be granted the right of self-governance in their field of expertise.

In 1939 the sociologist T.H. Marshall
remarked; “the professional man, it has been said, does not work in order to
be paid: he is paid in order that he may work.” So the core value of the
profession has been service and not profit. Some of our seniors remember with
nostalgia that we were in the profession of chartered accountancy
and not in the business of chartered accountancy.

The very foundation of the relationship
between a professional and a client is that of trust. Clients who seek the help
of professionals in matters of critical importance themselves lack the
requisite knowledge and expertise and would therefore follow implicitly the
advice of the professional. Similarly, the client would be in no position to
ascertain or even estimate what is the fair remuneration that must be paid for
such services. Indeed, the senior professionals would also reminisce about the
days when it was considered inappropriate to question a professional about his
fees.

The very basis of this relationship is now
under stress. The distinction between profession and business is getting
blurred and the concept that professionals will always put the interest of the
client above their own and act with utmost professional integrity is being
questioned. The very idea that certain tasks should be the exclusive domain of
professionals is also being questioned. Above all, technology is transforming
the manner in which professional services are rendered and professional firms
organised.

PROFESSIONAL AS THE GATEKEEPER

It is under this backdrop that one has to
try and understand the future of professionals, including Chartered
Accountants. The society expects us to be not just gatekeepers but conscious
keepers of the businesses we audit. We are expected to detect and flag off
financial impropriety and frauds; however, we continue to believe that this is
way beyond our scope of work. It has been ingrained in auditors that they are
watchdogs and not bloodhounds. However, this is a distinction that the world at
large does not understand. As John C. Coffee, Jr. asks in his book
Gatekeepers, “why did the watchdog not bark when Enron happened?”

Today, most professionals believe that
this so-called “expectation gap” needs to be bridged and that public awareness
needs to be created on the real role of the professional. However, may be we need to look at this issue from the perspective
of the public and the regulator, who expect us to detect frauds and other
financial misdemeanors. We are expected to raise an alarm well in advance when
the entity is going under. Is it possible to fulfill these expectations by
using technology, artificial intelligence (AI) and data analytics? If not,
there is a possibility that alternatives will emerge as that seems to be the
crying need of the times.

THE FEES MODEL

Also what will come under stress is the
age-old fees model that professionals have employed, where fees are
predominantly charged based on “time spent”. Clients seek professional advice
for solutions to problems that they have not fully comprehended. So
professionals don’t just help solve problems, but often also help in
articulating the problem itself with clarity. If this be the case, how can the
client even estimate the time that is expected to be spent by the professional
on a given assignment? It is hardly surprising that more and more clients want
to know the fees upfront or want a cap on the fees. Their argument is that as
professionals we have a better understanding of the problem and its intricacies
and hence are best placed to estimate the time. In other words, the risk of
time overrun (and conversely the advantage of efficiency) should be borne by
the professional.

Of course, time basis is still the only
effective and preferred fee determinant, but as professionals we must make a
conscious effort to move away from this model wherever possible for the
following reasons:

1.   It is in the interest of the professional to
prolong the time, clearly leading to a conflict of interest situation.

2.   The client has no means of judging the time
required or actually spent for the job. So there is an inherent reason for
heartburn that the time spent was padded up.

3.   The system rewards the inefficient as those
who take more time are paid higher.

4.   It stifles innovation and the need to bring
about efficiencies as there is no incentive to reduce time spent on the
assignment.

Fees charged on the basis of time spent
focuses on effort rather than results and professionals should consciously move
towards a fees model based on “value provided”.After all it is in our interest
to communicate to the client the value derived by him rather than time spent by
us.

TECHNOLOGY THE GAME CHANGER

But these are relatively minor challenges
confronting the profession. The elephant in the room is technology and
artificial intelligence that is encroaching upon all spheres of human
enterprise. According to research by Frey and Osborne cited in a 2014 article
by The Economist, Accountants and Auditors were the second highest
vocation that would be affected by technology. One of the jobs that was 10
years back believed to be immune from technology was that of a truck driver. It
was argued that driving required human skills and hence it could not be
automated. Google has now turned that argument on its head. In fact, it is not
inconceivable that children 30 years from now may be amused and amazed that
their parents actually physically drove their vehicles.

The initial efforts of using artificial
intelligence (AI) was based on trying to replicate the way the human mind
functions and these efforts only met with limited success. But today machines
have become much more adept by following a completely different path. As
Patrick Winston, a leading voice in AI stated, “there are lots of ways of
being smart that aren’t smart like us”. Chess for example was considered as
an epitome of human intelligence, intuitiveness and ingenuity. But the
programme “Deep Blue” beat the chess champion Gary Kasparov not by mimicking
the functioning of the human mind, but by applying brute computing power. The
machine lacked creativity or insights, but compensated by its ability to
analyse 200 million possible moves in seconds and winning with brute
number-crunching force.

