Good Morning! Mr. Jagath Perera, President of the Institute of Chartered Accountants of Sri Lanka, Mr. Manil Jayasinghe Vice President of the Institute of Chartered Accountants of Sri Lanka. Committee Members, Distinguished invitees, Chartered Accountants, Ladies and Gentlemen. First of all, I would like to extend my warm appreciation to the Institute of the Chartered Accountants of Sri Lanka for inviting me once again to speak at your Annual Conference. The topic assigned to me today, is the ‘DNA of the Future Accountant- Redefining learning and working in Sri Lanka’. I have also been assigned four goals for today’s address, the first of which is to give some insight as to what the future holds. There is still much debate on how to define the current era- some believe it’s the digital era while some say it is the era of knowledge. Following the hunting, agriculture, industrial, service and technology eras there is some confusion regarding which era we are in now. Companies are currently facing some profitability pressures, but I believe if we can clearly identify and define the current era there are many opportunities to pursue. If not, it’s simillar to not knowing which goal post we are supposed to hit towards in a football match. Let’s take a company like Uber or Pick Me- see how the taxi industry has been transformed using technology. In the past, the customer would have to call the taxi company, be kept on hold, the company would then take down the details and promise to send the vehicle in 30 minutes; if it doesn’t arrive the customer has to make repeated calls. But technology has completely transformed the industry- through an app the customer can clearly see the time taken to come, where the vehicle is and even how it is moving. This has led to increased customer confidence and larger business volumes. The same activity which used to take 30/45 minutes can now be completed in around 5/7 minutes. The price has also come down- because there is no commute between stations for the taxis, the empty time of the taxi has been cut down from around 50% to 30% resulting in a reduction in cost. By simply introducing technology, the same business has improved significantly. Another example is Airbnb- previously the industry operated directly through hotels and travel agents, but now guests can simply book their accommodation through an app. Now, the capacity of rooms available for guests have increased by 30 times. I firmly disagree that technology will result in redundancies and unemployment; we should embrace technological advances rather than consider it a threat, of course if we continue with our traditional mindset and thinking businesses will ultimately face bankruptcy. Another example is Netflix and the film industry- everyone believed that with the launch of Netflix the film industry would collapse. However, what has happened is that the movie watching audience has increased by 30% to 40% and Netflix has now created a demand for more movies, more actors and better payments to actors. The entire industry has improved due to new technology. A Company which continues to operate in a traditional mindset- saying it will only show their movies in theatres and is unwilling to make use of the technology, will inevitably face difficulties and ultimately bankruptcy. Some people say that there will be 75 million robots by 2022 and that people’s jobs will be replaced by robots. But robots can not work on their own, they must work together with people. Robots can bring down the cost of the operations resulting in the whole market expanding. This will create demand for more resource people. I have noticed that people who don’t know anything about a subject remain silent on it. People who know less than half like to criticise while the person who knows the subject well provides solutions- it is the same during Board meetings as well. The solution may not be correct, but these can be resolved through brainstorming. Critics are also important to achieve progress, but unnecessary criticism is of no value to anyone. Consider examples such as Amazon, Alibaba and Ebay- many people believed that the retail shops would lose business and would have to close. The costs have reduced and the increased convenience has led to higher consumption and purchasing- with people purchasing items they would not normally have thought of buying. This has created more jobs. I think there is undue fear among people; I believe people are internally very happy, but this is clouded by unnecessary fear and worry. If we remove the element of fear people will be happy. Now we come back to the question of how we can define the current era- is it a digital or knowledge era? I believe this is the era of sustainability. In all the examples I discussed, the businesses focused on improving their sustainability while the operating model did not change significantly. In order to improve the sustainability, we have to think about ways in which we can reduce the costs. One thing I have noticed about Chartered