Professions in the digital disruption era

Phil Ruthven debates whether the ever-changing technological landscape is helping or hindering the development of Australia’s employment industries.

Professions survived and thrived through the industrial age, which saw craftsmanship supplanted by mass-production, aided by the advent of power in the forms of water, steam and then electricity. But lawyers, accountants, engineers, university teachers, military professionals, medical, clergy and other professionals escaped such displacement.

In the infotronics age that began to displace the industrial age in the mid-1960s, the professions continued to do well. The IT revolution of computers and basic software did not lead to the automation of their services. However, the second stage of the IT revolution, the digital era and digital-disruption, which emerged in 2007, might. In the case of the military, drones are set to displace actual pilots and robots replace ground troops. Some religions and clergy have faced decimation, mainly due to the information explosion that has exposed mistruths and the flaky origins of many dogmas, and long-hidden scandals, especially paedophilia.

In the medical profession, pathology and other diagnostics are taking the guesswork out of consulting and ever more advanced equipment is finding its way into operating theatres. However, their numbers are not under much threat given the insatiable desire of humans to live long, healthy and pain-free lives. But other professions are now being challenged not only by the information explosion (including “big data”), but also by the advent of fast broadband, cognitive software and analytics.

The global industry for professional services, excluding medical and military, is estimated to be close to $8 trillion in 2016, of which Australia has a share of close to 2 per cent. The break-up of our professional industry in Australia, valued at some $162 billion, is shown in the graph.

The actual market is, of course, considerably larger, due to professional activity inside large businesses. Economists, engineers, in-house legal counsel and attorney general departments, IT professionals, research and development activity in enterprises, and in-house accounting and other professions are more numerous than those employed in the external supplying professional industries.

Indeed, according to the Australian Bureau of Statistics’ definition of occupations, the nation’s professional and technical occupations account for 23.1 per cent of the workforce in 2016, up from 17.1 per cent in 1991, a quarter of a century ago – hardly a sign of a threatened species. This converts to 2.8 million professional and technical workers in 2016, of which just over 700,000 are in outsourced supplying industries as defined in the exhibit, or one in four of all professional workers.

However, there are growing concerns that professions may be facing a challenge similar to that faced by craftsmen in the industrial age. In this case, it is a separate basket of disruptive technologies that might see operatives or machines or robots take over from many professionals, as mentioned earlier.

Enablement and automation

The digital era is enabling many professionals to advance their skills and creativity, as much as it is displacing others via automation. Conveyancing has been semi-automated in the legal profession, and many other services may follow or indeed be internalised within corporations rather than be outsourced.

One of the anachronisms of most professions has been the practice of charging for inputs (hours of work) rather that charging for outputs, which most of the industries in the economy now do in the new age, post-1965. It is an old-fashioned cost-plus approach, rather than the now price-minus practice of most industries. It is a case of production-pushed rather than market-led.

It also explains, in part, the poor productivity of professions. Professional and technical services went backwards in productivity (value added/hour worked) by 2.9 per cent per year over the five years to March this year. The collapse of mineral prices had an impact of course, especially in engineering consulting.

But education and health services were close to zero productivity, without such a debilitating factor. It is of concern that there has been no reduction in the real cost of university degrees for over half a century. And that is supposed to be an industry that makes us a smarter nation.

University education is now heading down the virtual path before most other professions, and now exists as a traditional campus education, online and a hybrid of both. So, perhaps digital disruption has come to the aid of the consumer – in this case, students – at long last, as well as the supplying professions themselves. The whole idea of productivity is a win-win-win outcome: wages go up in real terms, quality levels go up, prices come down in real terms. And the economy wins too.

Now legal services are going online. In the US, where the industry is valued at $281 billion in 2016, some two per cent is now online: a small share, but growing rapidly Accounting services, particularly in-house accounting, has benefited from IT, software programs, cloud services and electronic banking despite rising complexity in tax regimes.

In the face of a growing appetite for management accounting information upon which to make important decisions on direction and operations, the clerical and administration occupation group has shrunk from 18 per cent of the workforce 25 years ago, to 13.9 per cent in 2016. External auditing is benefiting from the same advances.

All professions are experiencing systemic threats or – on the positive side – facing exciting opportunities for those who choose to join and keep up with any emerging new regime. The disruptive elements include: working arrangements (such as virtual offices); online services; some in-housing of professional activities; intelligent software (including IBM’s Watson and similar smart computers); very high speed broadband; and analytics.

Nowadays, many company directors are generally regarded as “professionals”. Are they being challenged in this disruption era? From the foregoing, we know their companies are.

But in the emerging knowledge and wisdom era, are levels of information via big data and cognitive software likely to make many redundant? Or help them make better decisions? Let’s hope it is the latter.