Like most industries the PBS sector is evolving, influenced by a number of macro environmental factors, not least the Covid-19 pandemic and Brexit. We take a look at five key trends shaping Professional Services today, and consider how the sector may look in the future as a result.
The professional and business services (PBS) sector plays an important role in supporting jobs and growth in the UK, making up 13% of all UK employment, 25% of all businesses and adding £190bn to the economy.1
1. COVID-19 (Coronavirus) pandemic
Impossible to ignore, the Covid-19 pandemic has disrupted personal and professional lives on a global scale. The extremely diverse PBS sector obviously experienced varied impacts; travel agents and tour operators suffered most because the travel industry experienced a drop in output of 87.8%2 between February and September 2020. Many other sub-sectors saw falls in activity due to their reliance on other parts of the economy, with a 21.4% drop over the same period for employment activities, for example. By contrast, the insurance and reinsurance sector saw growth of 0.1% over the same period.3
Businesses have coped with financial pressures in a variety of ways: furloughing staff, reviewing capital investments, considering alternative supply chain financing options; and reducing variable costs such as imposed restrictions on discretionary spend. It’s a good idea for any company to consider both the medium and long-term implications of the pandemic on their cash flow and take appropriate action to address these.
Another consequence of Covid-19 is that many employees were moved quickly to a remote or ‘working from home’ model which now may become a more permanent arrangement. This has both pros and cons. For example, more flexible working models could mean that some companies are able to relinquish rents on office space to reduce overheads. Further, freeing up workers from their daily commute is not only ‘greener’ but could also see increased output efficiencies where employees gain back time in their day. On the other hand, it brings certain potential challenges, such as employees feeling isolated and disengaged or customers feeling distanced. One particular challenge facing the sector is technology which we examine below.
2. Technology
The pandemic placed even greater reliance on technology in the workplace than before. According to a survey by fintech company Yobota, the percentage of people who had used fintech in the previous three months increased from 42% before the UK’s first lockdown to 64% during and after it, while 42% of respondents reported that they planned to use fintech much more in future.4 In addition, video conferencing apps and collaboration platforms such as Zoom, Microsoft Teams and Google Meet have become the cornerstone of the working day. Despite some initial fears that dependency on technology could damage client relationships, many professional services firms are learning that virtual communication and digital client interactions can actually be advantageous. With customers increasingly prioritising speed, efficiency and personalisation when buying services, data-driven processes such as Artificial Intelligence (AI) can offer clients a more streamlined or tailored experience. Emerging technologies such as Robotic Process Automation (RPA) can also bring efficiencies for employees by freeing them up from mundane, repetitive tasks to concentrate on value-add assignments, thereby increasing both productivity and job satisfaction.
Going forwards, PBS firms will need to weigh up investment in physical office space versus investment in technology, both to support staff working from home and in order to offer a differentiated customer experience.
3. Cyber threats
Naturally, increased dependence on technology and data brings greater risk in the form of cyber-attacks and cyber security incidents. Professional Services firms typically hold confidential information, such as intellectual property and third party data, which is coveted by cyber criminals. In a recent Microsoft survey of 1,000 cyber-security decision makers at enterprises across multiple industries in the UK, US, Germany, Japan and China has revealed that 80% of firms have experienced at least one attack in the past
two years.5
two years.5
This is partly due to staff working remotely, which in some cases may involve the rapid set-up of systems, use of personal computers, and overlooking of security issues. But a cyber security incident can also originate unwittingly from an employee. Common employee mishaps in this sector include misconfiguration (failing to implement all the security controls for a server or web application), misdelivery (when information is delivered to the wrong recipient) and loss (e.g. when confidential paperwork is mislaid). Any of these can have serious consequences for a company, including financial loss, lost sales, business interruption, regulatory fines and reputational damage.
As a result, more businesses are considering the potential benefits of cyber insurance. For example, cyber cover has become especially important for accountants since the introduction of HMRC’s ‘Making Tax Digital’ initiative, requiring businesses to submit taxes electronically, in April 2019. As part of efforts to mitigate the impact of COVID-19, the end of the initial ‘soft landing’ phase of this scheme was pushed back to April 2021. In April 2022, however, the government plans to extend the programme from firms with a turnover of £85,000 to all taxpayers with business or property income exceeding £10,000 a year.
4. A changing workforce
Some reports suggest that Millennials will soon make up 75% of the global workforce6 with theories that this demographic brings new demands in terms of flexible working options, the need for ethical company purposes and a lower tolerance for old, ‘clunky’ technology. Whilst this may be true, it could be argued that employee expectations are changing irrespective of generation. The Covid-19 pandemic was a major catalyst in dramatically altering working styles and allowing many people to pause and reassess their work-life balance. As Deloitte commented, “all workers are becoming more vocal about their needs”7, whether these relate to career progression, job satisfaction or skills development.
