The accounting market in the Nordics is undergoing fundamental changes, mainly driven by new technology and new competitors. I have taken an in-depth look into how these changes affect the BPO industry today and tomorrow – and how our employees and customers will experience challenges and new opportunities.
Let’s start with some characteristics
The average types of Nordic businesses are small enterprises with approximately 5-10 employees – widely distributed geographically. Tax laws and salary regulations are country specific and complex. Around 12,000 accounting offices (AO’s), which generates around 25 billion NOK in yearly revenues, serve these small and medium-sized enterprises (SME’s) and employ around 30,000 people. Internal shared services centers are excluded; this market is estimated to an additional 15 billion NOK.
Some of the local AO’s consist of part-time employees, serving a few customers in addition to their main jobs. The market is growing at around 2-3 per cent per year, prices for basic accounting developing flat or slightly declining. Annual salary adjustments and cost of goods are growing at a higher rate, pushing margins down for many of the accountants.
The Nordic accounting market is characterized by a strong focus on technology and software/SaaS based solutions, due to high manual labor costs. Digital interchange of B2B transactions in a broad range of areas were implemented years ago, growing at a rapid pace. Official tax filing and reporting is common and relatively soon, complete financial figures will be uploaded to the tax authorities in some countries.
Food for thought
An interesting thought experiment could be the following; let’s say 20 per cent of the revenues are coming from basic bookkeeping and transactional work, mainly charged by the hour. A conservative approach would be somewhere between 4-7 BNOK’s is at risk for the accounting industry in the years to come. So what might happen to those revenues? Will they disappear? I don’t think fully, but a large portion of it will be reduced and replaced with transactional SW revenues, with related increased software costs for the accountants. Provided the accounting profession is able to change, the positive side of it is that the same accountant now can support more customers and work with more value added activities. For the customers, this should imply lowered hourly costs, but they will need to pay for software and transactions. And hopefully spend more on value-adding services.
The main shift is two-fold
The traditional way of serving the Nordic small and medium-sized businesses has typically been a consultant responsible for all tasks: producing invoices, remittance, VAT handling, financial reporting, year-end closing and tax. This is obviously beneficial for the customer; leaving everything to one person who can build knowledge of the customer’s business over many years. For the accounting consultant, it is also positive, having control of all processes and tasks, allowing the consultant to develop skills in a broad range of accounting and tax areas. Experiences show that work tasks are less standardized and process oriented.
The traditional way of producing account statements, is changing extensively right now. The main shift from a production perspective is two-fold for the employee. First, instead of having one consultant handling all tasks, we see a shift towards highly standardized and digitized production processes. This is especially evident for the transactional part of the Accounting processes. Secondly, this leads to a need for change and developing new competences for our employees.
Our consultants are becoming controllers of transactions, verifying quality and focusing on deviations. This leads to handling more customer transactions than previously and more time to serve additional customers with additional value-adding services. So, instead of one person handling all tasks for a customer, you might see one person taking the customer facing part, controlling and advisory and another person being a specialist on transactional processing.
That said, our accountants are already providing valuable and high quality day-to-day advice for many customers in addition to basic bookkeeping and will provide even more in the future. Sadly, the accounting industry has bundled the advice as basic bookkeeping historically.
Customers want more insight
For our customers, automation, digitalization and working in “the cloud” has already introduced new ways of interacting and communicating with their accountants. The main shift, is that information is available in real-time – wherever you are. The more common questions now from our customers are these; what do you think about my business today, what do you think will happen in the coming week or months, can I do something smarter to improve my cash development, where can I save money? Historic information, based on a monthly report, is redundant. Proactivity, delivering business insight and specific skills on top of the basics, are the truly important elements. Basic bookkeeping and quality in the accounts are still important, but considered as “it just should be right”.
Automation and digitalization – what does it do?
Artificial Intelligence (AI) and advanced self-learning software (Cognitive Computing) topics are high on the agenda these days. Actually, they have been for years. IBM’s AI engine Watson and the famous Jeopardy win in 2011, Google’s AI DeepMind technology, and lately Google’s AlphaGo, who won the ancient Chinese game of Go against grandmaster Lee Sedol four out of five times, just to mention a few headlines. A fascinating and maybe even a bit scary development. I will not dig too deep into AI in this article, but focus on the technology that is already in use in the BPO industry today.
As previously mentioned , software for handling electronic invoices, automated bank reconciliations and paper invoice scanning and recognition has been widely used for many years. Still, a huge volume of paper invoices are processed in the industry every year, manually processed by the AO industry. The number of printed invoices is rapidly decreasing every year, however. Some AO’s have more electronic invoices than paper based and electronic transactions are doubling every year. Some of the bigger AO’s, like Azets, are investing quite heavily in intelligent software solutions. The software automates and recognizes types of transactional patterns and leaves transactions untouched by human hands. Initiatives have shown that, by standardizing processes and automate digital transactions, you can gain up to 60-70 per cent time reduction compared to manual processing for those specific tasks. An additional bonus: Quality also improves.
And the future winners are…
In my view, accountants can choose between two main options to meet the digitalization. Either embrace it and find new business opportunities, or stick your head in the sand and hope it will pass. Many of the bigger AO’s has chosen the first option and almost all AO’s recognize the latter option is not a viable way to go. Unfortunately, few of the smaller AO’s will have financial and technological capacities to lead the digitalization. Some might be acquired and others will need to apply standard SaaS based accounting software to serve their customers the new way.
Will more intelligent software replace the traditional accountant? I do not think so, but parts of the work will be replaced. And in our experience, customers always need both, both software and people/advice. The players that have both, are able to deliver this in a flexible and user friendly way and are able to change fast, will have an exciting future.
In other words: The future winners in the accounting industry, are the ones that are able to execute on the difficult transformation that is needed. This involves much more than technology (which is not the answer to everything). It involves the challenging people/competence transformation, it involves new business/pricing/delivery models and at the same time educating and developing SME customers with many different needs and different history. And there are more than one million of them in the Nordics…
My personal view is this: our industry will adapt, look very different and provide even better services to our customers in the future. I believe that the winners in the ongoing change, regardless of technology changes, will be the ones that put customers first and are able to deliver value for money. Value for money will not be correct invoice processing or payroll processing – it will be on how can you help your customers to run their businesses better.
So dear customers, colleagues and competitors: let’s grab the vast opportunities out there! Take the role of the trusted advisor and use new technology to the best of our customers and ourselves.