Richard Cornelisse

Tax Professionals: A Different Way of Working

In Audit Defense, Business Strategy, Indirect Tax Automation, Indirect Tax Strategic Plan, Phenix Consulting, Processes and Controls on 12/10/2012 at 7:17 am

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By Richard Cornelisse

Non-traditional competitors are entering the service provider market and capturing market share. Who are they? Can content service providers ignore these trends? Will technological innovation get an extra boost from this economic climate? What can we expect next? Is ‘Google’ the adviser of the future?

Market Strategy

If competitor benchmarking reveals that the traditional way of working is still successful and has growth potential, do you really need to change?

One answer might be that the scope of the benchmark exercise was too narrow, especially in cases where non-traditional competitors are targeting your market.

Is the impact of non-traditional competitors a realistic scenario?

The easiest way – without any further analysis – is simply to deny or ignore their existence. The obvious arguments include our strong brand name, our strong reputation and the strong position our company has achieved in the market traditionally. Companies have responded like this and subsequently gotten burned. Ignoring innovation, being too self-confident or underestimating technology developers is not a smart move.

What happens when you don’t ignore?

In the worst-case scenario, you can accept your position, reinvent yourself, set new strategic objectives and mobilize your company’s resources to realize new sources of income. The wrenching effect of the change is less extreme, of course, if the company adapts its strategy and is capable of spotting new opportunities and (re)positioning itself.

Internet, Search Engines And Social Media

Both Apple and Virgin entered new markets, captured market share and in some cases even market leadership.

Apple’s iTunes store is a good example. This store sells online music, applications (games and other third-party software) and books. With Apple TV you can purchase or rent movies and television series. Simply download, watch, listen and/or read on all your Apple devices.

Who stood to lose their longtime control over the market? The list is long but examples include: the (mobile) phone industry, music industry, gaming industry, printing industry, publishing, postal services, video rental industry, companies manufacturing DVDs/CDs, commercial radio and TV broadcasting, etc. In the Netherlands, the Free Record Shop is closing its megastore and many other stores have probably already done so or will follow. When somebody wins, somebody else must lose.

People can connect with each other all over the world and talk face-to-face (including video conferencing). This is all ‘free of charge’ if you have access to wifi (e.g. via FaceTime / Skype). This was traditionally the home market of telephone companies. Social media have made the world much smaller: you can establish global reach without any investment. With the infrastructure provided free of charge, you can connect with people, build and maintain networks, set up groups, communicate and share information. Many service providers had invested considerable amounts of money in similar sophisticated infrastructures over the years.

Companies such as Google, LinkedIn and Facebook are hardly charities. They use these services to achieve their own objectives: getting more users, increasing their advertisement income and gathering data for market analysis. Recently I noticed a tax organization that followed the same strategy. You could download an iPad app for free and get the latest edition of a digital book containing the local tax regulation as a bonus. In the past, that book was sold at market value. When somebody wins, somebody else must lose.

Many companies in the service provider industry sell content-based knowhow. In the past, that system was closed. Only a few organizations had access to specific content – often gathered via their worldwide network of people. At that time and under those circumstances, the content still represented significant added value for the client and therefore market value.

The system evolved from closed to open due to internet innovations such as search engines, and more people started to contribute and share content. Information can be posted, forwarded, shared and communicated. This is all free of charge: all kinds of content can be searched, found quickly and is available 24/7 as long as you have internet access.

Let’s do an exercise. Look back 5-10 years ago and think about the basic content that clients were willing to pay for and that content providers are now providing free of charge. Use Google’s search engine and enter that same question. What do you see? Google probably already has the answer to your question …

The consequence is that prices are going down and that the life cycle for this kind of paid product is at an end. Everybody can search and find it himself.

The current impact of Google and Wikipedia is already huge since, from a pricing perspective, much content has become less valuable or even worthless.

Will search engine functionality develop further? Will more content be available on the Internet?

