With this leap year of 2024 now in full swing, we are keen to share our thoughts on the key developments of 2023 and the forces set to reshape the sector. This article delves into the top 5 trends, identifying exciting opportunities that have the potential to transform the accounting profession.
1. Private equity investment
The impact of private equity was a key topic of discussion throughout 2023, highlighting potential shifts in firm structures, business models, growth strategies, and the industry’s ability to address the profession’s challenges. From recruitment and retention to embracing new technologies, the influence of private equity continues to be a central focus in ongoing conversations about the future of the profession, and we anticipate this trend to continue in 2024.
a. Demand-side – not always a match made in heaven
We foresee further acquisition of firms as the year progresses, but not without consequence for firms’ appetite for investment in innovation and technology. Inevitably, merging firms’ immediate priorities will be aligning strategy and operations, which may have long-term consequences on their tech and innovation outlook and roadmap.
The pressure to cut costs and streamline technology systems during mergers, especially when joining tech stacks with different maturity levels, can intensify existing challenges related to technical debt. This integration of firms with varying technology maturity levels poses a hurdle – the longer it takes to address this debt, the longer it delays a firm’s progress toward innovation or early adoption status.
What will happen when these enlarged firms discover that some of their core tech won’t scale to the extent they’d like? Some of the systems that are used to manage 500 people are not capable of handling 2500. Then what?
Mergers take time; they might unfold over a 3-year plan, especially when Private Equity (PE) investment is involved. However, if the merger extends beyond a realistic 18-month completion timeframe and the emphasis has been on cost-cutting rather than innovation, what are the lasting implications for the firm? This not only affects the firm’s tech and innovation trajectory but also raises questions about the impact on the existing team, career advancement, and talent retention.
b. Supply-side – vendor consolidation
We have seen an emerging trend of significant Private Equity (PE) investment in some of the larger suppliers to the accountancy sector who have in turn acquired competing IT providers. This significantly changes the structure, shape and dynamic of the vendor market while causing concerns for the sector and clients.
Inevitably, joining two products and associated teams encourages rationalisation and a reduction of operational costs across sales and marketing, finance, and crucially, product development. This strategy, while potentially profitable for investors, has the potential of shortened product life cycles: are these products on a faster road to becoming “legacy”? How much client support will be available? How much innovation will be undertaken? What are they adding that is new and of value to existing clients?
This consolidation of providers under a single PE-backed entity may lead to reduced competition, impacting innovation and variety within the industry. Consolidation has arguably limited choice and while firms don’t necessarily want to return to a past where every solution is bought from a different vendor, there is still an argument to be made for restoring choice to the market. Firms benefit from agile vendors in competition and from the innovation that comes from a competitive environment.
Price increases, compromised service levels, and a potential slowing of the pace of innovation remain valid fears in the market with concerns that a more concentrated market could potentially limit options and hinder the evolution of technology solutions in the accountancy sector.
2. Practice management re-imagined
Among leading firms, we anticipate continued disillusionment and dissatisfaction with the shortage of cloud-based solutions able to support and meet firms’ current needs and the lack of progress in meeting their evolving requirements. Faced with this challenge, firms are confronted with the need to “sweat the existing investment” in their current infrastructure while strategically implementing point-based solutions that can be integrated into their operations.
In the interest of transparent disclosure, we do believe that CloudCapcha represents a perfect example of this in operation. This is especially the case when firms are merging. Anything that can take the workload off the legacy system and improve employee productivity has to be a sensible approach.
3. The evolution of AI and Private Large Language Models (LLMs)
AI, and generative AI in particular, has taken the world by storm in the last 12 months and we expect 2024 is going to be a landmark year for exploring the benefits (and risks) of AI, in particular LLMs.
That said, concerns regarding data privacy, confidentiality, and more importantly the tendency for LLMs to ‘hallucinate’ – i.e. make things up, remain. Some observers are even going so far as to speculate that the repercussions of faulty Large Language Model (LLM) output could be the next Horizon/Post Office scandal, reminding us of the perils associated with erroneous data and IT, and how things can go awry.
With this in mind, we anticipate the emergence of Private LLMs designed to overcome the shortcomings and address the limitations of existing public models.
With the top firms investing and deploying their own Generative AI tools, pressure will be on the cohort of firms below to follow, work smarter, and remain competitive.
Look out for some specialist vendors who have been operating for years in the AI / ML / Data Science world launching Private LLM offerings into the Accounting profession. This is not new to them and mid-tier firms will have exciting opportunities to compete with top-tier at a more sensible price point.
4. Data automation and integration
The demand for cloud-based systems to enable seamless integration and platforms that support automation will compound the need for a robust data strategy and the pivotal role of accurate data.
Leveraging Generative AI and Microsoft Copilot (for those who are willing and big enough to invest) will be fundamental to achieving operational efficiency and underscore the significance of accurate data as the initial step in the automation process. The potential to automate spreadsheets, and repetitive, less complex tasks, will be huge. Investing in these technologies that emphasize data accuracy and real-time accessibility will be key to enabling firms to increase the speed with which work is delivered, and boost efficiency while minimising the risk of human error.
5. Productivity
A lot has been written and discussed about low productivity levels in the UK, and productivity shortfalls within the profession, and we think this challenge will be one that firms will continue to grapple with as 2024 unfolds.
However, while it may take time to reap the benefits of the technologies mentioned above and for them to make a significant dent in firms’ and teams’ productivity levels – a topic we will return to in a later article – 2024 promises to be an interesting year as the sector moves beyond the “hype cycle” and enters the next phase.
And back to basics – in 2024, firms still need to prioritise data for strategic decision-making: to help managers understand how they can support their teams, assess team productivity, review work/life balance, and make informed decisions for improved well-being. With data insights comes clarity and the ability to see where efficiencies could be—or need to be–created and to help people work more effectively.
In a continuation of trends from the previous year, and the emergence of new developments that are set to reshape the industry, 2024 looks set to be a year of transformation and challenge in the accounting landscape. Will the profession leap ahead, fuelled by these changes? Will these changes be incremental or fundamental? Watch this space.