Managerial Analysis of Ernst & Young PDF

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NATIONAL UNIVERSITY OF HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW

Managerial Analysis of Ernst & Young

Lecturer: Hoang Doan Phuong Thao Class: K18405CA Group: 4

Members’ Identification

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Nguyễn Gia Hân

K184050669

Nguyễn Ngọc Thùy Trang

K184050697

Nguyễn Phương Minh

K184050683

Table of contents 1. Introduction of Ernst & Young – One of Big Four ............................................ 4 1.1. Introduction ............................................................................................... 4 1.2. A brief history of Ernst & Young............................................................... 4 1.3. Mission ..................................................................................................... 4 1.4. Vision ........................................................................................................ 5 2. The SWOT analysis and organizational strategy ............................................... 5 2.1. The SWOT analysis ................................................................................... 5 2.2. Organizational strategy ........................................................................... 10 3. Organization’s structure of Ernst & Young ..................................................... 11 3.1. Organizational Chart ............................................................................... 11 3.2. Acknowledgement regarding the present Board of Ernst & Young .......... 14 4. Ernst & Young’s leadership ............................................................................ 16 4.1. Organization’s heroes: The Global Executive .......................................... 16 4.2. Objective approach to organization’s heroes ............................................ 18 4.3. Motivational environment in Ernst & Young ........................................... 19 5. Operational scheme of Service Lines in Ernst & Young ................................ 21 6. Summary ........................................................................................................ 23 References ............................................................................................................ 24

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1.

Introduction of Ernst & Young – One of Big Four

1.1. Introduction Ernst & Young (abbreviated as EY) is one of the largest services organization in the world as one of the Big4 accounting firms in conjunction with Deloitte Touche Tohmatsu (Deloitte), PricewaterhouseCoopers (PWC) and Klynveld Peat Marwick Goerdeler (KPMG). Ernst & Young is an international organization whose approximately 270,000 employees with a considerable amount of presented offices in more than 150 countries, offering principal services constituted of assurance, advisory, tax and transaction advisory service. Headquarters of Ernst & Young is located in London, the United Kingdom. As of 2017, Ernst & Young was the 9th largest privately owned firm in the United States. In 2018, Ernst & Young was rank by Fortune magazine as the 52nd on the list of 100 Best Companies to Work For.

1.2. A brief history of Ernst & Young Ernst & Young is the finalization of mergers of preceding organizations. In 1849, the oldest predecessor organization was founded with a name as Harding & Pullein in England. In the same year, Frederick Whinney joined the company. He became a senior employee in 1859 and then the company was renamed Whinney Smith & Whinney in 1894. In 1903, Alwin C. Ernst and Theodore established the Ernst & Ernst companies in Cleveland. The following three years, Arthur Young & Co. was founded by Arthur Young in Chiacago. In 1979, the fourth largest worldwide accounting firm called Ernst & Whinney was founded by merging two firms Ernst & Ernst and Whinney Smith & Whinney. The current firm was formed by a merger of Ernst & Whinney and Arthur Young & Co. in 1989. In 2006, Ernst & Young became the only member of the Big4 that has two subsidiaries firms in the United States, with the comprehension of Mitchell & Titus, LLP, the largest minority-owned accounting firm in the United States. It was known as Ernst & Young until 2013, when it underwent a rebranding to “EY”. The acronym "EY" was already an informal name for the firm prior to its official adoption.

1.3. Mission The mission of Ernst & Young is building a better working environment. Those in-depth knowledge and quality services that firm give assistance enhance the belief in monetary sectors and economies in the world. To implement this, the company train outstanding leaders who have responsibility for performing promises partner. Therefore, Ernst & Young takes an important role in building a better world for people, clients and communities. In terms of the contemporary society, the world is transforming faster than ever. Ernst & Young firms have an orientation to facilitate digital pioneers with information privacy; guidance for governments through cash-flow crises; unlocking new medical treatments with data analytics; and pursuing prime quality audits to build up trust in money markets and enterprises. In summary, Ernst & Young working with entrepreneurs, firms, and whole countries to purpose resolve most pressing challenges. Ernst & Young provided four integrated service lines — Assurance, Advisory, Tax and Transaction Advisory Services, which the firm are inclined to make it achievable for a client to grasp the opportunity, valuating and anticipating risks delivering responsible growth. The high-performance interdisciplinary teams are able to meet regulatory requirements, educate investors and respond to stakeholder requirements. Ernst & Young believes that a better working world has sustainable and inclusive economic growth. Ernst & Young staffs been 4|P a g e

constantly working towards improving their quality, investment and innovation of all of existing services. And Ernst & Young is enthusiastic to work with others, from client to stakeholders, to use knowledge, to apply skills and experience to help fulfill purpose and create positive movement.

