Kpmg Analysis
An overview of what the company does its history and its product/service range KPMG is a multinational leading professional services firm, which deals with both audit and tax with over 10,000 partners and staff. They have achieved a vast amount of awards for both employment and health and safety, and this in turn reflects their dedication to excellence in their services. In 2008, KPMG merged with other firms in Europe, which formed KPMG Europe LLP. This therefore makes the company the largest integrated accountancy firm in Europe, with the headquarters based in Frankfurt.
KMPG has a wide range of human resources, and these results in a diverse and highly skilled workforce. Furthermore, it can be seen that KPMG treat their workforce as an intangible resource, and this contributes to the firm’s competitive position. KPMG deal with three key areas: audit, tax and pensions and advisory. Their audit department deals with decision making within capital markets (KPMG, 2011 p. 1). Therefore, they provide a service to stakeholders, by ensuring that they are able to independently audit organizations.
Their tax and pensions function helps individual organizations to reduce their tax burden and to ensure they meet the highest levels of compliance. Therefore, this involves key areas such as corporate reputation, pensions, and effective tax rates. Finally, they offer advisory support, which supports businesses through their business life cycle. This therefore helps and encourages firms to develop within regulatory environments. An analysis of the firm’s macro-environment Table 1: PEST analysis Political Increased governmental regulation. Increased taxes reducing consumer spending and corporate spending.
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Focus on environmental governance for example: environmental auditing. Economic Difficult and restrictive economic times. Businesses closing down on the UK high street. Unstable economic times, which has resulted in an increased focus on the financial sector. Social Consumer demand for CSR. Social concerns over the stability of the economy – this result, in firms such as KPMG coming under increasing scrutiny. Technological Integration of economies – the need for global expansion. Boundless economy – technology has facilitated 24-hour communication across borders.
Advances in technology, which can be used to promote the detailed nature of KPMG’s services. The PEST analysis highlights a dynamic environment, which is ever changing. In particular, it can be seen that the company must utilize strategic tools to understand and deal with many of the issues presented in the PEST analysis. At present, the main difficulties facing the firm are in the economic and political environment. The economic recession has resulted in a scrutiny of the financial sector, and this in turn demands a need to offer an increasingly integral service.
Furthermore, the secondary result of which has been increased regulation, which, not only affects KPMG itself but the many services it offers to its clients. An analysis of the company’s microenvironment Figure 1: Porter’s Five Forces Porter’s five Forces model is an excellent tool for understanding how powerful is a company in its particular business environment. It is very useful, because it can recognize the business’s strength in the competitive market and the possible future position will occur if the company thinks to change its plans.
As a result the firm can take benefit in a condition that has power; also it can avoid any wrong steps in the future. On the other hand it can improve a situation that seems to has weaknesses. •Competitive rivalry: As KPMG belongs to a market that can be defined as oligopoly; the level of competition is not too high. This kind of market is controlled by the “Big Four” because they share a huge proportion of the market. Because of this the firms have the power to have high fees. •Power of Suppliers: The main purpose of KPMG is the provision of services.
As a result of this, the major asset of the business is its own individual’s employees and members. For that reason the firm should seek to keep and extend its talents and trying to hire more qualified accountants. •Power of buyers: Customers are powerful in that kind of market. They can easily switch to another competitive firm because the costs of doing this aren’t too high. In addition the services provided by the “Big Four” are similar and with the same standard and this makes even easier the decision of a customer to move to a similar firm. •Threads of substitutes:
The thread of possible substitutes in the accounting services is very small because there are not obvious substitutes of those services in the market. •Threats of new entrants: The market is conquered by the “Big Four” so the barricades of new entries in the market are very high. However, it is more common that small firms do not choose one of the big firms. As a result of this there is some space left for new small companies to enter the market. Table 2: SWOT Strengths 1)Asset leverage 2)High research and development focus. 3)Areas of online growth. 4)Strong management team, substantial focus on HR. )Strong brand equity 6)Strong financial position, which allows the firm to internationalize. 7)Strong European presence. 8)Competitive pricing of services. Weaknesses 1)Weak focus on real estate. 2)Vulnerability to litigations over gross negligence in audit practice. 3)Over-reliance on European market – need to understand more developing markets such as China and India (Wilson and Purushothaman, 2003 p. 19). Opportunities 1)Product and service expansion 2)Entry into emerging markets. 3)Future acquisitions. 4)Increased expenditure on infrastructure could increase demand for advisory services.
Threats 1)Dynamic and competitive environment. 2)Increased regulation, resulting in a need for a throughout service. 3)Exchange rate fluctuations 4)Changes in the economic environment. 5)Global economic slowdown. The SWOT analysis indicates that the firm has strengths, which aid their position in a competitive market. Furthermore, it can be noted that the firm use such strengths to position themselves in the marketplace; in turn this promotes the resource-based view of strategy which focuses around the notion of ‘core competencies’ (Barney, 1991 p. 99).
