THE GLOBAL FINANCIAL CRISIS is changing the way accountancy firms are required to operate. But the big question is how the leaders of these firms can do things differently to be successful in this new context of a different financial landscape.
In researching this article, interviews were undertaken from representatives at Grant Thornton, HSBC, the Big Four and others, to gauge exactly what goes on behind the scenes at these firms.
During the interviews, two words were used time and again; ‘ambiguity' and ‘complexity'. The ambiguity was largely responsible for the lack of knowledge about what form regulation would take and the need to plan for different eventualities. Meanwhile, there is the complexity of making sense of the global context – how regulation applies to specific firms and what they need to take advantage of opportunities that might arise.
Interestingly, the research also emphasised the diverse reactions of firms. There are those that are already delivering on strategic plans aimed at taking advantage of new opportunities. There are those that are waiting and watching as developments unfold. And then there are those that see any activity that distracts from billable client work as a waste of time and resources.
One restraining factor is the way that power and authority is divided between the centre and the regions in a large firm. A number of interviewees suggest that whoever makes the most money for the firm has the most power, with one respondent claiming "if they earn huge fees, they can get away with murder".
In addition, the reward and recognition structures in place emphasises the importance of billable client activity above everything else. Firms will need to rethink strategies for their own regeneration, including alternatives to partnership.
The challenge of developing a global operating model able to service multinational organisations wherever they are located, with the same quality standards throughout, is already on the agenda for many firms. A mergers and acquisition strategy may provide opportunity to shift long-held beliefs and mindsets, and change enduring cultural elements that may not lead to success in the future.
Self-regulation is a new concept for many firms and as such there was little mention of the shift in mindset and behaviour required to support effective self-regulation. When things go dramatically awry within an organisation, it can be the result of ineffective or even dangerous behaviour coming to the surface. A leadership team that does not encourage honest conversations by challenging and questioning can descend into ‘groupthink', observed when "group members try to minimise conflict and reach consensus without critically testing, analysing and evaluating ideas".
To what extent are firms equipped to deal with these challenges?
A number of interviewees described how internal change management expertise was more likely to be billed out to clients, rather than used on internal projects, as well as how firms were more familiar with hiring consultants for other organisations, but not so comfortable with employing external experts themselves. An example was given of a firm with 30,000 employees using no external learning and development providers, instead relying on two internal staff to deliver all of their requirements. Ali Gill, Crelos CEO, described how individuals are placed in general management and leadership roles without the associated structures, skills and knowledge of what good looks like: "They have limited understanding of, and place limited value on, general management behaviour – preferring instead those whose ability is deal doing."
Many firms have failed to go through these types of changes previously and there is a case of not knowing what you don't know. High intellect and past success may lead to the view that firms don't need help. Many firms have little change management skills and tools, such as the ability to develop an accurate project plan or knowledge of how internal communications should differ within a strategic change situation than to business as usual. Both Jon Geldart and Paul Raleigh of Grant Thornton discussed how their roles are to provide expert input in areas such as mergers and acquisitions, marketing and branding, and to help "coordinate and align" the activities of the different regions.
During a period of change, the importance of leadership is increased. Leaders should be selected not just for what and who they know, but also for how they behave and lead within a complex and ambiguous environment. As Eliott Jacques writes in his book, The Requisite Organisation: "It is precisely the uncertainty inherent in human work, the feeling of never being quite sure, that makes you close your eyes and agonise over decisions."
There are not many leaders at the moment who would deny ever having experienced the anxiety and confusion resulting from the complexity of today's business environment. A dangerous consequence of this can be to revert to the safety of what you know, rather than venturing into the unknown, creating a safe space to innovate and build a new future.
Professional services firms have some unique challenges, largely to do with their network operating model and partnership structure. Cultural, behavioural and even historical factors also come into play. A firm's capacity to manage change effectively relies on a number of factors including leadership style and previous change experience. Few firms interviewed demonstrated an ability to design and deliver against an integrated set of change management initiatives where both the what and the how are tackled.
Savvy leaders will choose to work with external experts who are willing to invest in developing the internal capability within their firm.
Regulatory change will lead to both opportunities and threats. Those firms wanting to seize the opportunities, rather than reactively protecting themselves from threats, should learn how to work within complexity and ambiguity by blending cross-functional teams of experts from both internal and external sources with different functional and general managerial skills. They should all be part of both the thinking and the deciding process.
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