Accountants is their high level of energy. This is because of the process they have gone through- the education they have received and the training at the audit firms. Those without a high level of energy can not survive this rigorous process. Based on my own personal experience, my belief is that Accountant’s jobs are not at risk and we will require many more Accountants in the future. When I was in school, my aspiration was to become an engineer. During my O/Ls my mother advised me to take up accounts as a subject. I initially refused, as I felt it was not relevant to a career in engineering, but my mother told me that without understanding the accounting approach I would not go very far. Since I could not ignore my mother’s wishes, I decided to do Accounts for O/Ls- at that point I did not understand that having some background in Accounts would be very useful. When I was doing my A’Levels, I had a friend who was studying economics. We used to travel in the bus together and I developed a keen interest in the subject after discussing many concepts with him. I was 16 at the time and once he brought me a copy of the Central Bank Annual Report- he had got it from his mother who at the time was working at the Central Bank. This was in 1983 when per capita income was 335 Dollars and the country’s total GDP was around 121 billion rupees. From that time, I would read the Central Bank report, discuss and debate it with my friend and that is how I learnt about economics at the beginning. Since then I have always welcomed opportunities to improve my knowledge in Accounts and economics. I have learnt from economists as well as firms such as E&Y and KPMG and will continue to do so in the future. Now I understand, than studying electrical and electronic engineering at the University, what has helped me to remain calm under pressure, understand the country’s economy and how the world works is my understanding of economics. It has allowed me to remain calm in periods of economic change, as I am able to anticipate such trends and respond accordingly. There is no reason to panic if you know the direction in which the country is heading. I learnt Accounts 35 years ago because my mother asked me to. Now, even though my own children are also good at mathematics I encouraged them to take up Accounts and economics for O/Levels. My older child wanted to study mechanical engineering, so she did maths. However, I sent for economics and statistics tuition classes, so she did 6 subjects in total. However, I sent for economics and statistics tuition classes, so she did 6 subjects in total. My second daughter is currently in grade 10 and she’s also studying Accounts and economics. I believe Accounts is essential for the future and I’m sharing my personal experience with you to give you confidence that Accountants will be the future. There could be some Accountants who just know the theoretical concepts of the subject- that could be just 1% to 2%; but in general, it is Accountants who really understand how the country and the world works. That is the value of your profession. Now please raise your hand if any one of you still feel fearful about the role of Accountants in the future? Since none of you are raising your hand let me move on to the 2nd goal of today- which is to describe the DNA of Accountants. There are 2 points I want to raise here. Firstly, please raise your hand if you are a Managing Director or a CEO of a Company- because that will give me an idea of how many Chartered Accountants progress to become MDs or CEOs. I can see around 10 hands raised; this means there is a problem and that the DNA has to change. Now please raise your hand if there are any of you who hold positions outside Accounting jobs, such as Head of Marketing etc. There are very few, it appears that the Accountants do not want to take up any other challenges. You are a group of people who have learnt about the entire process of a business. Why do you think you have to be only an Accountant and be limited to the Accounts Department? Why can’t you apply for positions such as the Head of Marketing, CEO or MD? This means that is what we have to match the future DNA of Accountants to. I know that the education and training that Accountants go through is very thorough. Even at Board Meetings, it is the Accountants who understand all aspects that are discussed. However, the problem is they do not want to take on other challenges; with this thinking how can they become CEOs or MDs. I believe that is what the DNA of future Accountants should be; not just new students but all of you here, who can begin this transformation from tomorrow. Think about the role of a Managing Director. In essence, what he does is work across all departments to discover ways to improve all the areas in the business. I believe Accountants too have this knowledge-the knowledge base of Accountants is incomparable to the others. Therefore, what I am unable to understand is why they are not willing to take up a challenge like that.
