Service quality assessing and profiling of KPMG's organisation - Essay Example

?KPMG: A Service Company Table of Contents Table of Contents 2 Introduction 3 KPMG’s attributes as service company 4 The Flower of Service: The EightCategories of Supplementary Service Model (Lovelock & Wirtz, 2007). 8 Facilitating services 9 Enhancing services 10 Molecular Model (Shostack, 1982). 12 Conclusions and Recommendations 14 KPMG is a service company that caters primarily and specifically to the needs of business organizations. Its main expertise began with conventional auditing and tax services, and over the years the Company has evolved into a dynamic, multi-disciplined management advisory firm capable of extending information and consultancy services in financial, technical, operational, risk, and marketing aspects of firms in a variety of industries. Its products are services which are: intangible although they possess tangible evidence; perishable and incapable of being stored as inventory; variable because of the changing business contexts they seek to address; participatory because the customer performs an active role in the creation of the service; and highly dependent upon peoples’ performance. 14 Bibliography 16 Introduction KPMG is acknowledged as one of the largest global networks servicing the needs of business companies in the auditing, tax, advisory, and other professional services. Among its close competitors are the top auditors Ernst and Young, Deloitte, and Pricewaterhouse Coopers. Its international headquarters is located in Amstelveen, Netherlands. Its three principal lines of service products are audit service, tax service, and advisory service, the latter of which includes management consulting, risk consulting, and transaction restructuring (KPMG website, 2011). KPMG is actually the result of the merging of four consultancy firms which, however, occurred at different times, the earliest of which was founded in 1870. KPMG itself was formed as a result of the final merger in 1987, and since then the company has established its reputation for excellent quality tax, audit and advisory services (KPMG website 2011; KPMG Annual Report 2011). The purpose of this report is to provide a profile of KPMG operations. The subsequent discussion shall first establish KPMG’s characteristics as a service company, and thereafter the particular details of KPMG’s operations shall be applied against two service models that form part of service management theory. Specifically the two models are Lovelock and Wirtz’s Flower of Services Model, and the Molecular Model developed by Shostack. KPMG’s attributes as service company KPMG is a service company. It possesses the characteristics as detailed by Ronen and Pass (2010, p. 845) which are herein applied and discussed. (1) Its products are not physical in nature. KPMG specializes in audit, tax and advisory services as its principal products. It also provides “industry insight” – that is, the Company guides its clients in addressing the market challenges of their businesses. The services may be physically represented by the audit reports and advisories, but the content and substance, which comprise the service itself, are not physically tangible. (2) There is a large variance among KPMG and its competitors, in terms of customers, service types, service providers and service procedures. Often, audit and advisory providers specialize in a particular industry or business. Furthermore accounting standards allow the accountant some discretion in their choice of accounting procedures, such as depreciation methods (Needles, Powers, & Crosson, 2010). Coupled with these small differences are the larger differences between businesses even in the same industry, which would justify the tailoring of services to that specific customer. (3) Compliance and control are not trivial. The services which KPMG extends to its clientele are of a highly specialized nature. The audit and tax procedures are strictly regulated by law and by the principles laid down by the accounting industry. Persons who serve in these capacities must be accountants duly certified by the government, who are sworn to meet the high standards of their profession, failure in which may be penalized by disbarment (Code of Federal Regulations, 2010, p. 158). Furthermore, the professionals who provide advisory services and industry insights to clients are highly skilled and possess the mandatory qualifications in the technical, market, and business fields (KPMG, 2012). (4) The customer is part of the process. In KPMG’s activities, the active involvement of the customer is not only necessary, it is mandated by law. When the audit and tax procedures are performed, they are done in close consultation with the client and in many instances within the premises of the client’s business. In tax assessments and compliance, although the accountant may be performing the task of calculating the tax payable, where these are found later to be inadequate, the business owner is still held accountable and therefore subject to penalties such as fines and surcharges, and even imprisonment in cases of