Recession and a successful merger have made Ernst & Young what it is today: a global firm, with common global structures and people who work in multidisciplinary teams.
The Ernst & Whinney-Arthur Young merger took place in 1989, overseen by managing partner Harold Cottam. In early 1992 Cottam was succeeded by Nick Land and the firm began its metamorphosis under his guidance.
The consolidated firm faced a recession which meant laying off partners from its London offices to compensate for an unprofitable consultancy practice.
Internal tension among partners arose from recession fears and the top-down command-control structure used to facilitate the welding together of the two firms. Besides this, globally the firm was a set of incongruous and unaligned offices working to different agendas.
“After the merger, committees met occasionally, but the consulting practices were not linked between countries, and they were not firing on all cylinders,” says Clive Williams, managing partner for client services at Ernst & Young.
Today E&Y is a global firm serving global clients, with integrated common practices and methodologies worldwide. UK consultant numbers have grown to 900; when the two firms merged there were less than 300 practising consultants.
The combined UK management consultancy practices were worth #31.8m.
Today, that figure has more than doubled: for the year ending March 1996 E&Y turned over #77.4m. Worldwide the firm’s consultancy revenues had grown to $2.9bn at the end of 1997. Worldwide, fee income for all practices was up 17 per cent to $9.1bn in 1997.
Revenues are up, and so is staff morale, team-working, communication and staff development. Land cites a recent internal staff survey by International Survey Research, where staff highlighted strategies that have benefited them and the business.
Of the UK staff survey, nearly 90 per cent said they had a clear understanding of the firm’s vision and leadership and how they play a part in this.
This percentage Land says is much higher than the average for high performance firms, which is set at 63 per cent. E&Y’s staff also consider its multidisciplinary team-working to be very good; it was four points above other high performance firms in the high 70s.
Staff rated the the firm’s approach to openness – that is, being able to voice their opinions and fears openly – at 73 per cent, much higher than the benchmark of high performance firms, which is only 48 per cent. When staff were asked to rate in percentage terms, “I have the opportunity for personal development and growth”, 74 per cent agreed with this statement, compared to the benchmark of 52 per cent.
The success of the organisational change process is partly structural and partly behavioural. Land attributes much of the success to living its vision and creating an environment where people can be open and communicate.
Back in May 1992, when Land became managing partner, he introduced three interrelated initiatives: one looked at improving the firm’s brand image, the second focused on aligning staff’s business objectives and key skills, and the third aimed to reorganise training and development.
Land established a five-strong executive to manage the reorganisation; that, and communication and networking was essentially the basis for change.
The executive team included: Land, Williams, Donald Sutherland, Donald Turner, partners responsible for the regions, and tax partner Andrew Jones.
Before putting in building blocks for change, Land realised he had to ensure that E&Y’s vision was understood. He took to the road and spent 18 months preaching the vision of the future to all partners and leaders within the organisation. The emphasis was – and still is – on team-work and communication and, more importantly, how that ensures that E&Y is: “being recognised as the leading firm which contributes most to its clients’ success.”
In his vision for the future Land defined what he thought was the firm’s competitive advantage: developing people and harnessing their skills and talents. “Explaining our thinking was very powerful and it worked very quickly when we got clarity,” says Land.
“Post-merger we were very command-control and we wanted to be less centrally directed and devolve decision-making more down into the business. We wanted people to get involved in taking the business forward so we put lots of emphasis on openness and communication. This helped me and us put out messages and demonstrate to people that we practise what we preach.
It is all about establishing chemistry and joint vision.”
He explains that developing its people in new ways meant the firm could make a greater contribution to clients’ success. Leadership and team-work and getting that message across was all-important.
“Forget what people say about IT infrastructure, what makes consulting work is personal relationships, personal chemistry, and the group and teamwork commitment to make it happen,” says Williams. “We made it very clear that we want the best teams – teams are of crucial value to us – and we emphasised that we were not doing this for altruistic reasons. If you repeat the message enough it creates results.”
While the message was filtering through and when E&Y staff started to ask for more concrete facts about how to implement the change process, the executive came up with a draft version of how they wanted to achieve their vision.
Made up of four stages of change, and called the Rocket by E&Y’s UK staff, the model was originally called “Achieving our Vision” – today the firm calls it “Living our Vision”. (It was mainly a UK strategy, though it reflected the strategy of some of the other national practices.)
First and foremost the firm concentrated on developing its people: encouraging its partners to become more visible in their leadership, and raising their game in terms of coaching, developing and training people. Training was all important, with the most senior people spending up to three weeks a year on courses.
“We invested heavily in training people in the wider sense, encouraging groups of people to brainstorm, dream, go on residential weekends and get drunk together,” says Williams. “Dreaming is very important; giving people space and not over-regulating their work is important because consulting is all about space and added value.”
On the recruitment side the firm began to look for self-starters, who felt comfortable working to defined outcomes, but understood how to usefully use the space in between.
