Even for the turbulent era we live in, the scale and speed with which the Covid-19 pandemic has unraveled long-standing social and business norms has been unnerving. It marks a sudden and dramatic escalation in the level of uncertainty faced by society and business. For professional services firms, the coronavirus has arrived at a time of major transition. Prior to the outbreak of the pandemic, along with colleagues at Grant Thornton, I was examining the major forces driving the need for reinvention in professional services firms globally. We identified five forces of disruption driving firms to have to transform their operations in order to succeed in the future. Here I examine those forces and consider what impact, if any, the pandemic may have on them.
Pre-pandemic, firms faced a combination of a global skills shortage, low unemployment rates in many markets and new competitors, such as boutique firms and tech companies, that would all make it harder for these firms to recruit and retain top talent. With a major global recession now more or less inevitable, it is tempting to look for silver linings and wait for the enforced drop in demand to ease such pressures. But structural imbalances and the asymmetrical nature of recessions mean many firms will still need to respond to these challenges. Firms will have to reconsider their holistic employment proposition in terms of salary packages and development opportunities, as well as how they define and communicate their purpose. And, perhaps more than ever in a post-pandemic economy, they will have to pay even more attention to staff wellbeing, particularly the physical and mental issues associated with working excessive hours and juggling their new home realities.
1. The war for talent
There is an important lesson here for all employers. How they respond to and support employees and stakeholder communities during this crisis could have a major impact in the long term. Get it right and it could serve as a strong future recruitment and retention tool. But get it wrong and it could add to the wider threat of reputational risk (see below). Firms that are focused on serving communities and protecting and supporting employees will come through with a stronger employer brand.
Another way in which firms can proactively respond to the skills shortage is by drawing on a more diverse workforce, including people returning from career breaks. Our Women in Business 2020 report highlights some key actions that firms can take to attract and retain female talent in particular. These include ensuring equal access to developmental opportunities, creating an inclusive culture and providing coaching and mentoring. One thing the virus-induced home-working boom has taught us is that with ingenuity and technology we can fit work around complex childcare arrangements.
2. Technological revolution
The use of technology to facilitate distributed teams has been a key feature of how business has responded to the pandemic. Video conferencing and chat tools have helped firms find a way through the initial period of social distancing, as we all get more used to virtual meetings. Old beliefs about the power of real face-to-face meetings may ring less true after several months of virtual working.
Companies in every sector always want to be known as technology-enabled or data-driven. Professional services firms are no exception. In my own profession, accountancy firms have access to vast amounts of data through the auditing, tax and advisory work we do. To become data-driven businesses, we need to explore how we can turn this data into intelligence without breaching client confidentiality at an individual level.
Innovation in general must continue to be a focus for professional services firms. As recession hits, we must not reverse this investment. At Grant Thornton, we are focused on delivering short- and long-term value for clients by working with them to find creative solutions that fit their market needs. To do this, we have invested in innovation across our network. We have formed an Innovation Council to oversee pioneering projects and we have created an Innovation Exchange platform that aims to increase transparency around our new innovations, monitor the progress of initiatives, and encourage collaboration between member firms. In addition, we are continuously improving our internal processes to be better at sharing ideas within our networks so that we can deliver more creative solutions to our clients.
If it does nothing else, a global pandemic highlights how connected the world’s economy has become. Small wonder that today it’s almost a requirement for a professional services firm to have a global footprint or, at the very least, to be a member of a global alliance. Multinational clients expect their professional advisers to understand different markets and be able to offer international coverage. Recently, I have noticed a particular trend for professional services firms to expand into some of the high-growth markets in Africa. In September, for example, law firm Dentons strengthened its presence on the continent when it entered five markets – Angola, Morocco, Mozambique, Uganda and Zambia.
A global presence can be very advantageous to professional services firms. It enables them to earn extra revenues from serving international customers, access expertise and talent in overseas markets and generally boost their visibility. Nevertheless, it also presents some distinct challenges, such as exposure to new regulation or geopolitical risks. For this reason, it is essential that firms consider a wide range of issues when entering new markets, particularly when trading conditions are volatile. Our checklist for international growth highlights some of the factors they should consider.
4. New business models
Before the arrival of Covid-19, clients were continuing to expand into new territories, transform the way they do business and cope with increasing regulation. Even though this immediate health crisis is likely to be followed by recession, this activity is likely to resume at some level after the worst of the crisis is over. We need to evolve and adapt with our clients. As Grant Thornton’s latest International Business Report (IBR) reveals, around a quarter (24.5%) of firms surveyed had undertaken international mergers and acquisitions (M&A) in the past 12 months, while almost a third (32.7%) embarked on expansion overseas. Nearly two-fifths (37.8%) of respondents to the IBR saw expansion as a way to access new technical or technological capability and 32.9% hoped to secure new talent. Meanwhile, almost a third (29.6%) wanted to diversify into new products and services.
There is also mounting pressure from consumers, investors and regulators to transform business models and build a more sustainable global economy. Longer term technology can enable professional services firms to move from traditional, ‘pay-by-the-hour’ business models toward new, subscription-based products and services that require limited human involvement. Examples might include a blockchain facility that automates tax processes, legal bots that provide advice to clients, or analytics packages that do the kind of complex modeling undertaken by consultants today. Inevitably, the most exciting innovation will happen when professional services firms enter into alliances with technology companies. At Grant Thornton, our innovation units are already developing new technology-enabled business models that will change how we operate and meet the demands of a quickly-evolving marketplace.
And as economic uncertainty grows, the use of freelance or gig-economy workers presents another opportunity for professional services firms to rethink their business models. They could potentially operate with a smaller core workforce of retained permanent staff, contracting freelance experts to cover busy seasons and peak periods. If they make greater use of gig workers, firms will need to consider how they communicate with, motivate and train these workers who are not with them on a permanent basis, so that they can draw on their skills as needed. This switching to a model that relies on fewer full-time employees and a bank of freelance experts would also help firms cope with the war for talent mentioned above.
5. Reputational risks
Reputational risks have always been an issue for professional services firms, but the risks have intensified with the proliferation of social media channels over the past decade or so. Firms can be subject to severe public scrutiny over the clients they choose to work with and the advice they give, so they need to carefully navigate the risks associated with client acceptance.
As part of their strategies for managing reputational risks, firms are taking a fresh look at their values and how these align with societal expectations. This should result in a clear statement of a socially aligned purpose. But it needs to go alongside improving corporate governance. By implementing better processes and internal controls, professional services firms can minimise the risk that any action taken by one individual ends up compromising an entire global network.
The ongoing disruption of coronavirus and the subsequent deterioration in the global economy, undoubtedly make this an extraordinarily challenging time for professional services firms globally. But from talking to my clients in the sector, I know it is also a time of opportunity. How firms reshape practices and structures to cope with this crisis could easily determine their ability to thrive in the long run. That’s why every leader in professional services today should be asking this important, if difficult, question: How can my firm reinvent itself so that we can see the opportunities in the marketplace, get an edge on competitors and face the future with confidence? Ultimately, the firms that fail to harness the five forces of disruption risk being disrupted themselves.
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