tax fraud or evasion (Becker, 1968; Wenzel, 2002). In the advisory and insight assistance services, on the other hand, it goes without saying that the customer is actively involved because he is the source of information and recipient of the advice. (5) The service cannot be made in advance or stored as inventory. The subject of audit and of tax assessments are the transactions and financial conditions of a business within a specific period of time. Being time bound, repetition of the same service is essentially a different matter from the earlier audits and assessments. The same is true for the advisory, because advice relevant to one period in time may be irrelevant for other periods. The services offered by KPMG are, therefore, perishable – they lose their value over time – and therefore cannot be stored as inventory. They therefore also could not be undertaken in advance because the period they are to report on has not occurred yet. (6) Entities in the service process are not always visible or physical. In business processes such as those served by KPMG, entities are intangibles that exist in the organization – the departments and sections, units and sub-units – which are “bodies” separate from the persons who comprise them. Corporations are themselves juridical, not natural, persons, which exist under the law and function according to their charters, and may be evidenced by their assets, but are themselves intangible and separate from their shareholders (Hinkelman, Manley & Nolan, 2003). (7) Bottlenecks are hard to detect. Bottlenecks are stages in a process where the smooth flow of operation slow down or stop, indicating congestion. In operations that deliver services, they are characterized by a deviation between one or more planned and actual measure, such as completion dates or number of jobs completed (Jagdev, Wortmann & Pels, 2003). In manufacturing operations, bottlenecks become evident in those sections or departments where there is blockage or congestion, such as accumulation of material stocks. In service companies such as KPMG, there seldom are physical manifestations of bottlenecks because the movement of work is intangible. Usually, where there is a proliferation of jobs where actual dates overshoot planned dates for completion, a bottleneck may be present. (8) KPMG is labour intensive. KPMG is powered by people, and squarely attributes its competitive advantage to its highly professional and experienced employees. It is true that many of the processes of data gathering, analysis, and storage are aided by digital equipment; still, the creative process that goes into the perception of insights and formulation of assessments and opinions are entirely conceptualized by humans. In KPMG U.S., operations are conducted in a network of 87 offices around the US, it employs 23,000 and collaborates with a host of partners. Worldwide, KPMG International employs 145,000 professionals, with 8,000 partners, in 152 countries (KPMG, 2012). By comparison, digital electronics manufacturer Apple employs 60,400 employees worldwide (Salmon, 2012). The size of KPMG operations is only a fraction of the scope and span of Apple, therefore it is evident that proportionally, KPMG employs more people for its size than comparable manufacturing companies. Every year, it is on the lookout for the best and the brightest of the new work force (Recruiter, 2011). (9) KPMGs operations and core process require a high level of IT capability. The firm is well supported by advanced IT systems that include data analytics to produce deep insights into a client’s business, in a fraction of the time it usually takes to generate such reports by conventional means (Boehle, 2009). Aside from maintaining a highly advanced IT system to meet its own needs, KPMG also affords to its clientele an Information Technology and Business System Advisory, for which it is equipped with the following industry-leading certificates, including CPIM, CIA, CISA, CISM, CISSP, CEH, PMP, ITIL Expert / Service Manager, ITIL Practitioner, ISO 27001 L.A., BS 25999 L.A., ISO 20000 L.A., and ISO 20000 Consultant. (10) Compared to a manufacturing firm, there is a high level of fixed cost in KPMG. For manufacturing firms, the cost of sales represents for the most part the cost of materials that went into the manufacture of the product. These are variable costs which comprise a significant proportion of the price of the manufactured good (Needles, et al., 2010). For service firms such as KPMG, however, cost of sales is negligible because there are no significant amounts of raw materials purchased for the production of the service. However, KPMG’s largest expenditures are its manpower costs, which is a fixed cost. The significant component of this is the salaries and fees paid to its regular employees and partners. KPMG’s work force is comprised of professionals and experts in audit, tax and business management. In order to retain these highly qualified individuals despite the attractive market for their services, KPMG takes care to extend to them competitive compensation and a nurturing working environment (KPMG website, 2011). In