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GST To Increase India’s GDP By 2-3 %
In an exclusive interview with BW Businessworld’s Kshitiz Mohan, Mr. David Gittleson- Managing Partner of EY's Advisory practice in Europe, Middle East, India and Africa (EMEIA) and Ram Sarvepalli, leader of the Advisory Practice in India for EY (Ernst and Young), talk about GST, Artificial Intelligence, Fintech, Cyber Security, Disruption and Automation in the finance sector.
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How big of an impact will the GST have on the Indian economy?
Ram Sarvepalli: It will significantly help improve the ease of doing business both in terms of rethinking supply chains and in terms of rethinking the ecosystem of your operation. The overall tax to GDP ratio will improve. There will be a cascading effect, everyone is paying tax through a source, but with cascading, there will be several benefits. In shorter term, the big challenge will be to adapt to the complying process. It will require significant amount of evolution at least in terms of operating process for the companies, vendors, business partners, supplier and also distributors. But, it will have a positive impact on the GDP with at least 2-3% growth in GDP. Like all big technological adaptions, it will also cause some short term disruption.
Companies are getting high on Artificial Intelligence and Robotics. But, something that is constantly in the headlines is, ‘how AI can make some jobs obsolete’. Is Artificial Intelligence a threat to employment?
David Gittleson: We have launched a Global Network called Wave Space Environments, which are intended to achieve a number of objectives, but fundamentally it is our environment in which clients will spend time working together. Clients need to be in a different environment to co-design in the way that they address disruption. Yes, Artificial Intelligence and Robotics is increasing, but people need to understand cyber security and analytics more broadly, so the client will get a consistent experience whether they're in Berlin, London or San Jose. The impact of AI and Robotics on the society was one of the main conversation points at the World Economic Forum in Davos. There may be problems, but you have to see how Automation and robotics will impact the type of work that’s being done. Certain activities will be automated and that’s inevitable, but it will challenge people to do different types of roles and work on their skills. However, emotional intelligence and creativity won’t be carried by robots, only humans can carry these traits. Certain industries will change by AI and robotics and it will impact the workforce of certain industries. It will also impact the professional firms as the type of people we employ will change and the demand of new skills will increase.
I think a lot of organizations see robotics as the need to free up tons of people who are spending a lot of time on highly repetitive manual processes and add more value-added work.
Ram Sarvepalli: if you look at the Indian context, the number of people working full time in analytics as a profession is opening up. It will initiate skilling and re-skilling of people. What will change is the non-production of conventional skills; you can’t any more produce engineers and accounts to the thousands.
Fintech will drive the new business model in coming years. Not a rival financial giant, but Fintech’s will be your biggest rival and competition. How do you strategize to take on the competition?
David Gittleson: We have met a large number of fintech’s over the past couple of years. Some of them want to compete and take on financial institutes, bank and assets managers. But, if you talk to a start-up, they really want to be a part of the big banks and organizations in order to change and improve their business. We have a role to connect the Fintech space to our big global clients, in order to have access to a large number of talents in different areas. Fintech’s are really good at solving one problem, but if I have a different FinTech solving every one of my problems, I will end up having a very complex environment and so I think it's a challenge for some of the fintechs on how they scale and how they are able to solve a problem for a major organization. The main reason why a big corporate decides to acquire fintech is because of the unbelievable talent they have and that they want the talent to work on different sets of problems for the acquiring organization.
Is this threat an excessive competition to us? I would say slightly. I think that the professional services will absolutely get disrupted and it is getting disrupted, to give you a couple of examples you see online marketplaces, clients now have much more access to special Sims and that's why we're seeing that certain specialisms getting more time just because the consulting model is getting disrupted. Unless we adapt to that we will find that we may not be competitive in certain parts of the markets.
What role does the frugal innovation play in emerging markets? Why is it important for a finance company to stress on frugal innovation?
David Gittleson: There isn't the legacy infrastructure in some of the emerging markets, you know you can skip a generation and go straight, as you see with some of the phone banking that has happened in Africa. The dynamic that we are seeing is that you are getting your next generation of innovation in the emerging markets, which is incredibly attractive to more developed markets. We see real talent pools around the world that we can leverage for broader use outside that economy and we have got tremendous analytics capability in India.
There will be a sharing economy by 2020. Customers will need banking services, but they may not have to go to a bank to get them. The sharing economy may have started with cab and hotel rooms, but financial services will follow soon enough. How are you preparing for the sharing economy?
David Gittleson: we are really focused on the future consulting model, whether its marketplace where you have many independent contractors who does not want to work with you full time, as you work a very different way. The one area that will change is the customer experience, but the consulting hasn’t changed much from when it started. Clients may say, ‘why isn’t the customer experience like using Amazon or using a bank’. We have talks about having an ‘EY robot’ on our client’s desks and it will answer questions for them.The client interface needs to evolve. There will be a disruption in the way the consulting services gets delivered. There will be much more assets and platforms. There will always be the need of prime and talented people. Automation is increasing but you can’t get rid of the human model of consulting. We are working on voice recognition, where a particular meeting can be recorded and transcribed in a very logical way. When you are in Audit and our business, you have to look hard at how you are going to utilize technologies.
