This study uses Michael Porter’s five forces strategy and PEST concept to analyze the environmental forces, which affect KPMG’s business operations.
The threat of new entrants
KPMG has over 140,000 employees and specializes in the provision of services in auditing, advisory, and taxation, which are the core elements of the company’s business activities (Bird and Beechler, 23). KPMG is a consortium of several firms operating in different countries, and each firm works like a distinct legal entity. The firms have cooperatives that provide support services in all countries where they operate. Different studies show low competition from new entrants that use differentiated services and new technologies because the industry is characterized as a highly saturated monopolistic structure (Bird and Beechler, 23). Such industry easily allows new entrants because of low initial investment and customer switching costs. Also, changes to regulations and the ongoing economic crises contribute to the threat from newcomers. KPMG has high economies of scale, offers good quality services, and provides a large scope of operations in different countries; this makes the firm able to resist new entrants (Hutchinson, 29). However, the company experiences high competition from fresh participators because they use new technologies, which offer high competition (Hutchinson, 59).
Bargaining power of customers
The buyer’s purchasing power is a key determinant of how the firm prices its products and services. However, because of the quality perceptions, the company can exploit the opportunity and set high non-negotiable prices, which it reinforces by offering highly differentiated services. The switching costs to competitors are low (Knechel and Wallage 28).
Bargaining power of suppliers
The bargaining power of sources of financing is based on the components of financial analysis, which include income and taxes, the availability of working capital, the quality of earnings, and unrecorded liabilities. In addition to that, the risks from the gross profits of the operations of the firm, the revenue mix, debt, and liquidity are some of the sources of capital the company considers when evaluating the power of suppliers. The suppliers are in the context of the finance required to facilitate the services offered by the firm. The company has the potential for low-cost outsourcing because of the moderately concentrated industry, which results in higher prices (Eilifsen, Knechel, and Wallage58). The company is obliged to pay more because of the regulations imposed by different countries on taxable revenue.
Threat of substitute
KPMG has experienced threats from substitute services because it specializes in the provision of auditing, advisory, and taxation services. The competing firms offer similar services at lower prices, which have significantly reduced the company’s revenue base (Eilifsen, Knechel, and Wallage, 37).
Competitive rivalry exists in the market, which is dominated by KPMG because of the factors such as changing economic cycles, highly controlled complex international environmental regulations, customer service reliability issues, risks arising from foreign currency exchange mechanisms, increasing cost of raw materials, and poor acquisition of emerging markets. KPMG takes the largest share of the monopolistic market with smaller competitors taking a minor share of the market. Because consumers do not experience switching costs, the company faces intense rivalry from the competitors because of the availability of a wide selection of substitute services (Eilifsen, Knechel, and Wallage, 40). However, the growth rate of the industry is low. Competitors draw small populations from the market, while KPMG has the largest share of the market.
Political forces and uncertainties have caused instability in destination markets, where the company has its operations, increasing counterparty, and credit risks. Also, politically unstable economies such as Egypt have adversely affected the company’s market base (Spence, Jeurissen and Rutherfoord, 93).
The economic forces, which affect the operations of the company include the global economic recession, which adversely affected the buyer’s purchasing abilities, the changing legal environments, the number of earnings, quality of cash flows, lack of robust financial structures, and integration challenges. The net effect is a reduction in the revenue of the company from the sales of its services (Spence, Jeurissen and Rutherfoord, 68).
The need to invest in new technologies to enhance service delivery is crucial. The company relies on various technologies that have different levels of vulnerabilities, which result in poor customer experience. It is important for the company to re-evaluate the processes used in service delivery and its core activities (Spence, Jeurissen, and Rutherfoord, 45). However, the company has started to invest in new technologies, including mobile phones, to reach the customers in real-time and to advertise the service offerings of the company (Bird and Beechler, 45).
Its strategically important resources, capabilities, and weaknesses
The strategically important resources include good global brand recognition and equity, high economic competitiveness, innovation, high-quality infrastructure, and labor market flexibility enables it to leverage the rich brand equity to merchandize services, which use its brand name (Bird and Beechler, 66). Other resources include a good corporate social responsibility image, strong customer loyalty programs, which use rewards and card drive bonuses. Other resources include a strong cooperate culture for knowledge creation and the ability to leverage technology using mobile outlets (Bird and Beechler, 33).
The company enjoys a strong global market position and operates in over sixty countries; it is ranked as one of the best brands in the world. Due to its strong market position and brand recognition, the company has exploited expansion opportunities into the global market, allowing it to reach significant economies of scale.
The weaknesses include poor integration capabilities, inefficient long term growth strategies, and highly expensive services, which provide other competitors the opportunity to enter the market with substitute practices (Spence, Jeurissen and Rutherfoord, 46).
Appropriate strategic goals and objectives
For KPMG to maintain its market share and position is the most appropriate strategic goal that includes the ability to leverage the service offerings based on strong product differentiation strategies (Elliott, Swartz and Herbane, 32). Other goals contain building strong internal and external relationships to drive the firm’s organic expansion in the global market, developing customer loyalties, ensuring strategic fit using target assets, and addressing shareholder demands to a positive reaction. Moreover, the company needs to employ comprehensive due diligence in the company operations and ensure clear and better evaluation capabilities (Spence, Jeurissen, and Rutherfoord, 43). The appropriate objectives include defining clear integration strategies, developing an effective benefit tracking mechanism, managing the changes effectively, and ensuring the changes are effectively controlled.
The potential of the firm’s strategy to meet its goals and objectives
The potential strategies the company should implement to meet the goals and objectives include customizing its service offerings to the needs of the customers, using different advertizing platforms to reach a large market segment and to evaluate the forces in its internal environment such as the corporate culture and structure for better strategic positioning of the firm (Spence, Jeurissen and Rutherfoord, 46).
A commentary relative to the firm’s ability to produce a sustainable competitive advantage
In conclusion, KPMG is a company that has the resources to sustain its market position against the rivalry of new entrants and the provision of substitute services from competing firms. The company can leverage its high-quality service offerings and attract more customers. The firm also has a strong market position, highly skilled and trained human resources, and an intense global presence. Also, the solid corporate image and diverse service offerings are appropriate to help the company sustain its position in the market (Bird and Beechler, 38). However, the company should invest in creating value, capture it in the transactions, preserve the purchase assets, and build a strong strategic communication framework.
Bird, Allan and Schon Beechler. “Links between business strategy and human resource management strategy in US-based Japanese subsidiaries: An empirical investigation.” Journal of International Business Studies 26, 1(1995): 23-46. Print.
Eilifsen, Aasmund, W. Robert Knecheland Philip Wallage. “Application of the business risk audit model: A field study”. Accounting Horizons 15, 3 (2001): 193-207. Print.
Elliott, Dominic, Ethné Swartz and Brahim Herbane. Business continuity management: A crisis management approach.London: Routledge, 2010. Print.
Hutchinson, Colin. “Integrating environment policy with business strategy”. Long Range Planning 29, 1 (1996): 11-23. Print.
Spence, Laura J., Ronald Jeurissenand Robert Rutherfoord. “Small business and the environment in the UK and the Netherlands: Toward stakeholder cooperation”. Business Ethics Quarterly 10, 4 (2000): 945-965. Print.