order to best appreciate KPMG as a company providing a product service, the company will be further analysed according to two service management theories. For this purpose, the Flower of Service of Lovelock and Wirtz shall provide the framework for the first part of the analysis, and the Molecular Model of a Service Company devised by Shostack shall provide the framework for the second part of the analysis. The Flower of Service: The Eight Categories of Supplementary Service Model (Lovelock & Wirtz, 2007). The Flower of Service Model is depicted in diagram in the figure following. The theory states that in a service industry, aside from the core service offered by the company, there are eight supplementary services divided into two groups: the facilitating services which include information, payment, billing and order-taking; and the enhancing elements, which are comprised of exceptions, safekeeping, hospitality and consultation. These elements are applied to the case of KPMG and are discussed below in the context of the Company’s operations. The Flower of Service. Source: Lovelock & Wirtz, 2007, p. 88 Facilitating services Information The KPMG website provides a thorough profile of its services, its research reports on issues of current vital interest, and information about its operations. KPMG maintains an information hotline that allows quick access to its 24-hour service that not only provides clients’ information on their own accounts, but also on business environments worldwide accessed through its extensive global reach. For instance, KPMG’s extensive global experience puts it in an advantageous position for providing information on new regulatory frameworks such as Basel III and Europe’s Solvency II. (Datamonitor, 2008). Order taking, Billing and Payment For these facilitating services, the company has little problem because it mostly handles corporate and business clients and high asset entities, which are accorded prompt, exclusive and personalized services. KPMG efficiently discharges clients’ instructions, provides updated information on clients’ accounts, and facilitates client payments. Enhancing services Consultation KPMG services have a high informational content; but while other auditing firms provide only the traditional financial statement audit, KPMG strives to add value to this service by providing a variety of financial as well as non-financial information to support effective managerial decision-making. One way it does this is through its Integrated Reporting that combines information on various aspects on the business – sustainability, risk, strategy, and financial performance. At present, there is a huge demand for KPMG’s Sustainability Assurance service. This involves assessment and assurance over an organization’s sustainability program. It also includes reporting on carbon and other greenhouse gas emission which is highly relevant in the preparation of the client’s Corporate Social Responsibility report (KPMG Annual Report 2011, p. 10). Another exceptional consultation service (outside of its core service of audit and tax services and management consulting) is KPMG’s risk consulting, which applies a wide variety of technical and sector-specific skills to proactively assist its clients not only to realize higher profits, but also to minimize reputation, operational, financial, and other similar risks. KPMG has built its proficiency in addressing issues on regulatory compliance, risk frameworks and modelling, dispute resolution, corporate governance, drawing added value from its contracts, and other similar expertise (KPMG website, 2012). Hospitality KPMG has pledged to its Audit clients prompt and speedy access to all the services KPMG firms are permitted to provide, particularly in Advisory and Tax. For instance, in discharging its core Tax functions involving compliance, process, and internal controls, KPMG also focuses on the client’s expanded needs including investing in new markets, indirect taxes, transfer pricing, and seamless approach to compliance needs (KPMG Annual Report 2011, p. 12). Safekeeping Safekeeping for KPMG refers to the safety and confidentiality with which KPMG maintains their client’s store of data. In order to effectively serve its clients, KPMG gains access to a large quantity of sensitive information which is valuable in analysing the client’s business and arriving at sound and expert advice. However, the same information contains the secret details that determine the client’s competitive advantage; they are the type of information competitors will want to obtain access to. KPMG provides assurances that the data provided them by customers are kept in strict confidence in its highly secure data system. Exceptions Currently, KPMG has begun providing assistance to their clients in adopting cloud computing. At present, it is still provided as an exception, because many businesses have not yet, or are still in the process of, examining their current IT infrastructure, usage and needs, which do not yet all call for cloud technology. The main concern is still to observe “the care needed to optimize business