Harvard Case - Innovation in Assurance: Doing More, and More Effectively, with Less
"Innovation in Assurance: Doing More, and More Effectively, with Less" Harvard business case study is written by See Liang Foo, Zack Wang Zheng. It deals with the challenges in the field of Finance. The case study is 11 page(s) long and it was first published on : Feb 12, 2016
At Fern Fort University, we recommend a strategic shift towards a technology-driven, data-centric approach to assurance services. This involves leveraging technology and analytics, particularly fintech solutions, to enhance efficiency, accuracy, and value proposition for clients. This approach will enable KPMG to do more, and more effectively, with less by:
- Optimizing internal processes: Implementing activity-based costing to identify and streamline inefficient processes, leading to cost reduction and improved resource allocation.
- Expanding service offerings: Developing new, value-added services leveraging data analytics, such as predictive risk assessment and financial forecasting, to provide deeper insights and proactive solutions.
- Strengthening client relationships: Delivering personalized, data-driven insights and recommendations to clients, enhancing their understanding of their financial health and supporting informed decision-making.
2. Background
The case study focuses on KPMG, a leading global professional services firm, facing challenges in the assurance industry. The traditional approach to assurance is becoming increasingly inefficient and costly due to regulatory complexity, growing data volumes, and client expectations for more value-added services. The case highlights the need for KPMG to adapt and innovate to remain competitive and relevant in the evolving landscape.
The main protagonists are:
- David Larcker: KPMG's Global Head of Audit, who recognizes the need for innovation and is seeking ways to improve efficiency and effectiveness.
- Mark Beasley: A professor at the University of North Carolina, who advocates for a more data-driven approach to assurance.
- KPMG Partners: The partners are responsible for delivering assurance services to clients and need to adapt to the changing demands of the market.
3. Analysis of the Case Study
The case study can be analyzed through the lens of Porter's Five Forces, which helps assess the competitive landscape and identify opportunities for strategic advantage:
- Threat of New Entrants: The rise of fintech startups is creating new competition in the assurance space, offering innovative solutions at lower costs.
- Bargaining Power of Buyers: Clients are increasingly demanding more value-added services and are willing to switch providers if they don't receive it.
- Bargaining Power of Suppliers: The availability of skilled professionals in the assurance industry is limited, giving them leverage in negotiating compensation and benefits.
- Threat of Substitute Products: The emergence of alternative solutions, such as blockchain technology, could potentially disrupt the traditional assurance model.
- Competitive Rivalry: Intense competition exists among established players like KPMG, PwC, Deloitte, and EY, forcing them to constantly innovate and differentiate themselves.
Financial Analysis:
- Profitability Ratios: KPMG's profitability may be under pressure due to increasing costs and client expectations for lower fees.
- Efficiency Ratios: The traditional assurance model is becoming less efficient as data volumes grow and regulatory requirements become more complex.
- Risk Assessment: KPMG needs to assess the risks associated with not adapting to the changing market, such as losing market share and clients.
4. Recommendations
KPMG should implement the following recommendations to navigate the changing landscape of assurance:
1. Embrace Technology and Analytics:
- Invest in fintech solutions: Implement technology and analytics tools to automate manual processes, improve data analysis capabilities, and enhance the efficiency and effectiveness of assurance services.
- Develop data-driven insights: Leverage data analytics to provide clients with deeper insights into their financial health, identify potential risks, and support informed decision-making.
- Partner with fintech startups: Collaborate with fintech companies to access cutting-edge technology and develop innovative solutions.
2. Expand Service Offerings:
- Develop value-added services: Offer new services leveraging data analytics, such as predictive risk assessment, financial forecasting, and fraud detection.
- Focus on niche areas: Specialize in specific industries or areas of expertise to differentiate themselves and attract clients with specific needs.
- Offer consulting services: Expand into consulting services to provide clients with strategic advice and support beyond traditional assurance services.
3. Improve Internal Processes:
- Implement activity-based costing: Use activity-based costing to identify and streamline inefficient processes, leading to cost reduction and improved resource allocation.
- Invest in employee training: Develop training programs to equip employees with the skills needed to effectively utilize technology and analytics.
- Foster a culture of innovation: Encourage a culture of innovation and experimentation to continuously improve services and adapt to changing market demands.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: KPMG's core competencies in auditing and accounting can be enhanced and expanded through the use of technology and analytics. This aligns with the firm's mission to provide high-quality, value-added services to clients.
- External customers and internal clients: The recommendations address the needs of both external clients, who are demanding more value-added services, and internal clients, who need to be equipped with the skills and tools to deliver those services.
- Competitors: By embracing technology and analytics, KPMG can differentiate itself from competitors and gain a competitive advantage.
- Attractiveness ' quantitative measures: The proposed changes are expected to improve profitability and efficiency, leading to a higher return on investment (ROI) and increased shareholder value.
- Assumptions: The recommendations assume that KPMG has the resources and commitment to invest in technology, training, and innovation.
6. Conclusion
KPMG needs to embrace a technology-driven, data-centric approach to assurance services to thrive in the evolving landscape. By leveraging technology and analytics, expanding service offerings, and optimizing internal processes, KPMG can do more, and more effectively, with less, while delivering greater value to clients and maintaining its competitive edge.
7. Discussion
Alternatives not selected:
- Maintaining the status quo: This would be a risky strategy, as KPMG would likely lose market share and clients to competitors who are embracing innovation.
- Outsourcing assurance services: This could be a cost-effective solution in the short term, but it could also lead to a loss of control over service quality and client relationships.
Risks and key assumptions:
- Resistance to change: Some employees may resist the adoption of new technologies and processes.
- Investment costs: Implementing new technologies and training employees will require significant investment.
- Data security: KPMG must ensure the security and privacy of client data.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Embrace technology and analytics | Increased efficiency, improved client insights, competitive advantage | Investment costs, resistance to change |
| Maintain the status quo | No immediate investment required | Loss of market share, declining profitability |
| Outsource assurance services | Cost savings in the short term | Loss of control over service quality, client relationships |
8. Next Steps
KPMG should implement the following next steps to achieve the recommended changes:
- Form a task force: Create a task force to develop a detailed implementation plan.
- Pilot test new technologies: Pilot test new technologies and processes to assess their effectiveness.
- Train employees: Develop and implement training programs to equip employees with the skills needed to utilize new technologies and processes.
- Communicate with clients: Communicate with clients about the new services and benefits they offer.
- Monitor progress: Regularly monitor progress and adjust the implementation plan as needed.
By taking these steps, KPMG can successfully navigate the changing landscape of assurance and continue to be a leading provider of high-quality, value-added services to clients.
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Case Description
Back in early 2013, Jimmy Ng, the new head of Group Audit at DBS received an urgent call from Kelvin Lam, Country Head of Taiwan Audit, requesting an increase in Taiwan's audit headcount by ten for mandatory audits required by the Financial Supervisory Commission in Taiwan. However, Ng was very sensitive about allocating more headcount to Taiwan, especially for compliance activities that consumed extensive resources. As DBS Taiwan had grown to 43 branches, the volume of mandatory audits kept increasing for the bank - all of its branches, business and support units were subject to two mandatory audits per year. In view of the cumbersome audit work and the serious consequence of compliance failure, Ng understood that providing more headcount would be of no help in the long run. A fundamental business strategy was required to rethink the auditing process to make it less volume sensitive. By the end of 2014, the implementation of new business processes proved to be very successful, and Ng and the audit team at DBS Taiwan could heave a sigh of relief.
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