I will come back to DNA subsequently, let’s discuss what needs to be done. Both in Sri Lanka and globally there is a trend of stagnating profits- so let’s talk about what can be done to improve it. According to a survey done in a middle-income earning country, they say in a developed country outsourcing is profitable since the salaries are relatively high. In a developed country with a 30% human resource it is still cheap to outsource. I have addressed this issue with my companies and the departments are overstaffed; however everyone appears to be working for 8 hours! Let’s consider why developed countries offer flexible working hours. It is because they understand that within the office employees will work 7 hours, but when they work from outside they work all 8 hours since they know they are being tracked. What is the situation in Sri Lanka? In my organisation, we were exploring ways to introduce a system of allowing pregnant women to work at least 4 hours from home. We invested in a software called Active Track, which cost around Rs.1500 per person. Before introducing it to the market I wanted to try it in my own organisation. We did not monitor it strictly but told our employees that they themselves could assess how much they work through the software. At the beginning, they were working close to 4 hours and they can track their own progress; without our intervention it has now improved to 6 hours and 15 minutes. In countries like the USA and UK its around 7 hours. Let’s assess, the impact on a Finance Department. Please raise your hand if there is any person/company which uses a similar tracking system to monitor work. There appear to be none. Do any of your organisations have a system in which you can review the progress of a job you have allocated through your phone online? If that is the case, how is the work monitored in your organisations? Please look up a software named Monday.com; there are free versions as well, but the paid version is around Rs.1200 per person. Use it in your own departments. You will easily be able to track work progress and receive notifications when jobs are completed etc. In the sustainability era, we must adopt these systems to track work. Without such measures, we can not bring down costs in the future. Even though these measures are not used in Sri Lanka, in other countries work is closely monitored using such mechanisms. I hope after today, you will test and adopt such systems which is the only way you can ensure survival in this sustainability era. Before advising other departments, this can be implemented in the Finance Department itself. I believe there is a great opportunity to do so. From my experience, Accountants clearly rank above most others in the organisation, in intellect and energy. However, the challenge is to identify how they are going to face the needs of this era. As another example, let’s consider credit cards. In Sri Lanka there is 1 bank which offers a validity period of 4 years for credit cards, all other banks offer 2 years. The cost of a card, which includes embossing and courier charges is approximately Rs.400 per person. Currently, there are close to 1.45 million credit cards in issue in Sri Lanka. The bank which offers the 4-year validity period has around 250,000 cards. The remaining 1.2 million cards are issued twice within 4 years, which means these banks are incurring costs for 2 extra years. Considering Rs.400 per card into 1.2 million cards that is around Rs.480 million wasted because the banks are issuing cards for 2 years, rather than 4. When questioned, they will say ‘it is not my responsibility, it’s the card centre head’s responsibility.’ But, this thinking is not suitable for the future, we must collectively come to a solution. From tomorrow if every bank issues credit cards for four years, the country can save Rs.480 million. This can allow the banks to reduce the interest rates by at least 0.001%. The point I am trying to make is that in the future, everyone in the organisation will have to work as a team, you can not operate independently. As I said, there is a lot of confusion regarding the era we are in; I also understood that it is the sustainability era about 6/7 months ago. Now we are talking about big data, artificial intelligence, algorithm, machine learning etc. before talking about these things, we should understand the basics. What I explained to you was the absolute basics, we need to understand this before going to the next level. Unless we have the correct attitudes and keep in mind that this is the sustainability era, it is going to be very difficult for organisations. If someone wants to start a taxi company and compete with Uber and PickMe without using technology how can they survive? In the mobile phone industry, Nokia used to have a market share of around 95%.
Due to their reluctance to change, ego and bad decisions it is now less than 5%.
Many people including Accountants and MDs lost their jobs and it was mainly due to the wrong attitude. We talk about advanced technology but fail to do the simple things. It looks like I will have to stress on this further to highlight its importance to the Accountants’ DNA! All organisations have some form of logistics. Do you consider the capacity utilisation of the lorry when it leaves the warehouse? For example, if the lorry is half full, the transport cost is double. This is where Artificial Intelligence can help in determining optimum delivery through min/max orders. 0
I am currently working with 8 data scientists who I co-ordinate personally and work very closely with. One of our companies had 8 warehouses and I allocated 2 data scientists to reduce the warehousing costs. They worked with algorithms and system billing considering all 8 warehouses. Using AI and min/max orders for unloading they were able to bring down the cost by around 10% However, if you reduce the number of warehouses to 3, from 8, costs can go down as much as 30%. This is a not a decision that can be made through AI, it is a management decision and it is the Accountants who have the knowledge to make this decision. In this situation is it human or artificial intelligence that is more powerful? First make use of your intelligence rather than AI. What AI can do is fine tune the processes we have already put in the place. Now let’s consider the Marketing Department. With regards to the advertising and promotion activities, the usual practice is for the Accountant to provide a budget for 3 months, 6 months or 1 year and conduct a simple audit at the end of the period to see if the funds have been used. In other countries, companies use weekly budgets and Artificial Intelligence which is used to assess the effectiveness of each advertisement. It can show us the most suitable advertising mode and the best time slot among others. For