The threats outlined can be responded to by reviewing the macro environment, and the implementation of strategic tools, which may help to overcome any weaknesses. Finally, the opportunities outlined suggest that the firm should internationalize outside of Europe, this would extend the firms client base, and would allow them to tap in to developing markets such as China and India. This is in line with the BRICS study (Wilson and Purushothaman, 2003 p. 19): which, indicates that by 2050 China will be the world’s largest economy. Thus, an appreciation of the Eastern world is needed by KPMG to ensure success in the future.
Evidence of an audit of key competences within the company The first key competency KPMG have is ‘reputation’ this is an intangible asset and one, which sees KPMG respected for a high caliber of services. This is the result of professional, and skilled staff, and a vast extent of knowledge, which can be applied to a vast array of business situations. Reputation is needed when offering such services which, require throughout and exact processing, for example: firms trust KPMG to handle aspects such as Tax and financial advisory, and thus often reputation is a key driver of success in this market.
This is linked to the competency of professionalism, in which, strong ethical values of integrity and honesty provide the foundation for the firms work. Moreover, a key competency of the firm is their ability to develop a strong and skilled workforce. A focus on staff as an intangible resource; is something which aids the firms competitive advantage. For example: as Barney (1991 p. 99) notes: it is important that a firm have competencies which are unable to be imitated by their competitors, this in turn allows the firm to gain a strong position in the market and reduce competition.
Therefore, it can be seen that the firm have a key competency of transforming the HR system to one which supports overall organizational learning, this is seen as something which supports competitive positioning (Pucik, 1988 p. 1). Accountability is a competency, which drives KPMG’s success. First and foremost, the company is operating in a dynamic, which demands transparency. Thus, the firm can be seen to take accountability for their actions, and this is something, which is supported by the firm’s organizational culture. Organizational culture is defined by Schein (2010 p. ) as ‘the shared norms and values, which are deeply rooted within an organization’. KPMG have a positive culture, which is upheld by values of customer service, customer satisfaction and the building of strong and meaningful relationships. Organizational culture can be seen as a competency, as it values can be translated into tangible resources such as increased clients, and stronger external relationships. This is linked to KPMG’s focus on making an impact, their clients expect the firm to make an impact and in turn build strong business relationships. Therefore, a strong organizational culture, which upports such values, supports the overall strategic direction of the firm. Needed in a dynamic environment, is the ability to be flexible and problem solving in an open, and innovative manner. These are two competencies which KPMG can be seen to have, in particular these are competencies which highlight how the firm has a key aim to be able to analyze complex data and reach an appropriate solution, in a manner which is simple for their clients to understand. Thus, in summary, it can be seen that the firm have an ability to translate their key, core competencies to contribute to the strategic success of the firm.
The most important competencies to the firm are those, which are intangible in nature, as these are aspects, which cannot be imitated easily by their competition. In turn, such intangible resources often result in tangible results, as we can often see a link between the two. For example: higher levels of customer service are likely to result in a larger client database. A forecast of likely future prospects for the company’s market and recommendations as to how it should react to potential changes
The ability of a firm to respond effectively to change is vital to the modern day organization operating in a dynamic environment. KPMG have a strong focus on their human resources, and this has resulted in the development of a workforce, which are committed to the strategic goals of the firm. Thus, as Hayes (2010 p. 12) notes a flexible workforce is needed to remain competitive, and therefore the firms reaction to any potential changes in the market is likely to be aided by their investment in their staff. KPMG’s future market is threatened by increased regulation.
For example: in 2007 the company was found guilty of criminal wrong doing with regards to tax fraud (Department of Justice, 2007 p. 1). Such ethical wrongdoings damage company reputation, and this in turn is something, which is likely to affect the future of the firm. A firm such as KPMG gains a vast amount of business from reputation, and thus any damage to such may have a negative effect on their future clients. Therefore, in order to respond to increased regulation, the firm must ensure the highest ethical conduct at all times, and high levels of transparency.
In addition, KPMG’s clients are faced with increased legislation regarding business reports, and thus, this promotes a need for a thorough service from the firm. Changing legislation will have a result on the firm itself, and increased expenditure is likely to be needed to ensure that all workers have the skills necessary to carry out an effective service. With regards to the external environment, developments in trends are resulting in future changes for the company.
Firstly, the company is offering in a dynamic environment, and therefore is required to thrive and not just simply survive. In order to respond to competition it is important that the firm looks forward to the future, and implements a system of strategic planning. In turn, the firm should seek to provide accurate and insightful information to all of their clients, which will result in the firm adapting the finance function to enable their clients to survive during turbulent, economic times.
Moreover, due to the economic climate, the needs of their consumers are changing. In order to respond to such a trend, KPMG must simplify complex business issues in a manner, which promotes a greater alignment of business processes. Many firms in a difficult, economic environment often have a short-term focus, and this is something which KPMG themselves need to steer away from, and something which they have to dis-persuade their firms from doing so. Instead, a focus on sustainable business is needed which, in turn will enable more than just reduced short-term costs.
