How far are you on your digital transformation journey? The scale below may offer some guidance.
Starting at the top, which is the last statement that accurately describes your tax function today (be honest)?
5% – the word “transformation” has entered the lexicon but plans are non-existent or lack coherence
7% – a tax or IT professional is put in charge of tax technology without any proper training
10% – the company is digitalizing and tax is tagging along, but transformation initiatives have little or no transformation in them
20% – a significant, corporate data initiative is in progress but not yet effective
30% – hiring of taxologists has begun, but the company is unsure what to do with them even if they can be identified and found
40% – a major mindset shift at the top, not just in tax; a true break with the past is acknowledged
50% – a reorg brings tax business and tax IT personnel under the same delivery structure
60% – a truly transformative vision is articulated, along with realistic mechanisms for fulfilment, governance, and control. For the most part after the reorg, everyone left now “gets it”
70% – momentum builds, successes mount up, a critical mass is reached. Fixed SOWs are pushed aside in favor of more agile co-sourcing, upskilling, “gig” consultants, collections, online communities, and tools
90% – tax data is under holistic control and fully “trusted”. Tax are no longer just subject matter experts but full business partners to the rest of the business
100% – tax technology is a core competency of a new, fully digitally-enabled tax function. Modern tax professionals define themselves by their prowess with enterprise data and the advanced tools they use.
Notice that automation does not appear anywhere in this list. That’s because business process automation is not digital transformation. They’re both relevant, but quite different. Automation brings efficiencies to your current tax function ecosystem, whereas transformation questions every part of that ecosystem, ransacks it, and then rebuilds it according to the new rules of digital tax. As a result, one rarely leads to the other.
Neither does hiring a big name consultancy appear in the list. While they have their place, commercial imperatives demand they play to your current mindset, not a transformed one outside your comfort zone. Real change must come from within.
Also, forget running RFPs to solve the problem. New technology itself will not cause transformation. In the digital world, “technology” needs re-orchestrated people, process and technology to bring anything more than incremental value at best.
Hundreds watched the insightful tax ‘data’ video from the last post and loved it, but thousands felt 13 minutes was too long and bypassed it. I sympathize – I would bypass it too if I’m busy, even for a snippet so central to the future of tax. So, here’s a short, sharp, incisive lead-in:
The Five Laws of Data for the Digitally-Enabled Tax Function:
Law #1: ‘Data’ is at the heart of digital-enablement
Strategy: Be clear that enterprise ‘data’ is the absolute cornerstone of digital capability.
Law #2: Digital ‘data’ changes the rules of the game
Strategy: Acknowledge that new ways of thinking and working are inherent to being data-driven.
Law #3: ‘Data’ is a strategic asset in its own right
Strategy: Recognise that ‘data’ has intrinsic value and requires a data first approach.
Law #4: ‘Data’ outranks automation
Strategy: Set automation strategies to first and foremost support the data model.
Law #5: ‘Data’ only exists in a transformed space
Strategy: Learn to navigate the transformation journey and transition to data-centric operations over time.
‘Data’ thrives within the context of people, process & technology where ‘technology’ is platform-based and ‘people’ are digitally-enabled, tech-savvy, and data literate. This is the opposite of business process automation with labour cost-arbitration as its yardstick. ‘Data’ requires upskilling and can only take centre-stage once it is fully “trusted”.
For a vital piece of information on how to make this happen using “real-world” tax data modelling, here is the video again https://vimeo.com/434443089. It is well worth the small time investment. Enjoy.
The nascent body of knowledge required by a taxologist is under fire, despite showing real value spearheading tax into the digital era.
“I resent the pseudo-profession that claims to be taxology − it muddies the waters when my focus is meeting customer needs“, exclaims a seasoned consultant. We disagree, but then again, it’s easy to see why he thinks this way. Besides the commercial aspect, the vast majority of people that call themselves taxologists are in fact tax technologists − familiar with specific tax technology products rather than digital environments for tax as a whole − or have only painful experience as a teacher. Either way, it’s not enough.
Never-the-less, 2019 is experiencing a sea-change in this area. Several universities on both sides of the pond have added technology modules to their tax curriculum and students are writing post-graduate dissertations in it. In Amsterdam, IBFD are running a tax technology course this summer as are Yetter in Chicago, Illinois.
Conversely, others are holding back. The idea has taken hold that tax authorities will soon be telling taxpayers what they owe and therefore need only wait. This view is blinkered and, quite frankly, untrue. The authorities may take away a few last-link-in-the-chain computations, but their new business-meaning aware technology will squeeze taxpayers to death if their data is not right.
Others hesitate for different reasons. Maybe robotics (RPA) or artificial intelligence (AI) has magical powers, or finance will fix it with their transformation effort, or cloud, or some other technological fairy godmother. There’s certainly enough confused turbulence out there, never mind current workloads, skills shortages, cost constraints and market obscuration.
Unsurprisingly, universities focus their technology in tax efforts on the legal side. For example, one doctoral thesis explores how AI might sift through mountains of legislation and case law for rapid and new-world discernment of insights. Alternatively, they teach IT 101 to budding tax professionals. These are great developments, but do little to help existing tax solution owners at major companies facing today’s pressing challenges.
Taxology, on the other hand, is distinct and aimed squarely at the corporate tax arena where the majority of us battle on a daily basis. It needs to be quick, easy-to-understand, practical and relevant.
PawPaw Taxology is evolving and now focusing all its efforts on exactly this. That seasoned consultant is unaware of how the concepts, knowledge and vision offered both illuminate customers’ true needs in the digital era and accelerate the value of his own products and services in today’s environments.
