Global Risk Landscape 2021: Professional services in the spotlight
Our 2021 Global Risk Landscape Report found that many professional services firms accelerated their digital transformation and adjusted their working cultures in response to the COVID-19 pandemic. However, many remain concerned about the risk of data privacy breaches, while understanding the importance of innovation and keeping their IT systems up to date.
The art of the unknown - Global Risk Landscape 2021
BDO’s sixth risk survey sought the views of 500 c-suite business leaders globally across a range of sectors, including professional services. Questions investigated the impact of COVID-19 and how businesses had responded, as well as risk themes related to innovation, technology and people.
The impact of COVID-19 on the professional services sector
The results indicate that the professional services sector felt the least impact from the pandemic, with just 3% of respondents stating the impact had been “much worse” than expected, a stark contrast to the 37% of family businesses. In addition, 37% of professional services firms thought the impact had been less significant than expected and 7% much less significant.
One possible explanation is that professional services were relatively better equipped than many sectors to interact with clients virtually. Secondly, although some clients paused projects in March and April 2020, these were often restarted after the first wave of the pandemic had ended. In addition, government-led business support schemes meant more work than usual in areas like compliance, where clients needed professional support. This could help to explain why 37% of professional services respondents said their revenue had increased more than expected as a result of the pandemic (compared with 20% of all respondents).
The “silver linings”
Professional firms also identified a number of “silver linings” as a result of the pandemic and their response to it. For example, 63% said their digital transformation programmes had accelerated more than they would have done (above the cross-sector average of 57%).
However, only 23% said their internal culture had improved e.g. that productivity levels had risen, compared to the overall average of 35% and the notably high result for family businesses (47%). Rather than being a negative result, this could indicate that professional services firms already had relatively productive operations, leaving less scope for improvement.
The pros and cons of remote working
Another possible interpretation is that the rapid adoption of new working practices – potentially including “quick fixes” and workarounds to support fast decision making – may have increased the strain on internal culture and limited productivity performance improvements. When asked about their responses to the COVID-19 pandemic, 60% of professional services firms chose to alter their working culture to suit a new, remote workforce – the sector most likely to do so by a margin of seventeen percentage points (ahead of private equity).
Whereas most respondents in other sectors expect the majority of changes made in response to the pandemic to be reversed within six months, 58% of professional services firms expect them to last six to 12 months. This suggests firms have found benefits from remote working and may be considering more hybrid ways of operating in future, with a slower return to previous normal working practices.
Global mobility risks
While changes to working practices such as increased remote working may have delivered some benefits, there are also associated concerns. As well as increased use of remote working in the UK, there are signs of increased interest from staff in relocating outside the UK but still working for UK firms. Tax rules and regulations can be complex in relation to internationally-based workers, so care needs to be taken to ensure individuals and employers do not expose themselves to increased risks and costs.
Increased IT-related risks can also be associated with remote working. Among professional services respondents, 17% ranked security-related risks (such as data breaches or malicious actors) as the top pressure on their company as a result of the COVID-19 pandemic; and 37% ranked security-related risks in their top three pressures. Only respondents from the technology, media and telecom (TMT) and financial services sectors gave security-related risks more prominence.
Such concerns reflect the potential increased threats to data security, whether from human error or deliberate cyber attacks, when more personnel are working from home or on laptops in cafes or other out-of-office locations. Respondents in professional services appear to see this as a growing risk area, perhaps reflecting ongoing developments in technology, the innovative nature of cyber criminals and the likely continuation of remote working in various forms. While 47% of professional services respondents think the threat of data privacy breaches is a high priority risk in the next one to two years (compared to 35% of all respondents), a striking 70% consider it a high priority risk in the next five years (compared with 46% of all respondents).
Concern about such threats may help to explain why 19% of financial services respondents believe the risk of outdated legacy IT systems and infrastructure is a serious priority for their organisation (compared to 12% of all respondents). However, 26% see it as a low priority (compared to 22% of all respondents who see it as a low priority or don’t include it on their risk register). This may reflect the fact that many firms have made recent investments speed up digital transformation. In addition, only 20% of professional services firms surveyed think outdated legacy IT systems and infrastructure is a priority risk (ranked in their top three risks) in the next five years (compared to the survey average of 33%).
Keeping up with innovation
As well as effective technology, professional services firms depend on talent for their success. As people-focused businesses they make substantial investments in attracting, retaining and developing talent to help stay high up on the innovation curve. It is therefore notable that 37% of professional services firms rank failure to innovate or meet customer needs as a top three future risk their company is most unprepared for – above the overall average of 30%, emphasising the importance firms place on this area for future success.
Although 3% of professional services firms included “inability to compete with innovation” on their risk register some eight to nine years ago, the majority (67%) included it in the last three years. However, 3% still do not see this as a risk, rather surprisingly.
As people-focused businesses, developing supportive cultures that encourage individuals to feel empowered, take decisions and find innovative solutions is important. It is therefore encouraging that although 23% of all survey respondents thought that blame culture inhibits their company’s ability to respond effectively to disruption, only 13% of respondents from professional firms did so.