In the late 1990s, expectations from global clients and international opportunities for development were prompting a signal of greater level of global strategy in KPMG. After Colin Sharman’s took over in 1997, the new chairman perceived the needs to develop such new strategy. Because at that point of time, KPMG had already established its business over 156 countries, within which the US, UK, Netherlands, Germany, France, Canada and Australia contributing 80% of its revenue.
As competitors sought growth internationally, Lack of growth quite likely means losing market share and might have impact on the ability of firm to attract talented people; slow growth would also mean diminishing opportunities. So, “standing still” was not an option for KPMG. As companies become more global in terms of scope and scale of operation, they face new challenges, dealing with a multiplicity of regulatory authorities, fiscal regimes, local cultures and operating conditions, etc.
The view in 1997 was that the main challenges of KPMG’s international strategy were first of all to develop a coherent approach to deliver services worldwide under the circumstance that there were so many existing and potential clients. Secondly, the major potential growth opportunities were in areas that KPMG do not have well-established practices, such as Eastern Europe, Asia Pacific. As the Colin Sharman explained, the growth rate of KPMG worldwide was not satisfactory.
The problem was that even though growth rate in the developing countries achieve a consistent 40% growth (which seems difficult), the impact on the overall growth rate would only be marginal because the practices operated in these areas contribute a little proportion to the revenues worldwide; so the foremost task is to get those already-established big practices growth steadily. By the 1997, the firm had already undertaken some global initiatives aim to address this.
Such as the Project Globe, which tries to achieve a consistent international approach in management consulting and as well to speed up the international development of higher added value consulting projects. Audit 2000 was dedicated to develop a risk-focus audit by integrating elements of strategic analysis into the auditing process. And The Global Tax Vision, similarly, was seeking to provide a consistent international dimension on the tax practice.
As Coopers and Lybrand and Price Waterhouse announced their intention to merge in September 1997, which inevitably urged KPMG to consider its option. Sharman analyzed their situation in terms of global development, pointed out that size does matters; and the drive for KPMG to consider a merge has nothing to do within the UK but with the international market. By the end of 1997, KPMG and Ernst & Young were in merge negotiations. Sharman explained: Ernst & Young are strong in the US, just as KPMG intend to achieve organic growth in US market, a merger with Ernst & Young seemed most sensible.
But not everyone view the proposed merger in the same way, in December 1997, the FT pointed out that mega merger occurred in the industry might lead to shrinking choices, and consumers were in more disadvantaged position. Due to the pressure from the outside, in March 1998, it was announced that the merge between Ernst & Young and KPMG would not proceed. Despite this fact, KPMG’s intention to merge implied its needs for global development. What we need is more focus on what we do well across the world, better alignment with global strategies and greater investment in global infrastructure.
We need to give attention to a number of priorities. The first is our international structure. This needs to be clearer in order to manage a global strategy more effectively. In particular we need to focus our management activities on a number of regions, with people responsible for implementing global policy especially the development of emerging markets and identifying investment opportunities. I am also proposing we have managing partners responsible for the key services we provide. Again they will be responsible for ensuring the implementation of global strategy but from a service point of view.
I believe we need full-time, international, senior-level executives for those roles. These appointments will be senior people who might be located anywhere but who will report into a central worldwide office in Amsterdam. This international executive team will report to an international board, responsible for reviewing and endorsing the vision and policy for the global firm and monitoring the implementation of strategy. The Council will be the firm’s ultimate governing body. We also need to clarify the agreements and arrangements we have across the world with our various partnerships and licensees.
They need to have a stronger alignment to our goals, a clearer definition of their rights and responsibilities; and we need to develop their commitment to the important role they play in providing a coherent range of services internationally. I think there needs to be clarity, for example, on use of the KPMG name and brand; the acceptance of lead partner authority for international assignment; the mandatory acceptance and delivery of core services; and we need to ensure their acceptance of global policies on investment, technology, knowledge sharing, human resource development and our business process.