In our internal audit, the audit platform gives you odd looking data for the audit officer. You make scenarios based on the co-relation of data you have that might highlight problems like the missing database or multiple payments to the same individual. The analytics platform takes client data and provides specific analysis of where the audit should stop. You have a more predictive and analytic approach to your work.
In London we have people sitting in separate building and their main task is to disrupt EY with all of the technology that’s available to offer new experience to our clients. Some of the partners that we are hiring come from very fast disruptive sector like technology. We talk about scenarios like, ‘what would an audit look like in five years’ time, if you completely re-design it from a blank piece of paper’.
What are the changes or adjustments in the business model that a financial company like EY will have to make in order to embrace disruption?
David Gittleson: We will have different business models. Managed services are very important part of our business strategy. Business processes for the clients will change. We might run ‘know your customer’ or ‘sanctions monitoring processes’ for banking which are highly regulated and you need to understand the changing rules and we provide that to the banks. Managed Services Business Model is very different, the length of engagement can be much longer and the pyramid is different.
We have also formally created different career paths within EY to reflect the fact that when you look at different businesses, you need to have flexibility in the grades and progression in different types of career. Some of the new business areas we go in have different commercial structure, the example of which is, ‘smart metering’, in the emerging markets in Africa. It is very important for the government and municipalities to have smart metering to understand the usage of electricity, fraud prevention and to upgrade the infrastructure. We set up a company which has manufacturing of smart meters and technological firms. We get paid a management fees based on certain usage of meters. It is a very different business model for us and nothing like the traditional auditing. We are seeing the needs to put in place the different commercial structures, different financing requirements and investment needs. It is inevitable if we continue to do it and raise questions around branding. In our certain businesses, advisory business is larger than the audit business.
EY has advisory practice in Europe, Middle East, India and Africa. How does a market changes from a developed country like the Europe, to a developing country like India?
David Gittleson: In a lot of countries we have new government that affect the oil prices. It’s not the case that the developed market is doing one way and emerging the other. Even in the emerging markets, we see quite notable differences in terms of economies and businesses and that’s why we value having a portfolio as we realise how the economy is going to be across different markets. We see innovation in all the markets and we do the same with clients in both the developed and the emerging markets. In the emerging markets, we are seeing some common areas of interests, that’s why we brought together Africa, Middle East and India, as the clients whether its corporate or the governments were very consistently saying that they want the same type of expertise like the investment around digital and cyber. There is very good synergy between India, Middle East and Africa because of the investments, solutions and setup.
We want to make sure that the developed markets are sharing innovation with the emerging markets. We also help our clients take tours to different countries in order to help clients connect with clients.
Automation poses risks to millions of jobs around the world in coming future. How should a company or government have a check on controlling automation and saving jobs?
David Gittleson: The key to that are education and better skills. The new work force needs to understand technology and must have good literacy around these tools. The skill level must be high, so that it does not get replaced by automation. In the world economic forum, we saw a change in the, ‘top-10 skills that an employer wants from his employee’. More emphasis is given on creativity and emotional intelligence. For example- you might have an absolutely great customer experience service, but you need creative people to add up to that technology and that is what provides the best customer experience. We have always hired a lot of graduates and school leavers around the world, because that gives us emphasis to be clear on what skills are required.
‘You can’t stop Automation, but you can be prepared with the skills that are needed to tackle automation’. Automation will always need human skills alongside to go forward.
Ram Sarvepalli: Even for the Indian context, the government and companies are looking at how AI and Automation will impact the jobs. There are a lot of professional services like us, that are working with the industry and the government to look at the impact of future of jobs in India. Skill will be important in the future. It will also open up new sectors, like the case of airline and shipment. When the Airline industry came, shipping industry shank and took a back seat, but it opened a new sector. There will be a lot of new technology that will create new skills in the future. India is very good in engineering sector, but we are not dramatically good in Cyber, so we have an opportunity to create thousands of cyber engineers. That is a major shift that we need in India in the coming days.
What do you think is the future of EY in India from the advisory point of view?
David Gittleson: Our advisory business will look very different in the future compared to now. The types of services we offer will change. We will have assets, alliances and a bunch of different parties we will be working with to deliver services to our clients. India is strategically very important for EY. We were number 1 for FDI last year. Beyond that, India is very important in terms of quality of skills. Our ‘Approach EY’ is to be connected across geographies. We don’t operate Countries in National front, it is not our model, we have one single approach for Europe, Middle East and Africa. We are convinced that it is the right structure, as clients will get access to best practice globally. With great talent, India will be a very important strategic market for EY.
Ram Sarvepalli: We just got the results of the brand survey that was independently done and we were rated as the number one firm of India. We want to be a connected practice with the rest of the EY world. We will try and bring the best of what EY has to offer for our clients in India. ‘We will not wait for the innovation to come to us, we will create it’.