Navigator, a new methodology, was put into place. It pulled together IT, embraced IT strategy through to implementation and stopped consultants having to reinvent the wheel, giving consultants the space to tackle problems and develop solutions for clients, says Williams. The methodology was adopted by all management consultancy practices internationally.
“We had created an organisation that has space because we did not want to lose the creativity,” says Williams. “But some people were disconcerted by that structure and for that reason we introduced an induction programme of three months.”
The three-month E&Y induction course, which still consists of the same elements, helped new recruits get under the skin of the organisation.
The focus was on understanding service lines, their positioning, and what proposals look like. The induction process included networking internationally within the firm: talking to counterparts in the US, Latin America and Europe.
Mentoring gained in importance. A new mentoring process was set up around this so that consultants coming into the firm could learn about the culture in one fell swoop. Managers and partners were required not only to ensure that consultants had the confidence to deal with new clients and understood how to generate new business through networking, but that they also felt comfortable in the organisation.
Williams points out “the key aspect is making an individual feel comfortable in the organisation”. Mentoring at E&Y means discussing with consultants over a beer whatever their concerns are, and then getting them to play back any new learning gained to check that they have got it right.
The firm worked for three years to find the right human resource process to support its managers. It introduced an appraisal systems called Personal Development System, but it over-egged the project and staff found it too complex.
“The general HR outlook tended to be policy and practice led; we had to throw the old model away and start again. So three years ago (in 1995), we said let’s turn that 180 degrees and move it into the coal face,” says Land. “We moved away from one size fits all, rebuilt many of the core retraining programmes, and built in a more flexible HR capability. We now have 360 degree feedback.”
The firm put all the emphasis on learning and development; it reshaped the central function and made it smaller. It employed 15 HR professionals and put them into management teams in its regional offices to help develop regional managers’ skills. Land admits that nothing is ever perfect; he believes that the firm may have raised staff’s sights and not fulfilled their expectations. In the ISR survey, staff gave E&Y average marks for its HR policy, so Land thinks that the HR model still needs some redesigning if the firm’s staff are to get the full benefit from it.
The firm’s global structure has been designed to complement its people development strategy. In each national practice E&Y developed key account teams rather than industry groups, so that if utilisation rates dropped by 5 per cent the firm’s consultancy profits would not be cleaned out, either due to ebbs and flows in industry sectors or market fluctuations during recessions.
This meant that consulting skills could be drawn from different parts of each practice. The second aim was to ensure that each account team focused on the client, rather than on an industry specialism.
“We have always tried to ensure that the industry guys who are our roots to the market don’t have too many people working for them,” says Williams.
Today the larger numbers of consultants are still in the service lines: 30 per cent of people are in the industry account teams and 70 per cent are in the service lines.
Williams explains that the reason for this is two-fold: “One team is an external facing team; the other is practice economics. What we don’t want is the industry guys building silos so they both sell and deliver from within their silos. The other reason is that we wanted to drive the organisation structurally, value – wise and ethos – wise to always be working on that best team basis.”
Once this structure was in place E&Y found international client work began to grow. Williams says it was a virtuous circle; once the firm could show that it was working for international clients, it attracted a better class of consultant.
Between 1993 and 1994 the firm put networking and knowledge management at the top of its agenda, and from loose international meetings between senior teams, international collaboration grew.
“By putting people together internationally we were able to win work more competitively and deliver it more competitively. It became a self-fulfilling prophesy if you like,” says Williams.
Increased international consultancy requests from clients led to a second structural change in 1995. The firm established a global consulting operation – a financial joint-venture between its five major European practices and the US practice.
Ten partners from the different countries were made key account holders for the global client consultancy practice, each managing no more than three accounts. Their role was to work on the seeding accounts, generate revenue and pull together teams from the different national practices to both sell and deliver the work to clients.
“Within 18 months the Global Client Consulting practice went from virtually no work to $100m turnover. Today there are 20 account holders,” says Williams.
What differentiates E&Y today from other firms, believes Williams, is that GCC account holders are given enough space to work and dedicate their time to their clients; multinational clients have access to its best partners; and no delivery resources (people) work in the global seeding accounts, so there is no reason for anyone to feel like a second-class citizen.
“That was a really important value we put in place, and it acted as a catalyst for the national practices to grow their expertise, needed on these big multinational engagements,” says Williams. “Revenues are up and growth rates in the UK are 40 per cent. The second biggest factor is that it has acted as a catalyst for high quality growth in terms of people joining the practice.”
The focus of the vision was creating personal relationships, group chemistry and breaking down the barriers through teamwork: out of that E&Y grew its international practice.
Now that the Ernst & Young/KPMG merger is no longer going ahead, the firm aims to take up where it left off: designing a client framework for the future, by improving its culture by demonstrating value, sharing knowledge and growing its people. And, most importantly, Living its Vision.