performance, manage risks and get it right” in deciding to adopt, or not to adopt, cloud computing. KPMG has recently conducted a survey on how the cloud has begun to change perceptions on governments, its leaders, and IT professionals (KPMG website, 2011). The flower of service model focuses on the supplementary services around the core service of a service company. KPMG can also be viewed in light of the framework provided by the molecular model of Shostack, discussion of which follows. Molecular Model (Shostack, 1982). The graph below provides a visual presentation of the molecular model as conceptualized by Schostack. It is so-called because the model is an analogy of the chemical structure of a molecule. Like Lovelock’s flower of service, the molecular model recognizes that a core exists in the service product that comprises the principal benefit that is afforded the customer. In the case of KPMG, these are the audit and tax services upon which it is basically specialized. Shostack’s Molecular Model (1982, p. 54) The core of the model is not a single solid body as depicted in the flower of services model. The core is composed of service elements, product elements, essential evidence if any exist, and peripheral evidence surrounding these three. Bonds, signifying decisions, processes, and influences, logically connect the service elements to the product elements and essential evidence. In the orbits surrounding this core are the intangible elements that supplement and support the core (Smith, Berry & Pulford, 1999); these include the distribution system (inner orbit), and the strategic costing and pricing of the service (outer orbit). There are many parallels that may be drawn between the core-supplementary services distinction made in the flower of service model, and the molecular model, so these will no longer be reiterated here. It is important to point out, however, that in the orbits surrounding the nuclear or core service, are the issues concerning distribution strategy in the innermost orbit, pricing strategy in the middle orbit, and advertising strategy and company image in the outermost orbit. It is important to note that in a B2B industry as KPMG is in, these concerns are very much settled by the status quo, since businesses in the same locality will have settled on the most efficient and common arrangement because it is the most cost effective. This distinguishes it from the retail market where tastes and preferences – and therefore demand – differs on an individual basis. While the orbital services are common in a locality, they can be expected to differ in different localities. Since KPMG is a global firm which operate in more than one hundred countries, there is any number of combinations of strategies that KPMG will have to address if it intends to continue exploring high growth markets. Conclusions and Recommendations KPMG is a service company that caters primarily and specifically to the needs of business organizations. Its main expertise began with conventional auditing and tax services, and over the years the Company has evolved into a dynamic, multi-disciplined management advisory firm capable of extending information and consultancy services in financial, technical, operational, risk, and marketing aspects of firms in a variety of industries. Its products are services which are: intangible although they possess tangible evidence; perishable and incapable of being stored as inventory; variable because of the changing business contexts they seek to address; participatory because the customer performs an active role in the creation of the service; and highly dependent upon peoples’ performance. In the course of applying the service theories, it became evident that the flower of services model is only partially applicable to KPMG. While the enhancing supplementary services are fully applicable because it is a strategy KPMG also employs, the facilitating services (particularly billing, payment and order taking) proved themselves to be more applicable to retail services. These functions are systematically attended to in B2B companies because of the needs of corporate clients are similar with respect to order taking, billing and payment. This brief profile shows that KPMG may be improved by tailoring those aspects of the supplementary or peripheral/orbital service elements according to the various local markets it serves. KPMG’s core service, business consultancy, relies upon its expertise in the different facets of business, and KPMG has honed this to a degree that meets global demands. However, the sociocultural and economic aspects – pertaining to manner of distribution strategy, cost and pricing strategy, and company image – that formed the external rings of the molecular model, as well as the supplementary services in the flower of services model, would need to be adapted to the market KPMG finds itself addressing (Thornbury, 1999). These are the challenges faced by a global firm, and which it will continue to face as the business and economic environment undergoes continuing change and improvement. 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