Coming unstuck? In search of the “corporate glue” in an international professional service firm

Coming Unstuck? In Search of the "Corporate Glue" in an

International Professional Service Firm

I Anthony Ferner, Paul Edwards, and Keith Sisson 2

Much has been made of "networks" and corporate "culture" as sources of cohesion in increasingly loosely structured international firms. But how strong is the "corporate glue"? Using a case study of human resource management (URM) in an international accounting firm, this article shows that growth and internationalization may themselves weaken the corporate glue, just as the need for global integration of activities increases. The resulting stresses lead to a greater emphasis on formal bureaucratic structures and processes, further calling into question the role of traditional culture. Alternative strategies for managing these tensions are proposed. 0 1995 by John Wiley & Sons, Inc.

INTRODUCTION

This article explores some of the human resource (HR) implications of professional corporate service firms, using as an example a major accounting and management consultancy firm, which we call Business Ser- vices.* Despite a wealth of literature on professional workers (e.g., Hall, 1968; Montagna, 1968, 1971; Vollmer & Mills, 1966; Bailyn, 1985; Raelin, 1991; Roslender, 1992), the organizational behavior of business service firms has been little studied.2

Yet such firms are increasingly interesting for two reasons. First, they are now a major sector of the global economy, and the largest firms are massive international operators. The "Big Six" accounting firms generated a worldwide income of nearly $30 billion in 1991 (approaching the GDP of Ireland) and employed a total staff of 375,000 (The Economist, 1991, p. 25). The accounting firms are partnerships which do not have central, hierarchically organized control structures. Instead, it will be argued, they rely on nonauthoritative forms of organization, such as networking and corporate culture to ensure the integration of their activities.

Second, the mechanisms of control and coordination are of special

Human Resource Management, Fall 1995, Vol. 34, Number 3, Pp. 343-361 0 1995 by John Wiley & Sons, Inc. CCC 0090-4848195/030343-19

interest in light of recent debates about organization in multinational corporations. It has been argued that increasingly multicentered, trans- national corporate structures have been emerging (Hedlund, 1986; Fors- gren, 1990; Forsgren, Holm, & Johanson, 1992) in which power and authority are more diffuse than they are in conventional multinationals. Different parts of the corporation, such as international product divi- sions, perform strategic roles which were formerly monopolized by the corporate headquarters. Such firms operate as corporate networks, rather than as pure hierarchical structures (Ghoshal & Bartlett, 1990). Some writers have gone so far as to talk of the emergence of federalism in multinational corporations such as ABB or Benetton (Handy, 1992; OToole & Bennis, 1992). Power does not flow down from the center to lower levels but, rather, resides in the constituent parts which concede it to the center for the benefit of the firm as a whole; decisions are made by an ongoing process of bargaining between the units and the center and between the units themselves. As will be seen, international partnerships are federal firms par excellence. Thus they are a highly important test case for the mechanisms of coordination and integration that one would expect to find in the emerging federal h s or network structures described in the literature.

How, therefore, do these firms ensure the national and global integration of their activities? On the one hand, they are faced by clients in the shape of large multinational companies which expect integrated worldwide service. On the other hand, they do not have at their disposal many of the coordination devices of more conventional, integrated firms. The argument of this article is that there is a fundamental and deepening tension between the federal and decentralized structures and the global strategies of the major accounting firms. This is revealed in attempts to create strategic approaches to the management of HR. The article explores the policies being developed to mitigate such strains and suggests that the remedies themselves have weaknesses that need to be addressed.

Following a brief description of the organization of partnership-based firms, recent developments affecting big accounting and management consulting firms are sketched. Then some of the key stresses affecting management control mechanisms and the management of HR are ex- plored in the light of the case study firm, Business Services.

THE NATURE OF PARTNERSHIPS

The key features of the “professional partnership” model (Hinings, Brown, & Greenwood, 1991; Greenwood, Brown, & Hinings, 1990, 1991) derive from, on the one hand, partner control, and on the other, the professional nature of the work. The firm is controlled through a form of representative democracy: by executive committees elected from

344 I Human Resource Management, Fall 1995

the ranks of the partners who together own the firm through the capital stake that they have invested in it. Partners’ stakes depend on seniority and performance, and they are rewarded accordingly with a share of the profits. While partners may assume temporary executive responsibilities, most see their careers as firmly rooted at the local operating level in close contact with their clients. Partners have a high degree of autonomy for the conduct of their day-to-day work. Most of the actual work with clients is performed by lower-paid professionals under the guidance of partners; the economics of partnerships rest on the leveraging that this creates (Maister, 1982).