AI to do this however, a weekly budget should be given by the Accountant; if not it is a waste of these funds. This is the role of the future Accountant. His should adopt a role which is similar to the CEO/MD by working with other departments to provide solutions. This will place him in an important role, even without a promotion. The Accountant should not take the credit for such solutions but should let those department heads themselves take the credit. This will give him due recognition. In order to be a CEO/MD you will have to adopt such practices. This opportunity is available to each of you. Let’s talk about the future of Sri Lanka. The country’s per capita income is currently $4065; in 2014 it $3860. Per capita has increased by around $70 dollars per annum in the last 4 years. According to the World Bank, countries with a per capita income of around $4000 are stuck in the middle-income trap. However, they don’t provide reasons for this or give solutions to address this. In developed countries the per capita income is around $12,600; then what should we do to increase Sri Lanka’s per capita by $8600. The world’s average per capita income is $10715. So why is Sri Lanka stuck in the middle-income earning trap? The country suffered a 30-year civil war. In most countries which have wars, terrorism emerges when per capita income is around $150-200. In Sri Lanka, this was around 1976. In 1980, the minimum educational requirement to hold a government job was passing Grade 8. At that level of per capita income this was considered a suitable educational standard. Consider the top 3 countries in the World’s Terrorism Index- these are Iraq, Afghanistan and Nigeria. In these countries, terrorism emerged when per capita income was around $150/170 and education levels were low. Do developed countries ever suffer from terrorism? No. When the war ended in Sri Lanka in 2009, the per capita income was around $2040 and by 2014 it increased to $3800. During that period, per capita increased by around $450 per annum and then stagnated. There was a temporary boost in the economy and then the growth slowed. Let’s consider the educational requirements. In 1980, it was enough to pass Grade 8. By 1990, per capita income increased to around $450/500 by which point the minimum educational requirement was passing Grade 10. When the per capita income increased to $1000 in 2000, the requirement was to pass Grade 12 and when per capita increased to $2000 in 2010, a degree became the basic requirement.
Currently Sri Lanka’s per capita income is around $4000, so what do we require for the future? I believe, going forward the basic requirement will be that the Degree should be in English medium. This is the only way a country like Sri Lanka with such a small population can progress. We cannot limit ourselves to our own language and achieve a high per capita income. Then the focus should be on widening the accessibility of education to everyone, including to underprivileged children. As Sri Lankans we are proud of our history and rightly so. In 100BC Sri Lanka already had the Abhayagiri University which taught Engineering, Science, Agriculture, Irrigation and Architecture. It was only at this point that England opened schools. The first University there, Oxford University was opened in 1096, nearly 500 years after Sri Lanka. Then, what was our mistake? We limited the accessibility of education to a small portion of the population. This is a significant problem which has been difficult to overcome. King Walagamba reigned from c. 89 to 77 BC in a period that was similar to the current situation, as in it was after a war. When the clergy requested him to build the Abhayagiri vihara the King said that the Treasury did not have enough funds for such a construction. The King’s advisors advised him to remove the VISA fees applicable when entering the country; they recommended by doing so foreigners would come into the country for trading and tourism and that businesses would improve. With the arrival of more people into the country, the funds in the treasury increased and that is how Abhayagiri was built. 2100 years after that, we have once again introduced VISA fees for foreigners. With a fee of $30 per tourist, the country makes around $60 million dollars through 2 million tourists. Now a traditional Accountant will focus on the loss of this $60 million income if we remove the VISA fees. However, we should focus on the increased number of tourists that will come to the country if we remove the fees and develop tourism. If we can get 2 million additional tourists, who will each spend around $1000, the VAT income itself will be $150 per person. That will translate to $300 million in total. The traditional Accountant will make the argument that we will lose the immediate $60 million, but that is not the way to think. Currently Sri Lanka has 90,000 hotel rooms, which can not be filled with the current 2.3 million tourist arrivals. The country needs at least 4 million tourists. If we are not willing to change, the service charges will continue to drop and occupancy levels will decline further. Let’s consider the education sector. Approximately 350,000 children are born every year and around 25000 students pass out from university every year. Of that, 11000 seek out government jobs while the remaining 14000 looks for employment in the private sector without burdening the government. That means only 4% of the students (14000/350,000) we are teaching are not a burden to the government. Then without educating the other 96% how can improve the overall per capita income. Let me share my plan with you. I am not a politician, but a businessman. There is no point in criticising the government or the politicians, we should document our plans and give it to the government. Currently, there are 10,500 schools in Sri Lanka. Of this around 2900 do not even have basic infrastructure such as electricity, water or sanitation. Therefore, teachers are unwilling to go to these schools. The solution is that should develop the infrastructure in at least 1000 schools- which in turn will attract 1000 more students each. We should construct buildings and introduce smart class rooms- the cost of this project is estimated to be around Rs.300 billion. We have seen intellectuals saying that 6% of GDP should be allocated to education. The country’s total GDP is around Rs. 13000 billion and of that Rs.200 billion is allocated for primary and secondary education and Rs.41 billion for university education. This means that its only around 2% of GDP that is being allocated to education. Around 160,000 students qualify for university entrance and our focus should be on increasing this number. There is no major problem in the education sector, the only issue is that we are not educating enough students.