Professional services firms are not unique in needing to stand out in a crowded market. As employees’ requirements evolve, PBS companies will need to consider how to make themselves relevant and attractive to employers, avoiding the problem of skills shortages whilst ensuring they have sufficient succession planning in place.
5. Brexit
At the beginning of 2020, it would have been hard to believe that the topic of Brexit could be superseded. However, its implications for Professional Services firms remain significant.
Brexit involves wide-ranging changes to cross-border commercial activity, which in the short-term has meant increased demand for legal and accounting advice. For example, in anticipation of the UK exiting the Single Market, many companies needed to establish new EU-based subsidiaries, change suppliers’ contracts, amend VAT treatment and alter their employees’ contracts. Professional advice will be needed to deal with regulations as they continually develop following the December 2020 free trade agreement.
In the medium term, the outlook for the PBS is less positive because the trade agreement guarantees tariff-free trade for goods but not services. The loss of passporting rights for the financial services sector has largely been met by establishing EU subsidiaries, and central banks are keen to avoid disruption in the banking and capital market sectors.
However, support for other professions has been much less substantial, with issues still remaining to be resolved including the lack of mutual recognition of professional qualifications. The large size of the professional services sector relative to the UK’s economy is in part maintained through the provision of services to countries in the EU, and therefore a reduction in demand from the continent will have significant consequences for the UK in general and for London in particular.
There’s also the potential issue of any restriction on movement. The project-based nature of many Professional Services jobs can require staff to travel internationally at short notice; a practice known colloquially as FIFO (“Fly in, Fly out”). Uncertainty remains around the topic of visas or work permit restrictions laid out in the EU-UK Trade & Co-operation Agreement. Such restrictions could also have repercussions for recruitment of non-nationals, presenting skills shortages. Further, there may be obstacles for those workers whose jobs rely on mutual recognition of professional qualifications within Europe.
Brexit also means that companies will need to adapt their internal procedures for any international data transfer, in addition to complying with GDPR. Since exiting the EU on the 31 January 2020, the UK is officially now regarded as a ‘third country’ meaning it does not possess ‘adequacy’; a status granted by the European Commission to countries outside the European Economic Area (EEA) who provide a level of personal data protection comparable to that provided in European law. Following the transition period, the EU has agreed to delay data transfer restrictions from the EEA to the UK for at least another four months, which can be extended to six months (known as the bridge). This enables personal data to flow freely from the EEA to the UK until either adequacy decisions are adopted, or the bridge ends.8
Summary
Professional Services firms need to ensure they remain resilient in these uncertain times but also equip themselves to deliver profitable growth in the future. Companies may want to revisit business continuity plans, undertake new risk assessments in light of Covid-19 and familiarise themselves with their business interruption (BI) and professional indemnity (PI) policies, where these are in place.
Client relationships have always been the backbone of the Professional Services sector and so companies should focus on nurturing and developing such relationships, drawing on the right skills and technology to deliver true customer value against a landscape of changing needs.
1. Department for Business, Energy & Industrial Strategy. Professional & Business Services sector. BEIS Research Paper Number 2020/006. February 2020.
2. ONS (2020), Coronavirus and the impact on output in the UK economy: September 2020
3. ONS (2020), Coronavirus and the impact on output in the UK economy: September 2020
4. UK Investor Magazine (2020), “Fintech usage jumped over 50% during lockdown” (21/07/2020)
5. New Security Signals study shows firmware attacks on the rise; here’s how Microsoft is working to help eliminate this entire class of threats - Microsoft Security
6. Forbes. New Millennial Survey Finds A "Generation Disrupted: How Business Leaders Can Respond. 27 June 2019.
7. Deloitte. The postgenerational workforce: From Millennials to Perennials. May 2020
8. Information rights after the end of the transition period – Frequently asked questions | ICO
2. ONS (2020), Coronavirus and the impact on output in the UK economy: September 2020
3. ONS (2020), Coronavirus and the impact on output in the UK economy: September 2020
4. UK Investor Magazine (2020), “Fintech usage jumped over 50% during lockdown” (21/07/2020)
5. New Security Signals study shows firmware attacks on the rise; here’s how Microsoft is working to help eliminate this entire class of threats - Microsoft Security
6. Forbes. New Millennial Survey Finds A "Generation Disrupted: How Business Leaders Can Respond. 27 June 2019.
7. Deloitte. The postgenerational workforce: From Millennials to Perennials. May 2020
8. Information rights after the end of the transition period – Frequently asked questions | ICO
Follow us
Commentary and guidance in this article are provided for information purposes only and are not intended to amount to advice on which reliance should be placed. Readers should seek further advice when dealing with their individual and particular situations. Allianz Insurance plc shall have no liability for any action taken as a result of and in reliance on the information contained in this article.