Without doubt, the answer to both questions is a resounding yes.

Is ‘Google’ The Adviser Of The Future?

I am following the developments of Apple’s Siri of and of Google in general with great interest. Siri is the speech recognition engine that Apple uses as a virtual personal assistant for their devices. The software truly understands your questions, searches the web and provides you with answers immediately. Google’s executive chairman, Eric Schmidt, has conceded that Siri could pose a “competitive threat” to the company’s core search business.

If that is the case, is it not realistic to assume that Google and/or other companies are going to invest a considerable amount of money in developing similar functionalities?

Such competition between these powerhouses will boost technology improvement.

Will such technology in the end truly understand all your technical questions? Is a virtual personal assistant going to respond immediately? Is this science fiction or our near future?

I am aware that some people will argue that certain knowhow depends on individual skill sets and expertise. For the moment, they are right, but they might be proven wrong in the future.

Can this also be automated?

What successful examples relate to strategic insight and decision-making? Chess is a strategic game and relates on fact-based information (pieces on the chess board: relevant facts) and a limited number of possibilities (moves: calculation of the impact of various options combined with overall strategic insight). If a chess-playing computer, Deep Blue, can beat world champion Gary Kasparov in a six-game match by two to one with three draws against, shouldn’t the automation of an adviser’s strategic decision-making also be possible?

Deep Blue’s successor – Watson – has beaten Jeopardy champions at their own game. What was needed to make that happen: “natural language processing, searching immense data sets and creating relationships among disparate sources of information to finally culminate in an answer.”

The good news is that the profession of service providing is a people business. We like to be connected to people. The success of social media like Facebook, LinkedIn, Myspace and all the dating sites has confirmed this as well. Maybe the statement about automating the adviser is a bit too provocative, but I still believe a lot more can be automated than we can currently comprehend.

Having an open mind is the message I want to get across. The only things that probably cannot be automated are our feelings and interactions.

That is why it is and will remain a people business.

Last but not least, I don’t pretend to write the strategy plan for Google. I just admire companies like Google, Apple and Virgin for their innovations and culture. In this blog “Google” represents companies that are technology innovators. The future adviser could therefore be somebody else.

The Change: A Different Way Of Working

In times of economic growth, there is a tendency to achieve increases in scale through acquisitions. In business services, the emergence of the Big4 is an example of this.

The economic recession causes companies to adjust to new market circumstances: demand decreases, fees come under pressure and employee productivity slides, causing the focus to shift to general cost savings and making downsizing necessary.

One complicating factor is that the traditional way of working and the way in which business services are offered are no longer relevant.

In times of recession, inefficiency becomes all the more visible when profits fall and there is no room for innovation. In addition, poor results have an adverse effect on the cooperation among disciplines: employees focus on self-preservation and not on existing or new forms of cooperation.

The tide can be shifted by reinventing oneself and by realizing behavioral changes among employees. The challenge is to change people who have been successful for years with their traditional way of working.

These are difficult and time-consuming processes that are possible only with close management and the involvement of the leaders. It is no chimera to consider a future involving significant offshoots and where the term Big4 ceases to exist.

The question has been asked more than once and is more relevant today than ever. Does the – relatively less profitable – auditing of financial statements and consultancy still fit under the umbrella of joint profit distribution? Not only does regulation lead to change, so do the personal motives of the stakeholders.

In times of continued economic recession, are people still willing to support each other financially when certain company components consistently underperform? Time will tell.

The founders of the KEY Group didn’t want to wait for this. Adjustment to changed circumstances and innovation is in our DNA. It is an essential component of the corporate image that we have in mind.

Change is not a threat but a challenge and it can’t happen quickly enough. Now is the moment to link up with new trends and markets.

We comprise a select group of people who share the same vision and we believe that the future lies in a “cloud” of collaborating experts in the areas of business control, information technology and indirect tax.

KEY Group has a close working relation with Taxand Netherlands.

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

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