Look at it this way − even if customers insist on applying industrial-age thinking to information-age problems (which they frequently do and, of course, must be delivered as requested), it’s still critical to have the difference in your back pocket when they finally get tired of the suboptimal status quo, or worse.
The self-study Smart Tax Technology certification program is that difference, so if nothing else, stock up your storm shelter now.
Your impact on corporate tax systems may be far greater than you think.
@Courtesy Michael Sporn Animation, based on original images from Disney’s 101 Dalmatians
Alex has a special skill. He can read systems. This was not a talent he set out to acquire; one day it just happened. Perhaps it started some time ago when he remembers a financial whizz reading a balance sheet. “Your accountant is stealing from you”, the whizz declared to a startled entrepreneur with only the balance sheet in front of him. Alex wanted to learn this skill, but sadly finance at this level was not his forte. He was a systems guy. But then, a few years later, the following happened.
Alex was at a new client evaluating their systems for a major global indirect tax automation upgrade. After a week or so he turned to his tax manager and said, “Your distribution channels are killing you!” The conversation that followed revealed that this hi-tech consumer electronics company, where the average product has the shelf-life of a banana, was entirely focused on R&D and supply chain. They had never sought to negotiate hard with their distributors, and ended up assuming more risk and responsibility through their sales channels than might otherwise be expected, including for tax.
Then, a couple of years later, it happened again at another client. He declared, “You don’t have the support of your senior management for technology!”. This time his tax counterpart, who had made an effort to acquire some tax technology skills, described how a new boss had told him to engage in more tax technical (meaning traditional legally-based) projects in order to save his career. Disappointed but deferential, Alex mused to himself, “turning your back on technology to save a career when it’s becoming so important is debatable at best, but as a service to your company, it offers them no favours at all“.
… and this matters because … ?
Apply some simple extrapolation and it’s easy to see that Alex has stumbled upon something important. His special insight reveals that digital systems reflect the organization and the people that work within them. On further investigation, it turns out that they somehow reflect the structure, culture, mindset and modus operandi of the companies in which they exist to such an extent that it can be detected by a talented person like Alex. Let’s examine how this is even possible in the first place.
Have you wondered why, in the age of Apple products, enterprise software and applications are still so difficult. The cost of getting technology such as ERP (the cornerstone tax tool for most corporate tax functions), tax engines and tax data repositories to work remains extraordinarily high, while for Apple products it’s all but zero. That is because corporate tax tools are just that, tools! They require skilled workmen/women to construct the final product, a task that is more akin to making custom furniture than self-assembling a flat-pack.
But how much work must they do? The following diagram represents this by tool type:
The diagram represents four major tax tool types. Programming languages are included because of the number of corporate tax solutions that, at least in part, are built from scratch. In this case, the tools (programming languages, a database, user-interface platforms, etc.) are low-level, and IT engineers have a great deal of work to do (represented by the area in orange) before a business-ready product emerges.
Point solutions, on the other hand, are those that solve a single business problem in isolation. They are high-level and can be rolled out quickly and easily. External tax engines and some compliance tools fall into this category (as would most Apple products). But these tools are rarely standalone. They rely on their relationship with ERP and the quality of source data. As garbage-in, garbage-out is pandemic in our industry, this puts a damper on their ability to plug ‘n’ play like it says on the tin. Their connection with ERP frequently ends up needing quasi-programmer skills to meet the required quality levels.
Because of its ubiquity in our profession, Microsoft Excel is a tax tool type on its own. The genius of Excel lies in what can be achieved by a non-technical person without specialist IT assistance. However, it remains a low-level (or generic use) tool and leaves acres of room for errors and intractability. Even according to Microsoft themselves, Excel excels (excuse the pun) at information presentation but not enterprise data management, where it quickly hits natural limits. Here, the very flexibility that makes is so popular in the first place becomes its undoing.
This leaves ERP, which is far more generic and flexible than most people suspect—it needs to be, given the broad Byzantine market it serves. On the diagram, the width of the columns represents the importance of the tool for tax. For most, ERP is by far the most important, creating an orange area large in size. This allows plenty of space to inadvertently paint in your own special quirks into its characteristics and behaviours, creating a dog that looks remarkably like its owner.
So, it’s my fault the corporate tax solutions suck—?
Well, not entirely. ERP and the major dedicated tax tools are beasts, and few know how to tame them. Nobody read the manual because there aren’t any (install guides don’t count). With such a big knowledge gap, there’s a tendency to under-estimate or over-simplify the problem. The industry has not adjusted yet. This also explains why the dream-scenario of pressing a button and out pops a completed tax return is such a forlorn one—because the distance between a multi-purpose, generic set of digital platforms and full, tailored business-solution readiness is so great.
Some wonder why IT can’t do it, especially if they have specific experience. However, traditional IT anchors itself in process and technology management, and the final gap between them and tax business is just as big a mystery from their side of the fence. What is needed is a new level of tax industry professional, and Alex’s ability to “see” systems gives us clues about its nature. Think of it this way—if Alex could define and describe what it is that enables him to read systems, encapsulate it, write it down, bring it to bear, make it repeatable, predictable, measurable, and teach others, we would have a very powerful new capability in the tax world.
Well, it’s here and it’s called taxology, and its protagonists are called taxologists. It neither removes the need for tax specialists or IT skills, but augments both and drives innovation. It offers clarity, insight and vision, the lack of which is reflected in the systems clearly enough to be seen by someone like Alex. They really do match their owners and it’s not the software’s fault.
Historically, there may have been valid reasons for this state of affairs, but that is no longer the case. There are no more excuses but beware the impostor taxologist. Click here for a simple way forward on both fronts.
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