Ernst and Young management strategies

Ernst & Young and its management strategies

Company overview

Ernst&Young (E&Y) is one of the leading consultancy companies in the world and one of the Big 4 audit companies together with PriceWaterHouse&Coopers, KPMG and Deloitte Touche Tohmatsu.

The company's activity is largely globalized which is why it has two major headquarters: United Kingdom and United States and it operates more than 700 offices in 140 countries around the globe. As a consequence of the globalization process, the Ernst&Young member locations are currently divided in 7 areas: (1) Americas, (2) Northern Europe, Middle East, India and Africa, (3) Central and Eastern Europe, (4) Continental Western Europe, (5) Far East, (6) Oceania and (7) Japan. The number of employees in 2007 reached 130,000 people and the projected revenues for the same year sum up to $21.1 billion, a double-digit increase compared to 2006.

The auditor's activity reaches a wide range of industries, such as: asset management, automotive, banking and capital markets, biotechnology, consumer products, insurance, media and entertainment, mining and metal, oil and gas, pharmaceutical, real estate, technologies, telecommunications and utilities. Additional to the general support provided by the company, the auditor also operates global operations centres in half of the locations. These centres enable communication between existing stakeholders in the industry to facilitate knowledge sharing and collaboration.

Services

The services are divided into three categories:

Assurance and Advisory Business Services - help customers deal effectively with inherent business issues. At global level, E&Y's assurance and advisory generate the highest revenue of all Big 4. The bulk of this revenue is generated by risk advisory services (RAS) and business advisory services (BAS), which together amount to 65% of the company's revenues. The range of services included in RAS and BAS pay respect to:

Financial management

Internal audit services

Customer management

Risk management

Performance management

Supply management

IT advisory services and it audit and assurance services

Fraud investigation and Dispute services

Global Tax Environment - help customers deal effectively with tax rules and regulations in foreign/unfamiliar territories. The company hires tax professionals in every country in which it has operation and in parallel in runs a foreign tax desk network of over 250 law and economics tax experts.

Transaction Advisory Services - help customers enhance growth, profitability and competitiveness.

Environment

The industry is very concentrated, the main players being E&Y, KPMG, PWhC and Deloitte. Their yearly revenues exceed $80 billion and their audit services cover the vast majority of publicly trade and privately owned companies.

The audit division's customers are important global players from all industries in which the company runs activities. By law, companies that exceed a certain size have to organize audits. The size parameters differ from one country to another, however, this suggests that the typical audit customer is medium to large sized. A similar rationale applies to the other divisions in the company - companies with global operations and/or complex strategies/activities resort to E&Y's services to deal with various financial or business issues.

The company's suppliers are critical for its success. The first type of strategic suppliers refers to it solutions' providers. E&Y is committed to always improving its processes and the way to do so is through permanent technological upgrade. A second type of strategic suppliers includes the marketing-related ones. E&Y is currently running the Entrepreneur of the Year campaign in 39 countries. Previous winner of this program include Pierre Omydiar (Ebay), Howard Schultz (Starbucks), Sergey Brin (Google) and Larry Page (Google).

People

The people are the most important asset of the company. Their skills and abilities determine the quality of their services, the image, the efficacy and results, etc. E&Y is recruiting exceptional individuals with qualities that meet the job profiles.

The company is dedicated to always improving the work environment, which why for several years in a row, E&Y has been included in Fortune Magazine's 100 Best Companies to Work for list. The company is also dedicated to its diversity & inclusiveness HR strategy, which is focused on offering equal treatment to all employees disregarding their gender, sexual orientation of religion.

Management strategies

The management strategies cover a large number of departments within the company and they tend to impact more than the department that made them.

E&Y was chosen to be subject of this study because the company has diverse strategies that cover many department and because these strategies are complex enough to be used as an example for other companies to follow.

Strategic mergers and acquisitions

E&Y was the result of successive mergers from the very beginning of its existence. Thus, Whinney, Smith & Whinney merged with Ernst & Ernst to form Ernst & Whinney and Ernst & Whinney merged with Arthur Young to form Ernst & Young. In 2002, E&Y acquired Arthur Andersen, which was bankrupted due to the Enron scandal. All these series of acquisitions enhanced the company's size and indirectly its capacity to serve more customers, expand its operations both nationally and internationally and grow.

In the late 1990s, major concerns about the potential conflicts between audit and business consultancy practiced by the same company have been raised. Consequently in the early 2000, E&Y sold its consultancy operations to the French company Cap Gemini for $11 billion, which later changed its name to Capgemini. Many saw this sale as a strategic merger between an it company and a strategy & management enterprise with the ability to offer to its customers a wider range of services.

The creation of Capgemini was driven by changes in the consultancy market. The it services started to be integrated more and more in change management related activities. The joint operation not only that it increased the efficiently of both E&Y and Cap Gemini's activities by delivering solutions for both it and business issues, but it also turned them into a global supplier (Martinssonm, 2002).

Using mergers and acquisitions not as a reaction to the market changes, but as part of the company's strategy is a way to insure that E&Y doesn't lose customers in the dynamic global market, which is permanently growing. The auditor's competitors are also expanding their international operations and their service portfolio. Moreover, the orientation towards it solutions is a reaction to the increasing technological pace. Customers look for it business solutions for their issues as often these turn to be more efficient than traditional business consulting solutions.

The impact of successive mergers and acquisitions on the company's performance is nothing less than positive. The revenue growth is between 10% and 20% per year. The impact on people is positive as well, as there are given more opportunities for personal and professional development and promotion within the company. The impact on customers is also positive because that way E&Y is expanding its service portfolio and indirectly its capacity to meet their complex needs.

Employee satisfaction

The company allocates a great deal of resources to identify employee satisfaction/dissatisfaction drivers. Thus every year an employee satisfaction survey is sent across the company to all 700 locations worldwide. Employee satisfaction/dissatisfaction drivers are essential for the management as satisfaction employee satisfaction determines the company's performance.

The survey is also targeting intention to leave the organization. In 2001, more 10% of the employee clearly stated that they wished to leave the organization when the survey took place. This is also an indicator of the size of personnel the company can relay on in the close future.

This survey has been used to determine what exactly drives employees' satisfaction. The results suggested that co-operation between units, salary level and leadership are positively correlated to employee satisfaction (Boselie and Van Der Wiele, 2001). Furthermore, the results suggested that employees that are satisfied are less likely to leave the organization than the dissatisfied ones.

This strategy suits the company's needs as employee satisfaction is essential in any organization, but it's very difficult to manage in the context of global operations. The results of the study are a good indicator for E&Y what tools to use to increase employee satisfaction and indirectly performance and reveal the issues that need improvement.

Maintaining a diverse culture is also part of the personnel-related strategy. The company is looking to generate diversity of thought by employing people from different cultures, with different religious convictions or sexual orientations and so on. Some of the actions developed towards recruiting people falling in this category include:

Outreach activities - increase awareness of career opportunities in minority highschools. Action done through organizations such as a Better Chance.

Minority scholarships - granted to minority undergraduate students majoring in subjects, such as: Finance, Computer Science, etc.

Recruiting programs - targeting minority candidates by undergoing the recruitment processes in minority schools.

This strategy fits the company because its operations are highly globalized and it needs to acquire local knowledge embedded in people and insure its transfer across the company.