1.4. Vision Ernst & Young teams work to advance technology, efficiency and innovation throughout business operation. The faster permanent innovation leads to higher quality, advanced products and processes with larger margins. The dramatic increase of globalization results in the new markets for merchandises and services, originating tension on emerging market business to compete for innovation as well as price. It also lead to major shifts in consumer markets, tax policy and workforce diversity. Technology is connecting people together, spreading knowledge, saving time and freeing up resources. The advent of Internet has revolutionized numerous domains of manufacturing, including real-time tracking of output, better quality measurements and productivity of production. Manufacturers should be integrating today in the emergence of artificial intelligence, blockchain and robotics. The convergence of these cutting-edge technologies will transform the manufacturing company fundamentally. A new workforce is being launched with the aptitude to adapt these technologies.

2.

The SWOT analysis and organizational strategy

2.1. The SWOT analysis A SWOT analysis is a framework which creates production and business strategy of a company. It is used for analyzing the orientation and a competitive position of a company in its business environment. SWOT stands for “Strengths, Weaknesses, Opportunities and Threats”, respectively. This important tool can be used by Ernst & Young to evaluate the internal factors which are strengths and weaknesses whereas opportunities and threats are the external ones. The main purpose of SWOT analysis is that Ernst & Young is able to develop its strengths, eradicate its weaknesses while seeking opportunities and avoiding threats.

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Strengths Weaknesses 1. A strong financial position with positive revenue 2. A well-qualified labor force 3. A strong presence on social media 4. A large product portfolio 5. A strong distribution network with numerous outlets 6. A low-cost structure 7. Reliable partnerships

1. Lack of choice in the product range 2. Property is used on rent accounting for a high proportion and rental charges need to be paid 3. Out-of-dated data of customer information 4. High employee turnover rate

Opportunities Threats 1. An increase in the number of internet user all over the world. 2. An increase in education and training staffs. 3. Growth in environmentally friendly manufacturing process. 4. Global locations

1. Competition within the industry is increasing 2. Adaption of rapid technological changes 3. Regulatory non-compliance 4. Stolen valuable information

The SWOT analysis of Ernst & Young

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Strengths Ernst & Young is considered one of the leading firms in its industry because Ernst & Young has a range of strengths that make it successful in the market place. Ernst & Young has a strong financial position with positive revenue. Yvonne (2019) claims that, “Ernst & Young today announces record combined global revenues of US $36.4 billion for the financial year ended June 2019. Overall, financial year 2019 revenues grew by 8.0% in local currency (versus 7.4% in financial year 2018). Over the last six years, Ernst & Young has recorded strong 8.3% compound annual growth and at local currency rates has added nearly US $15 billion in combined revenue and more than 100,000 Ernst & Young people.” Williamson (2018) states those employees are professionally trained resulting in a workforce who is not only well-qualified but also motivated to achieve more. In 2018, Ernst & Young spent more than 500 million dollars on training work experiences and people received 13 million hours of formal education. This company is increasingly investing in online learning to provide more than 2,500 courses about a broad range of business topics. Besides, the IT system is competent which usually ensures the productivity in its operation. In addition, Ernst & Young has widespread access on social media with more than thousands of people using the most three famous applications: Facebook, Instagram, and Twitter. For instance, the Ernst & Young global page on Facebook has more than 400.000 “likes” and more than 35.500 subscribers on YouTube in 2019. There is a large product portfolio which contains various unique categories. Ernst & Young’s low cost structure help the company produce at a low cost and sell its products at a low price, making them affordable for its customers. Its product still has good quality that customers are willing to pay for the worth price. Moreover, Ernst & Young understand all of their customers which means the company knows clearly about their identities and their demand. By doing this, the company can build customers loyalty for long-term sustainable growth. Therefore, the company with its dedication to customers has ability to get a high level of customer satisfaction. In addition, Ernst & Young may not thrive on the competitive market without reliable partnerships. For instance, alliance with Procter & Gamble who has outstanding manufacturing capabilities helps to achieve higher levels of manufacturing performance by various methods. The company also has cooperated with Blackline for over 15 years. Ernst & Young and Blackline together help clients such as: cut down on risk, make preparation to face of global accounting challenges and the change of business conditions. The locations also become one of the firm’s advantages which means it consists of global leadership, governance bodies and three geographic Areas (Americas; Europe, Middle East, India and Africa (EMEIA); and Asia-Pacific.). As a result, Ernst & Young can make up its mind rapidly, implement its strategy effectively and provide its local knowledge globally basing on a diverse workforce from 700 office branches in over 150 countries. Thanks to a strong distribution network supporting numerous its outlets in almost every state, Ernst & Young confidently claim that its products are usually available meeting the demand of clients in time.

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Weaknesses In spite of plentiful benefits, Ernst & Young still has some drawbacks that brake its development. In terms of the product, there are gaps in the product range supplied by the company. Even though selling product is successful, this lack of choice can defeat its position in the market place. Ernst & Young also has a high intension of day sales inventory because the time it takes for purchasing and selling products are higher than the industry average which means Ernst & Young adds unnecessary costs of inventory to its business. The amount of current assets is lower than the current liabilities because the property Ernst & Young own is rented accounting for a significant percentage compared to the purchase one, meaning that it is easy to cause liquidity problem with low quick ratio in its operation system and the company must pay for the rental charges. This firm is known as a caring service company because Ernst & Young always find out customer information. However, according to a survey of Williamson (2018), this company has not carried out market research for two years. As a result, the company only can deal with its work basing on two-year-old data while the demand for customers has changed constantly over time. Although the geography is defined as an advantage of Ernst & Young, the workforce is most local workers. Consequently, it is hard for people who have racial backgrounds to perform well at workplace, causing loss of good talent.