Also, our students are not equipped with the skills which are required by the country’s economy. We have green universities like NSBM.
There are 17,000 births per population of 1 million. If we build 1 university to serve a population of 1 million, and about 5000 students (30% or 33% ) can obtain a university education. We can have 1 university for each district. Students who graduate from universities such as SLIIT, Northshore have no issues finding employment, their skills are well suited for employment. There are about 80,000 children who do not have access to good schools, if you consider 12 years of education it’s about 1 million. We should introduce smart class rooms, with video presentations. Today it’s done in International Schools, video presentations are used with use of assistant teachers. If we improve 1000 schools like this and introduce around 22 green universities across the island, there will be an output of around 180,000 students. This is what we require to increase the per capita income. I once spoke to an education consultant in Singapore. He told me that Lee Kuan Yew wrote several books about Singapore, but never disclosed that the first thing he did was to educate people and nourish them with knowledge. He emphasises other minor aspects but did not highlight the importance of education as he was afraid other countries would copy his strategy. Mahathir Mohommad adopted the same strategy in Malaysia. Currently, Malaysia has 10 international universities and 100,000 foreign students. Without developing its people through education, a country can not progress. To increase the country’s per capita income, the only solution is to increase the number of children who have access to education. Please share any other ideas you have with me as to how a family can increase its income. Even in the case of Chartered Accountants- around 7000 enter, but it is only around 350 that successfully complete the qualification. I believe the Institute also has a responsibility to consider how we can increase this number to 700. This can easily be done through big data analytics; if you obtain information on the issues faced by around 50,000 students over the past 6 years or so, you can find ways to address these problems and increase the number. It is essential to bring our education to the correct standards- that is the only way we can ensure a strong job market. To attract businesses what we require are, a good rank in the Doing Business Index, a strong public transport system and relatively low energy costs. In addition to this, what is essential is an educated workforce. Without this, we can’t attract any business into the country. If you consider the country’s transport system, there are very small issues to be fixed. On average, it takes one vehicle approximately 6 seconds to travel on a lane in a city like Colombo. This means 10 vehicles per minute and 600 per hour on one lane. In a highway, it takes 2 seconds per vehicle which translated to 1800 vehicles per hour. There are 8 big schools in Colombo currently, and students from outstations have to leave home by 5AM to get to these schools. Using the available technology, these main schools can easily open branches in the suburbs. For instance, if branches can be opened between Moratuwa and Panadura, Maharagama and Homagama, Wattala and Ja-ela and in Kelaniya it can easily reduce the traffic and congestion. All they have to do is use an existing school which serves around 1000 students and develop the infrastructure to support around 4000 students. Since these locations are along the main routes to Colombo it will cut down traffic significantly. I also believe we need many more apartments in the Colombo City; currently we have 15,000 in the city and I believe we need to increase this to 50,000. If residents from Battaramulla, Kelaniya and Dehiwela are brought into Colombo city then the traffic flow in the morning will be to the opposite direction. This is what has been done in countries like Thailand and Malaysia. As these are old cities, it is difficult to widen the roads or expand them to 6 lanes. However, if we build 35000 apartments in the city and open branches of the main schools in the suburbs, the traffic flow will be to the opposite direction and this will result in a significant reduction in congestion. Also if we add several extensions to the highway- an elevated stretch of 5 KM from the Fort bus stand to the Kelaniya bridge. An additional 10 KM stretch from Kelaniya bridge to Malabe and a 5KM stretch from Thalawathugoda to the highway entrance can significantly reduce traffic. We have to improve public transport as well, but someone using a private vehicle will only switch to public transport if it can cut the travelling time by at least 30%; that is, say from 1.5 hours travelling time to 30 minutes. I believe the country is going in the right direction, but it is very important for us to combine our efforts to address these issues. This can help create a strong job market in which Accountants like you will flourish. I hope I have addressed the four goals assigned to me today and I welcome any questions you may have. Thank you, to all of you.