by Lee Bryant, co-founder of POST*SHIFT
The Accounting profession has a long history from ancient Mesopotamia and Egypt through Medieval Europe to Chartered status in mid-Nineteenth Century Scotland and then the formation of the ICAEW in 1880. The Institute was created as part of a drive to improve standards and build trust in the sector, which was expanding rapidly thanks to the industrial revolution and London’s leading role in world trade at the time.
Looking back to the early days of the profession, trust and reputation were vitally important within professional networks of accountants, where each was supposed to be accountable for upholding standards and ethics. From the contemporary vantage point, where the audit business is dominated by large firms organised around 20th Century corporate principles, and with trust invested in brands rather than individuals, it is interesting to consider where modern technology and networked business culture might take the practice of audit in the future, and whether this future might have more in common with the profession’s roots than we might think.
The audit process may seems like something of an anachronism in an increasingly digital, real-time world, but it plays an important role in maintaining a reliable and trustworthy business environment in which shareholders, societal stakeholders, employees and trading partners can be assured that financial statements by a company are a correct and fair representation of their accounts. To achieve this, auditors must be independent and scrupulously honest; but an audit is only a snapshot in time, and they are not forensic investigators, so the process is not a guarantee against fraud or deception.
So how might this change, and what factors are driving the need for new thinking? This was the subject of a lively panel discussion I took part in, hosted by the ICAEW and its Audit Future programme, at the World Congress of Accountants in Rome this summer, where a multi-disciplinary group considered the future of the profession in the 21st Century, and how this might be impacted by wider changes in business, society and culture.
The changing face of corporate structure
Throughout the 20th Century, the structures and practices of large companies did not change a great deal despite the introduction of computers and, eventually, the internet. Throughout this period, there was a gradual accretion of process in organisations, based on the idea that optimising repeatable processes is the best route to predictable outcomes; but this has made many organisations slow and unwieldy, whilst inhibiting the creativity and initiative of employees.
From the 1990s onwards, the internet era has brought a rapid acceleration in the pace of change, and today’s companies face market conditions that are increasingly volatile, uncertain, complex and ambiguous (so-called VUCA conditions). Whereas once a company could develop a product or service and then optimise its delivery against known competitors, these days, life is more complicated and unpredictable. Michael Porter’s notion of sustainable competitive advantage as a goal for business is looking less and less achievable.
The divisional model, cascading hierarchies, centralised services and associated bureaucracy now look like a weakness not a strength for companies in fast-moving markets. Whereas once business was personal, but only local, we learned how to scale and globalise, but at the expense of intimacy and heterogeneity; now, it seems, the internet allows us to do both, which can be seen as part of a societal trend towards the empowerment of individuals with respect to institutions. What might that mean for the profession, the way it organises its own work, and the way it advises its clients?
These challenges demand more agility and flexibility on the part of companies. Part of the way they are pursuing this is through a process called digital transformation, which seeks to digitise and connect the organisation to make it more adaptive and more responsive to both customer needs and changing market dynamics. But this is not just a question of technology. It also poses a challenge to the standard org chart and operating model that most large companies use to divide and conquer their processes and operations, as well as to the culture and practice of management.
Digital transformation takes as its starting point the fact that we are all connected and able to share or collaborate in a way that makes new ways of working possible, as we are seeing with lean, flat startups, virtual global teams and a host of new organisational forms that are cheaper to run and more flexible than the average corporate structure. This began with a focus on how we engage with customers through the internet, but it shifted to focus on what kind of internal organisation is needed to support these new forms of engagement. The third aspect of transformation, which builds on these developments, is business model innovation – the idea that business models, value generation and even products are also subject to great change thanks to digitalization. This is happening in finance and financial services as well as in consumer businesses, and we have already seen some successful FinTech firms like Transferwise emerge as strong competitors for traditional financial services organisations in specific categories. Change is afoot.
Experience and Service Design
It is not just at the level of the firm that we see the impact of these changes. Consider for a moment: what is a product? Is it the hardware, the software, data services or perhaps the experience of using it? Maybe all of the above? How and why did early innovator in smartphones Nokia die and Apple go on to become a $700bn company driven by success in the same product category? Innovation in user experience, the creation of mutually beneficial ecosystems like app stores and iTunes and also service design as a way to think about the totality of user experience are all key disciplines in today’s markets.
What if we applied the same thinking to audit? This is the idea behind the project AuditFutures is running with Royal College of Art service design students, who are working alongside accountants to imagine new ways of conducting audits. It was fascinating to watch the students and accountants break down the values and priorities of audit work in their first workshop at the RCA in Kensington recently, before going on to explore new ways of achieving the desired result. Service design has a lot to offer in this area. It is about taking a human-centric approach and looking at the way information and actions flow, what touchpoint people engage with, their perceptions and motivations, to improve their experience of using a service in a more holistic way.
Some Questions and Challenges for the Profession
We will see much more rapid change in the structure and practice of firms in all knowledge-intensive sectors in the coming years, including accounting and consulting. What value does a professional services firm add above and beyond the value of its individual practitioners? Should we trust a brand or the people who deliver the service? Could networks of individual practitioners compete with large firms at lower cost?
The rise of big data and real-time data also pose some interesting questions for the profession. How could real-time data change the way we do audit? How do we manage and audit the actions of machines and software, as well as people, as they become increasingly important actors in firms? What about technologies like the Blockchain that promise to create an irreversible record of transactions using one-way encryption?
The culture of management is also changing. ‘Process over people’ approaches are increasingly seen as unreliable and bureaucratic, and when we are so well connected and with an increasing level of transparency in our work, I would expect the pendulum to swing towards high-trust networks of people working together as a better way to get things done than process tick-boxing. But how do we get the right balance between trusting people and trusting processes? Might networked models with high levels of transparency provide a model for trust and accountability? What could this mean for increasing regulation versus greater focus on education and individual accountability? What challenges might this post for professional bodies?
Employees are developing new ways of working and a new relationship with work and the firm. How can professional services firms and professional bodies nurture new talent and provide working environment that stimulate rather than stifle productivity? How can we focus on value creation and task completion rather than ‘presenteeism’ and obedience to hierarchy. How can firms embrace diversity in the deeper sense of different cultures and ways of thinking and working, rather than shoehorn everybody into a single grey-suited idea of what correct business behaviour looks like? How do we connect with the wider societal purpose that drive the development of the profession to motivate young people to do a job sometimes seen as boring and conformist?
Digital transformation poses some interesting challenges for professional services as a whole, but the future of accounting and audit is a particularly interesting question in an uncertain world, with real-time data, greater transparency and new ways of working that mean we can no longer delineate the boundaries of individual companies. It will be fascinating to watch how the profession meets these challenges, whilst keeping hold of the traditional values and strengths that meant it has played such a key role in the development of a (mostly) well-functioning, fair and reliable business environment that we enjoy in the UK and Europe today.
Lee Bryant is passionate about using social technology to put humans front and centre of the way we do things in the twenty first century, and believes social networks, not bureaucracies, are the organising principle of the current era. He cofounded Headshift in 2002 to investigate new uses for social technology inside companies and organisations which became a leading international social business consultancy and was acquired by a US firm in 2009. In 2013 he co-founded a new company, POST*SHIFT, dedicated to exploring the intersection between new social technologies and new thinking on organisational structure and culture.