Facing the Fourth Industrial RevolutionBy
The next industrial revolution will be one based on technological changes that present both risks to the profession and opportunities to increase the value we deliver.
The Fourth Industrial Revolution (FIR), as coined by Klaus Schwab, founder and executive chairman of the World Economic Forum, is the collective impact of technology, especially automation, that will shift the way we work. The FIR has been characterized as changing not only how we define work, but also how organizations assess their personnel needs.
Like prior industrial revolutions, the FIR has been praised for the potential impact on organizational productivity and shifting employees to higher value-added functions, but like the cautionary tales of the past, some have expressed concerns of dire impact on workers. This time, however, the change doesn’t reconfigure the factory floor. It more broadly impacts the labor market for management accounting and similar professions.
Technology expansion since the last major industrial revolution has presented examples of new technology that anticipated huge impacts in industry. As retail banking installed automated teller machines in the 1970s, for example, dire predictions were made of the limited future for bank employee careers. While the bank teller hasn’t vanished, online banking and money transfer tools such as Venmo have changed the way the public perceives their banking relationships.
One of the limiting factors in the prior revolution was the design and fabrication time and installation costs of the machines themselves. The expansion of subscription-based and cloud-based applications along with the ease of software replication and deployment in the cloud allow organizations to reduce time requirements to deploy new technology such as servers and new general ledger software. Cloud deployment doesn’t require the capital investment previously expended for local servers, network hardware, and large up-front costs of perpetual licenses for locally installed applications.
The subscription cost of cloud-based automation services may be more palatable than the up-front cash requirements of locally hosted server and software, and it reduces the barrier to entry for organizations that were limited by a large initial cash requirement.
Automation tools of the FIR promise to eliminate tasks that managers perceive as less value-added. Streamlining the time-consuming population of vendor invoices into the procure-to-pay module of the general ledger system is a common example. Take a look at a vendor invoice, and you will have the “you’ve seen one, you’ve seen them all” feeling. The vendor name is at the top left, invoice number on the right, goods in the center, and dollar amounts down the right side of the page. The consistent structure of a vendor invoice and the relatively consistent approach to recording the information in the general ledger purchases journal may highlight a process that an organization may automate, realizing cost savings in reduced human engagement and a diminished potential for human error.
RECOGNIZING KNOWLEDGE RISKS
We’re quick to recognize the value proposition; that’s human nature. But are organizations also prepared to ask if relocating the procure-to-pay process to an automated “bot” incurs a human cost?
Let’s consider the typical management accounting career progression: Early-career professionals graduate with a strong understanding of the individual attributes of accounting functions. Accounting students learn to prepare a bond amortization table and a trial balance, adjust journal entries, and draft financial statements. Each of those tasks are encapsulated within the framework of a curriculum designed to prepare students to enter the profession. Graduation isn’t the end of formal education in the profession; in fact, most of us are committed to lifelong learning through certification and conferences to continue to expand our skills and grow professionally.
The first few years in the management accounting profession is where we see the integration of the accounting functions within a working business five days a week and grow in our understanding of the flow of transactions and financial statements. During this time we not only learn the processes, but also hone our understanding of key controls and business risks. Ask a seasoned professional about how they developed the skills to better manage service providers, and they’ll likely tell you it started when they first started managing basic invoice processing. The CFO who guides an organization through a business merger and the vast array of associated challenges and risks first establishes a strong understanding of basic controls and business processes.
PRIORITIZING CONTINUING EDUCATION AND GROWTH
The FIR will require leadership to ensure members of the profession develop the skills necessary to grow into the next generation of accounting leaders. This is the opportunity to embrace the benefits of new technology and to step away from some of the early-career tedious mechanical tasks.
Organizations are making investments in the new technology, and it’s beginning to change the daily functions in accounting departments. As our profession begins to make a seismic shift, what will we need to do to ensure that our organizations recruit, upskill, and retain the best talent to continue to contribute as we span this chasm of change?
The profession recognizes that we have thrived through difficult shifts in the landscape before, and we thrive because of change. The Sarbanes-Oxley Act of 2002 (SOX) created short-term panic for the C-suite, and the professional services organizations charged to the rescue, with the expectation that the SOX challenges would be eternally de rigueur, and SOX was the full employment act for accounting organizations. The management accounting profession developed mechanisms to accommodate the new internal control standards, and we charged forward.
The availability of new technology, such as advanced data analytics tools, will continue to become more easily attainted with subscription services, opening those technologies to small and midsize organizations. Organizations that were previously limited from exploring their competitive opportunities in their market because of lack of data or analysis resources will now have those. This next shift is an opportunity for the profession to take the lead and coalesce the company in an invigorated spirit of risk management and growth to expand data-based decision making and to develop more comprehensive sensitivity analysis to guide future growth. To get there, we’ll need to continue to call for continued general technology knowledge, understanding of the business, and improving out communication skills for early-career professionals.