Not least, we need globally enforced standard in quality, risk management and management information, and I believe we need the approval by the international board for national senior partner appointments. None of those will be possible without making quite clear what the international centre of KPMG is responsible for. The priorities of the centre are: Knowledge management across the world; and in particular means of ensuring that we extend the frontiers of our shared knowledge; Information technology on a global basis not only for purposes of control but also to share the knowledge up which we develop;
Global human resource policies and, in particular, international partner development; Marketing and, in particular, our global image and positioning; Finance and investment planning; Global communications both within the firm and outside. These priorities formed the agenda for the first meeting of the IET (International Executive Team) in mid-1998, and they were priorities which continued to guide global development. One of the major priorities the IET addressed was how to serve global clients. Responsibility for this on the IET lay with Alastair Johnston. (As mentioned before)
There had been lack of focus on just how important that list of clients was. We decided to give them the very best service we possibly could and we had to grow market share at the highest level. We decided to re-focus on the major clients and targets and the sectors within which they operate. We began by establishing best practices with regard to the management of major clients. We then brought together international client teams for training and planning sessions. Four global ‘lines of business’ were also established: financial services, consumer markets, industrial and automotive and information, communications and entertainment (ICE).
Within these global lines of business are 95% of our global clients. The role of the centre is to support the work on global clients and also to support targeting and proposals to win and retain more global clients by providing a central impetus to the energy and quality of such proposals. Exhibit 3 There was also the question of the required investment internationally. Despite KPMG’s size, Sharman believed that the challenge was finding the money to spend for international development and information systems infrastructure.
This included the development of a global knowledge management system, automation of audit systems and up to 100 million dollars on India and Eastern Europe alone. KPMG knew that at least one other firm had spent a similar sum developing their global consulting business. As far as the infrastructure was concerned, Sharman believed it was necessary to develop quickly a more common international approach to IT, HR and marketing. However, the realities of a successful federated partnership structure of KPMG had to be recognized. The easiest way to waste our time and energy would be to attempt to recognize the international firm.
We have seem come of our major competitors fall into this trap. We will clarify the role and responsibilities and sharpen the focus of our committees and other bodies – including the board, executive committee and international HQ. We will strengthen and centralize the support functions. But we will not spend the next 3 years wrestling with the structure of the international firm. This would not be successful. We will aim to become a ‘virtual global entity in the knowledge business’. This means we will look and act like one organization while retaining our individual member firm structure.
Knowledge and knowledge management A second major priority for development by the IET was the management of knowledge across the firm. Peter Chivers, head of knowledge management in the UK, acknowledged that the attempted merger with Ernst & Young (EY) had made a significant impact in KPMG. EY was much more centrally controlled. Decisions were taken at its centre which committed the world, whereas a decision required consultation with 40 senior partners. EY had also made high levels of investment in technology and infrastructure, which allowed them to share knowledge across the world.
KPMG saw it was weak on technology and the sharing of knowledge. Prior to the negotiations with EY, Colin Sharman had realized the importance of knowledge management because there was potential for reusing and learning from what we had done. Moreover, clients were expecting that we were better informed about the industry, and common level of service across the world. Following the decision not to merge, in February 1998 there was a decision taken to identify and establish what should be done. The firm has allocated 100m dollars a year since then to develop knowledge management and K-world.
K-world was to do with knowledge sharing through the internet, collaboration with clients and the ability to communicate existing and potential clients. Evidence showed that KPMG are doing something on knowledge management that which yield some real benefits: with proposals it takes 5 hours rather than 5 days to get another information. It is difficult What role might knowledge management play in this context? After completing what was the accounting profession’s first mega-merger, KPMG has taken a number of innovative steps to transform the professional services industry. KPMG Today
After completing what was the accounting profession’s first mega-merger, KPMG has taken a number of innovative steps to transform the professional services industry. It was the first multidisciplinary organization to globally deploy a comprehensive risk-based audit approach, entitled the Business Measurement Process. KPMG has strengthened its global organization by creating three operating regions – the Americas, Europe/Middle East/Africa and Asia Pacific. It was the first organization to take such an aggressive step in uniting national and local resources – people, ideas, products, technologies and knowledge.
Innovation centers have been established for KPMG’s Assurance and FAS practices, which operate as unique multinational research and development “labs. ” The centers allow KPMG to develop, test, and customize tools and services for specific industries and clients. An online collaborative tool, KClient, has been developed to enable knowledge exchange and information sharing between KPMG professionals and clients. KClient helps place the right people on the ground, at the right moment, to work with clients.