Technological advancement is accelerating across the economy, and many industries within the Professional Service subdivision, including Management Consulting, Legal Services, Accounting Services, Engineering Consulting and many other white-collar industries, are on the cutting edge of the latest developments.
Professional Service revenue is expected to grow by 0.3% in 2020-21, to $173.4 billion. This growth follows a 10.0% decline in revenue in 2019-20. Employment in the Professional Services subdivision is expected to grow by 1.1% in 2020-21, to 874,000.
‘Revenue across the Professional Services subdivision is expected to grow at an annualised 2.0% over the five years through 2025-26, partly driven by accelerating technology advancement. Average profitability is also expected to rise, as technology drives improved efficiency’ said IBISWorld Senior Industry Analyst, Tom Youl.
Cheaper, better, faster data
While technology is unlikely to significantly change what the Professional Service subdivision does, it is very likely to change the way in which Professional Service firms carry out those tasks. In the context of the Professional Services subdivision, technology disruption primarily relates to gathering of data, generation of insights from that data, and application of those insights to drive efficiency improvement.
‘The cost of collecting data is falling rapidly, largely thanks to manufacturing improvements and economies of scale. Widespread networks of cheap and disposable sensors, otherwise known as the Internet of Things, are enabling decision makers to have more detail than ever before about the environment in which they operate,’ said Mr Youl.
By combining this data collection capacity with automated data analytics, such as machine learning and artificial intelligence, stakeholders can gain access to insights about their operating environment that they have never had before. Machine learning is one form of artificial intelligence, which enables computers to learn how to complete complex tasks that humans would normally perform, such as converting speech to text, identifying objects in photos, or classifying an email as spam.
‘Traditional computer software simply provides static criteria with which a machine can evaluate data. In contrast, machine learning teaches computers to identify insights by being trained on large amounts of data, automatically improving algorithms over time without a human developer providing explicit instructions,’ said Mr Youl.
Capital intensity on the rise
The Professional Service subdivision is characterised by low capital intensity. For every dollar spent on wages, the Professional Services subdivision invests $0.07 in capital. This is primarily due to participants providing services rather than physical goods. Many subdivision businesses require little capital investment and largely rely on the skills and knowledge of their employees.
However, capital intensity is likely to rise substantially in coming years. Data-driven insights are likely to become a major point of competition, forcing firms without access to data-insights to either invest in new technology infrastructure or risk failing to compete. The lag between data capture and insight generation is expected to shrink, making professional services firms more agile and capable of responding to new trends.
‘While the efficiency gains of technology are great for Professional Services, their disruptive power is also a concern for some industries, particularly those based on billable hours such as the Legal Services industry, or those based on accumulating and processing large batches of data, such as the Accounting Services industry,’ said Mr Youl.
White-collar technology disruption
Increasingly, businesses are discovering that automated machine processes can complete tasks in a fraction of the time normally required by human labour. However, in an industry based on billable hours, a machine that removes the need for thousands of hours of work creates a major problem. Namely, businesses will need to decide whether to disrupt their own operating models, or wait to see if someone else does first.
In the context of professional services, access to highly skilled employees is a critical factor. However, what it means to be highly skilled in the industry is changing. Due to the accelerating growth of computer power combined with more powerful artificial intelligence applications, automated systems can increasingly do the grunt-work previously carried out by manual labour. As a result, the necessary skills for a successful employee are moving away from simply carrying out data collection and processing. Instead, new roles are emerging that use professionals’ experience and creativity in a different way, supported by the analytical power of machines.
‘This has significant ramifications for industries that typically train their employees by having them complete these repetitive tasks. For example, within the Legal Services industry, new lawyers typically gain experience by spending much of their time manually searching documents or proof reading materials. If these tasks are automated, it becomes unclear how an inexperienced lawyer can gain the experience that will allow them to become a genuine specialist,’ said Mr Youl.
Outlook
As repetitive tasks are increasingly performed by machines, Professional Service firms are likely to adapt their workforces to target niche capabilities. In particular, firms will likely focus on skills that are related to manipulating machines or that a machine is not able to replace, such as creativity or local knowledge. For professional services firms to be successful over the next five years, they will need access to the latest technology, skilled employees that can leverage that technology to drive productivity, and to be able to effectively communicate their service capabilities to clients.
IBISWorld reports used to develop this release:
- Professional Services in Australia
- Management Consulting in Australia
- Legal Services in Australia
- Accounting Services in Australia
- Engineering Consulting in Australia
- Scientific Research Services in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com