In the light of these inevitable changes,
professionals will have to bring about transformative changes in the way they
conduct and organise their professional practice. A decade back it was common
to state that only those who will use technology effectively and integrate it
with their practice will survive. This meant the application of technology was
limited to automation and for incremental increase in efficiency and
productivity. This barely touched the tip of the proverbial iceberg in terms of
actual potential to bring about structural changes. The fact is that
technology today is no longer the enabler, it is the driver and it must be used
to bring about transformative changes. As professionals we must be prepared for
the future where judgement may be replaced by Big Data mining, experience by
analytical tools and intuition by computing logic.

BRUTE FORCE OF COMPUTING POWER

In the face of this, the argument often put
forth by professionals that however much one uses technology, the final
solution requires judgement and hence professionals will always be
indispensable, needs to be critically examined. The argument goes that routine,
repetitive work can be standardised and transferred to the machines, but tasks
requiring judgement and strategic inputs will still be the domain of humans.
However, the trend seems that machines with intelligent systems are bound to
become more and more sophisticated in making connections, identifying patterns,
forming correlations and finding solutions that may till now have been
considered well beyond human cognitive capabilities.

Already in a lot of areas, machines are
outperforming humans. By using their processing power, they are able to analyse
huge amounts of data to reach conclusions that are more accurate than those
reached by humans. As humans we make decisions emotionally/intuitively and then
justify them rationally. The ways of working of future machines are unlikely to
resemble the human way of working, but they will be effective and perhaps less
fallible. Deep Blue proved that human intuition and analytical capabilities are
no match for the brute computing and processing power of the computer.
Ominously, increasingly capable machines, using Big Data, AI or some other new
technology are poised to encroach upon more and more areas that were the
exclusive domain of human experts.

Audits can no longer be conducted behind the
shelter of test checks. 100% of the transactions can not only be verified, but
organised and analysed from different perspectives and this analysis can be on
real-time basis. Data can be drawn from varied sources, in different and even
unstructured formats. Analysis of this data collected both from within the
company and from other comparable businesses, may give remarkable insights into
the functioning of the auditee. At the core, Big Data is applying math to huge
quantities of data to infer probabilities and make increasingly accurate
predictions.

STANDARDISATION AND DELEGATION

Professionals also believe that their work
cannot be standardised beyond a point. It is highly intellectual and unlike
manufacturing work it cannot be spliced into small repetitive tasks. This
thinking is also under challenge and if one were to really break down the work
of a professional, a large portion can indeed be standardised and systematized.
Once that happens, it can easily be delegated to machines, and what’s more, it
can be digitised and be made available to be downloaded online. So tasks
considered as non-routine will increasingly be routinised and even genuinely
non-routine tasks may also be performed by smart machines of the future.

We have also seen that semi-qualified staff
with the aid of sophisticated technology are often as effective as highly
knowledgeable professionals. Paramedics with minimal training and good
equipment have transformed the health care in rural places. So it is not
difficult to visualise that a semi-qualified person with the help of
appropriate processes and systems will deliver the same end results as qualified
professionals. Technology-based companies could replace a lot of functions
performed by professionals with the help of semi-trained staff equipped with
the right technology support.

Would then professionals only be required to
tackle situations and problems where there are no clear-cut precedents? Without
precedents, the professionals would also be blind guessing and in such a
situation once again the computer would be better equipped to find solutions
through programmed simulation.

EXCLUSIVITY VS. COMPETITION

One big
protection for professionals is that they are insulated from competition. The
rationale is that professionals with intensive training alone can competently
handle complexities involved in a professional task. Opening out professional
tasks to non-professionals would expose the lay person to not just poor quality
of service, but to wrong and potentially damaging advice from quacks.

Surely, in
today’s knowledge world, it would be increasingly difficult to argue that
certain spheres of knowledge should be the exclusive domain of certain
professional bodies. Transparency ensures quality and as professional work is
standardised and streamlined, it is likely that in future customers will rely
more on peer review of fellow clients to decide the quality of the professional
service rather than a self-governing disciplinary mechanism.

So let’s not
be surprised if more and more tasks reserved for professionals are opened out
to others.

TO SUMMARISE

The present
form of professional practice is under threat from multiple forces:

1. AI through
brute computing and processing power is encroaching upon more and more areas of
professional practice and human endeavour.

2.  Machines with Big Data
analytics are poised to produce consistently better results than those possible
by the best of professionals in ever-increasing areas.

3.  Even intellectual work can be
defragmented into smaller tasks that can be standardised and hence be
machine-programmed.

4.  Para professionals with
sophisticated access to databases and technology can do a large amount of work
that till now was the domain of qualified professionals.

5.  The exclusivity protection to
professionals from regulators may be under threat and public opinion may compel
changes to allow many more service providers.

So the big
question: are professionals doomed to extinction? Probably not, but
professionals who are unwilling to transform their professional practice
in response to the above challenges may find it difficult to survive. Nobody
can predict the future. Yet, in a technology-driven world that premise is
nuanced as there may not be any future things that may have flourished for
centuries. As Peter Drucker put it, “the only thing we know about the
future for sure is that it will be different”.

Note: Some of the thoughts in this article
are inspired from the book “The Future of the Professions” by Richard Susskind
and Daniel Susskind.