Thus, in summary the economic climate has created a difficult environment for both KPMG and their clients, and in order to survive such times and prosper in the future, the firm must position the company in a manner, which promotes success. The final trend portrayed in this section is an increased focus on corporate social responsibility. This is something which is required both from the company itself and it can be seen that KPMG’s CSR actions may influence the decisions of their clients.
At present, KPMG have a strong belief that social responsibility and business success go hand in hand, and thus promote charitable donations, volunteering from their workforce and a key emphasis on the environment. In the future, a greater emphasis will be put on corporate social responsibility, and KPMG must respond to such changes by conducting environmental audits, promoting stakeholder theory, and an overall dedication to the cause. Strategy can be used to conduct external analysis, and such analysis will enable a firm such as KPMG to respond to future changes in the market.
For many firms, their relevant success or failure is dependent on the ability to strategically align themselves to the external environment (Henry, 2007), and as many markets, in particular the financial market are as dynamic as ever, it is important that the firm are able to discern any trends which may later alter the firm’s strategy. As shown in this paper, the environment consists of both the macro and microenvironment, and this in turn is something, which promotes the complexity of the market.
In turn, it is often thought that the competitive environment is the one, which has the most direct impact on the firm; however, it is the more external macro environment, which creates the most problematic situations for the firm, in particular, if a firm is unprepared for change. Dill (1962 p. 12) states that ‘at the one level the environment is not a very mysterious concept, it means the surroundings of the organization, and the concept becomes challenging when we try to move from its simple description to an analysis of its properties’.
Thus, it is recommended that KPMG partake in environmental analysis in order to provide the companies with the opportunity to discern trends, and then from these trends create strategies, which enable the firm to best position itself. By using internal strategic capabilities such as reputation, the firm may be able to diversify into other markets, which are noted as being both less challenging and competitive. The prediction of the future is difficult, and is always uncertain due to discontinuities.
However, by scanning the environment, the firm can be able to detect any weak signals, weak signals are those trends which ‘may be largely insignificant due to the fact that there impact is yet to be felt, however, the careful monitoring of such can result in the firm being better strategically adept for such uncertainties’ (Henry, 2007 p. 8: Van der Heijden, 1996). Van der Heijden (1996) notes how there are three different types of uncertainties, which all play a part in the external environment. These being: structural uncertainties, risk, and unknowable.
Of these both structural uncertainties and unknowable’s are the two most difficult to comprehend, due to the fact that these are events which either cannot be imagined or do not offer any evidence of such a probability. Thus, noted in the literature, is the tool scenario planning (Schoemaker, 1995) which, can be used to deal with even the most unimaginable of events (Porter, 1998). If KPMG were able to adopt the concept of scenario planning, they would be more likely to gain a strong competitive position.
Scenario planning is a tool, which can be seen to ‘stand out’ due to its ability to ‘capture a whole range of possibilities in great detail’ (Schomaker, 1995). Thus, it can be seen that scenario planning aims to overcome the under and over prediction of change, it does so by adopting a middle ground, in which, it considers both unknowable and uncertain events. Word count:2546 References Barney, JB (1991) ‘Firm resources and sustained competitive advantage’. Journal of management, 17 (1) pp. 99-120.
Department of justice (2007) ‘KPMG to pay $456 million for criminal violations in relation to largest ever tax shelter fraud case’ [online]. Available from: - http://www. justice. gov/opa/pr/2005/August/05_ag_433. html [Accessed 18. 03. 11]. Dill, W. 'The impact of environment on organizational development' In Mailick, S. and E. Van Ness (eds) Concepts and Issues in Administrative Behavior. Prentice-Hall, Englewood Cliffs, NJ, 1962. Henry, AE (2007) ‘Understanding strategic management’. Oxford University Press: Oxford.
KPMG (2011) ‘What we do’ [online]. Available from: - http://www. kpmg. com/UK/en/WhatWeDo/Pages/default. aspx [Accessed 19. 03. 11]. Porters fives forces model : Industry analysis model [online]. Available from: http://www. learnmarketing. net/porters. htm [Accessed 21. 03. 11] Porter, ME (1998) ‘On competition’. Harvard University Press: Harvard, Boston. Pucik, V (1988) ‘Strategic alliances, organizational learning, and competitive advantage: the HRM agenda’. Human resource management, 27 (1) pp. -16. Schein, EH (2010) ‘Culture and leadership’. John Wiley and Sons: London. Schoemaker, PJH (1995) ‘Scenario planning: a tool for strategic thinking’. Sloan management review, 36 (2) pp. 25-32. Van der Heijden, K. (1996), Scenarios: The Art of Strategic Conversation, Wiley, New York, NY. Wilson, Purushothaman (2003) ‘Dreaming with BRICS: the path to 2050’. Global economics paper 99, [online]. Available from: - http://antonioguilherme. web. br. com/artigos/Brics. pdf [Accessed 20. 03. 11].
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