Opportunities Despite all the weaknesses, Ernst & Young still positively discover and create its own opportunities. In recent years, technology has developed sharply contributing to an increase in the number of internet user all over the world. A survey done by Kemp (2019) demonstr ates that there is 4.39 billion internet users in 2019, an increase of 366 million (9 percent) compared to the number of internet users in January 2018. This means that there is an opportunity for Ernst & Young to interact with its customers, showing its strengths to attract them on the online platform and collect feedback from them. Because technology allows better data to be gathered on clients and enhance on marketing attempts, Ernst & Young intends to invest one billion dollars in new technology solution and customer services for the next two years. This investment has opened new sales channel for Ernst & Young. Machine learning and Artificial Intelligence (AI) boom is transforming the technology landscape that Ernst & Young operates in, bringing a lot of benefits among many departments. For instance, Ernst & Young put robots, algorithms and machines to work effectively. The company has created 1.300 robots for customers and 700 robots to use within Ernst & Young. 2.1 million hours of repetitive missions have been saved by those. Ernst & Young has got involved in 21 strategic coalitions with technology and industry leaders. Furthermore, it is an opportunity for Ernst & Young to practice distinct pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and attract new customers through other value oriented propositions. On the other side, increasing in education and training by many institutes leads to grow the amount of skilled labor available within the country. If Ernst & Young is able to hire skilled workforce, it will save the training expense as much as possible. The more professional employees are hired, the more opportunities are created to promote Ernst & Young. In 2017, approximately 2 million people around the 8|P a g e

world applied for jobs at Ernst & Young proving the attraction of this global firm. Ernst & Young hired almost 65,000 people, which figures out that a person is hired every eight minutes on average around the clock, 365 days a year. Moreover, global locations help hire people with distinct backgrounds easier. It not only brings different methods to solve problems but also encourages other team members to recognize and value these diverse perspectives. This can disrupt “groupthink” and challenge teams to come up with new solutions to difficult problems (US Americas, 2019). In recent years, people tend to be more aware of their health. As a result, Ernst & Young should take responsibility for their manufacturing process to build on customer trust. The firm makes an effort to use technology, especially high-end video conferencing in order to cut down on its air miles and paper waste considerably. This approach help Ernst & Young decrease its greenhouse gas emissions from 5.23 tons to 4.89 tons each person this year (Global review, 2019).

Threats Facing with threats during the development process of Ernst & Young is unavoidable. Ernst & Young has a large number of competitors in the competitive market, especially famous accounting firms such as Deloitte, PricewaterhouseCoopers (PwC) and KPMG. Mazareanu (2108) analyzes that this company is the third largest company of Big4 following PwC and Deloitte closely. In 2018, the revenue of KPMG reached to 28.96 billion US dollars that makes this firm not far behind the 34.8 billion generated by Ernst & Young. In addition, this firm also faces competition from tier two companies who are Cap Gemini and Grant Thornton. These competitors can affect Ernst & Young’s business as the company has to lower its service cost to attract clients. In near future, increasing in the demand for various types of accounting and auditing services may put bigger firms under costing pressure. Besides, the company is expected to concentrate on adapting rapid technological changes to compete with the competitor’s services. This global phenomenon may make the company’s products and services obsolete if they are not enhanced frequently. Ernst & Young provides four types of integrated services which are Assurance, Advisory, Tax and Transaction Advisory Services. These services require complicated data collection, processing systems, software and other advanced technology to operate smoothly. Consequently, Ernst & Young needs to always upgrade its technology to meet the demand of clients. Any difficulties in adopting changes can postpone or prevent the design, development, marketing of the products and services from being successful. While CEOs carry out artificial intelligence with enthusiasm and hope it promotes their businesses, the survey reveals that employees have nearly opposite attitude. According to respondents, there is a moderate proportion in employee reliability, accounting for 33% compared to 87% of CEOs and business leaders who trust to use artificial intelligence. This means it becomes one of the greatest obstacles to adopt this technology. To convince employees to feel optimistic about artificial intelligence, it is essential to emphasize two main factors which are reliability and performance with 44% and security with 38%. Those leads to an organization’s trust of artificial intelligence Because of widespread geographic locations all over the world, regulatory non-compliance becomes a preoccupation. Such circumstances can disturb its business continuity. Furthermore, due to having various offices located globally, the passing of information is done virtually. If the

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Ernst & Young’s security system is not strong enough, criminals can be able to hack into its database to steal valuable information.

2.2. Organizational strategy

Strengths

Weaknesses

SO Strategy

WO Strategy

Using its presence on social media for marketing and attracting customer basing on its website with environmental strategy Opportunities (S3, O1, O3). High level of efficiency products thanks to the innovative technology (S2, O2). An increase marketing place to attract consumers, serving by professional employees (S1, S5, O2).

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