Big Four firms face ‘tsunami’ of threats from digital groups

September 24, 2015
Harriet Agnew in Financial Times
Body metrics: Deloitte culls data from Harlequins’ practices©Getty

Body metrics: Deloitte culls data from Harlequins’ practices

When Harlequins rugby club was preparing for last season’s premier league, it turned to an unexpected partner in its search for a match-winning formula.

Deloitte, one of the big four professional services firms better known for its work with blue-chip companies, was hired by the English club to help make sense of the vast volumes of information it collects on its players.

The partnership illustrates how the accounting profession is trying to embrace the disruption from new technology that could otherwise eat into its own businesses.

Harlequins’ data sources include body sensors that track movements on the pitch and devices that monitor nutrition. Deloitte uses a bespoke data analytics tool to try to propel the team to a competitive advantage based on the statistics it collects.

Technology is reshaping the accounting, audit and consulting divisions that are the bread and butter of professional services firms. They are trying to fight back, launching partnerships with technology companies, picking dynamic start-ups to invest in and increasingly employing techniques that are the foundations on which innovative technology companies such as Google and Amazon are built.

Tudor Aw, partner and technology sector head at KPMG Europe, says “Companies such as Google and Amazon have three core assets: data storage, data analytics and cloud technology. They underpin the business model that we need to embrace for the future.”

Innovate or die is the stark message for the professional services firms. Last year PwC signed a joint venture with Google to combine Google’s innovation and technology platform with PwC’s industry experience and corporate insight.

Also last year, KPMG signed a joint venture with McLaren to use predictive analytics in its audit and consulting work.

Richard Oldfield, head of strategy at PwC UK, says: “There is no single technological threat to the professional services industry. It’s a tsunami of threats: data analytics, artificial intelligence and cyber security.”

Online accounting services offered by the traditional firms are ripe for disruption, as technology moves activities online and lowers barriers to entry. They are competing with established brands such as SAP, Salesforce and Oracle, as well as newer businesses such as Square, the payments company launched by Twitter founder Jack Dorsey, and Receipt Bank, which removes the need for manual data entry of bills and receipts.

Google and Amazon have three core assets: data storage, data analytics, and cloud technology

In response, last year KPMG spent £40m to develop cloud-based software that can allow businesses to go online and prepare their accounts, do their bookkeeping, administer their payrolls, and file VAT and corporate tax returns — for a monthly fee starting at £150.

As more and more data are stored in a digital format, this creates opportunities for data analytics. Nowhere more so than in audit, where a huge shift is taking place because entire data sets, such as company journals or expense claims, can be analysed.

Stephen Griggs, managing partner of audit and risk advisory at Deloitte UK, says: “We are not sampling data; we’re analysing the whole population of data. We’ll illuminate apparent anomalies and automate the more basic testing functions to enable our people to spend more time on the trickier areas.”

Market participants think it is possible for the big accountancy firms to work alongside the established technological names and disruptive start-ups, without being cut out altogether.

Fiona Czerniawska, managing director at Source Consulting, says that while it is likely that firms such as Google and Amazon will use techniques they have pioneered for analysing big data to offer new services in the marketplace, “it’s hard to see them penetrating the business-to-business sector, and professional services in particular because so much still depends on personal chemistry between client and professional”.

PwC’s Mr Oldfield says trust is very important, noting there is perhaps less of a trust premium attached to big technology groups. And data analytics can only take you so far in audit — there is also the judgment element.

SourceConsulting’s Ms Czerniawska believes that, while high-tech start-ups will begin to re-engineer parts of the audit process in the coming years, even these firms will struggle to replace the value a human being can add.

She says: “However sophisticated our algorithms, a part of the professional services market will always be human — the only question is: How much of it?”

 

Leave a Reply

Your email address will not be published. Required fields are marked *

*