IN OUR OPINION, PERSPECTIVE #34 — MAY 30, 2017
(A Continuing Series for Leading CPA Firms)
ARTIFICIAL INTELLIGENCE — WILL YOU BE A DISRUPTOR
OR WILL YOU BE DISRUPTED?
Artificial intelligence would be the ultimate version of Google.
The ultimate search engine that would understand everything
on the Web. It would understand exactly what you wanted,
and it would give you the right thing. We’re nowhere
near doing that now. However, we can get incrementally
closer to that, and that is basically what we work on.”
—- Larry Page, Google
Imagine looking out five years from now and seeing a CPA firm attest partner asking voice-powered personal assistants the following three questions:
- “Siri (Apple), please help me understand why our client’s gross margin went down by 10% year over year.”
- “Alexa (Amazon), please summarize the ten best distribution practices in our client’s sector and identify which of these present the greatest opportunities for our client.”
- “Now (Google), please tell me if you believe that our client has a going concern issue during the next twelve months and, if yes, what might be done to avoid the liquidity crisis.”
While professionals are fallible, have biases and forget details, automation will not possess the same shortcomings. Not only will that attest partner get quick answers to these three questions, but the partner will also get very reliable answers that would add value to the attest services being performed.
Hard to picture? Well maybe, but remember bank tellers? While not completely eliminated, the bank tellers job was redefined with the advent of automated teller machines (“ATMs”) — a forerunner to artificial intelligence (“AI”).
Here are three interesting data points about AI that every CEO and senior management member at a mid-market CPA firm should know:
- Junior staff accountants through the CEO will have redefined jobs and processes. Research performed by McKinsey & Company indicates that about 60% of occupations could have 30% or more of their activities automated. Senior executives could have as much as 20% of the activities they are paid to perform today could be automated using existing technology.
- Benefits derived from AI will range from increased output to higher quality and improved reliability.
- Automation technology can already match, or even exceed, the median level of required human performance.
Affecting how we live, entertain ourselves, and work, AI is seeping its way into our everyday personal and business lives. Existing well known AI systems are fully operational at Amazon (driving about 40% of online purchases in large part because of predictive capabilities and a fleet of Kiva robots that fulfill warehouse orders about four times faster than previous systems) and Tesla (transforming the automobile industry because of predictive capabilities and self-driving features).
To be sure, AI is in its infancy but over the next three to five years, many believe that a true AI system will come to being; one that can learn on its own by making connections, reach meanings without relying on pre-defined algorithms, improve on past iterations and enhance capabilities and knowledge. When it comes to the workplace, McKinsey’s research indicates that entire business processes will be transformed and responsibilities and jobs performed will be redefined.
Imagine reducing your firm’s professional and administrative salary load by 20%, 30% or even more. For sure, some of that salary load savings will be absorbed by increased technology costs. Nevertheless, a firm can expect significant cost savings together with vast improvements in productivity, freedom from boring work, and improved quality of life as automation, replacing more routine and repetitive tasks, will require staff to spend less time analyzing client financial situations and allow for more time to understand client challenges and offer solutions.
AI can be a problem for your CPA firm particularly for those concentrated on attest services which already have thin margins. Reduced costs of delivery coupled with fierce competition can very well mean that plain vanilla compliance services could result in reduced revenues and partner profits. On the other hand, AI can be an opportunity if your CPA firm takes reduced costs of delivery and converts the savings to an opportunity to drive value to clients and, therefore, profits to partners.
You need only to look at Uber and Airbnb to see what disruption looks like. So, the question is:
- Will your CPA firm become a disruptor by capitalizing on AI or
- Will your firm be disrupted by merely continuing down the path of a commodity shop selling low margin attest and tax services?
In Our Opinion, mid-market CPA firms have an opportunity to capitalize on AI trends by differentiating themselves as true trusted business advisors. It will take leadership determination, guts, investment dollars, time and patience and partner paradigms must shift. The foundation for a trusted business advisor delivery model is a set of strong tax consulting capabilities; particularly those that help clients create, enhance and preserve personal wealth. In addition, it requires industry specialization skills. You will need to identify the industries or sectors that present the greatest business opportunities for your firm. Your people need to become immersed in the industry(ies) of their choice. In addition to the unique accounting and tax rules, your professionals have to develop an understanding of the business challenges facing mid-market companies in these sectors, what are best industry practices in areas such as revenue generation, cost of delivery, optimization of intellectual capital, and selling, general and administrative expenses. They need to transform that knowledge and intellectual capital into spot-on suggestions and solutions that address client business hurdles and challenges.
As CEO of your firm, will you be prepared to staff, manage and lead an increasingly automated CPA firm? Keep an eye on the speed and direction of AI and determine where, when and how much to invest. Understand the trade-offs between augmenting versus replacing different types of activities with AI and the implications for human skill development. The degree to which you embrace the AI opportunities will influence not only the pace of change within your firm but also to what extent your firm will sharpen or lose its0 competitive edge.
Dom Esposito, CPA, is the CEO of ESPOSITO CEO2CEO, LLC — a boutique advisory firm consulting to leading CPA and other professional services firms on strategy, succession planning and mergers, acquisitions and integration. Dom, voted as one of the most influential people in the profession for two consecutive years by Accounting Today, authored a book, published by www.CPATrendlines.com., entitled “8 Steps to Great” which is a primer for CEOs, managing partners and other senior partners. In Our Opinion, is a continuing series of perspectives for leading CPA firms where Dom and his colleagues share insights, experiences and wisdom with firm leaders who want to “run with the big dogs” and develop their firms into sustainable brands. Dom welcomes questions and can be contacted at either firstname.lastname@example.org or 203.292.3277.