The emphasis on professional autonomy leads to a high degree of day-to-day decentralization. Each partner works as an individual unit (Mills, Hall, Leidecker, & Margulies, 1983), adhering to the national firm for the advantages of the name and reputation it provides. By the same token, however, the quality of the product is essential for the reputation of the firm, and therefore centralized control is maintained over professional standards. Typically, control is effected through peer review and inspection. This is as true of international firms as of nationally based partnerships.

The emphasis on collegiality, peer evaluation and autonomy (Green- wood et al., 1990, p. 733) generates another crucial feature of professional service firms: the weakness of centralized strategic planning and coordination and the relatively light financial and budgetary control. Hinings et al. (1991) suggest that they are unsuited to dealing with long- term strategic change, ”because of the lack of an organizationally pre- scribed, hierarchical system of decision-making which can be mobilized when necessary”; the levers available to conventional firms, of executive hirings and firings, the authoritative position of the chief executive, new payment systems, and so on, are not available (p. 390). One example is the difficulty of large accounting firms in getting agreement to merge- such agreement usually requires the consent of two-thirds of each country‘s partners (The Economist, 1992, pp. 25-28).

PRESSURES FOR CHANGE

In recent years, organizational tensions in accounting firms have been exposed by a number of interlinked developments: the growth in firm size; internationalization; mergers between firms; and the expansion of non-accounting business, especially management consultancy and tax services.

Since Montagna wrote his account (1968) of professionalization and bureaucratization in large accounting firms, the major firms have become much larger and more internationalized, operating more overseas offices in a wider range of countries (Daniels, Thrift, & Leyshon, 1989; Economist, 1992, p. 26; Manardo, 1991). This responds to the increasing

Femer, Edwards, and Sisson: Coming Unstuck I 345

integration of the world and regional economies and the associated internationalization of the large corporate clients who are the major source of fee income. Business Services and several of the major international accounting firms are in effect federations of national-or even local- partnerships. A key manifestation of this is that profit pools are generally national, or even local, rather than international; in the most ex- treme cases there is an “eat what you kill” approach in which each local office keeps its own profits (cf. Greenwood et al., 1991, p. 17).

Recent years have seen a spate of mergers, driven by the larger accounting firms’ desire to present multinational clients with comprehen- sive international networks. At the same time, the global marketplace is becoming much more turbulent with political and economic uncertain- ties in the new markets; intensifymg international competition between accounting firms; and a wave of high-profile corporate failures embroil- ing the leading accounting firms in extremely costly litigation.

A second, equally important, feature of accounting firms’ growth in recent years has been the diversification of their activities away from the core of accounting and auditing into management consultancy, tax ad- vice, and insolvency services. In the mid-l980s, consultancy income was growing twice as fast as auditing for the largest firms and with much higher profit margins (Economist, 1988, p. 115; The Accountant, April 1992, pp. 13-18). By the 1990s, non-audit work often generated more than half of firms’ total fee income. Increasingly the core business has begun to look like a loss leader for the more lucrative consulting work that it generates with the client.

The accounting firms are therefore faced with stresses deriving from the need to coordinate strategy cross-nationally on the basis of an organizational form originally intended for small groups of professionals serving local markets, and from the fragmentation of unified professional cultures as a result of international growth through merger, and of the diversification of business activities from core auditing to less traditional areas. The key points are summarized in Table I. The following discus- sion explores how our case study firm, Business Services, handled such tensions.

RESPONDING TO CHANGE: A CASE STUDY OF BUSINESS SERVICES

The Case Study Firm

Business Services is one of the “Big Six.” It is the product of a merger in the 1980s between two major preexisting international firms each with its own geographical sphere of influence. It has a worldwide network of partnerships spread around hundreds of offices in more than a hundred countries with thousands of partners and tens of thousands of profes-


Table I. The Professional Accounting Firm.

Forces for Strengths Weaknesses Change Strains Resulting

Strong profes- Failures of central sional culture strategic plan-

ning and coordination

Partner control Poor manage- (representative ment control democracy) systems

Growth in size Bureaucratization of of accounting professional part- firms nership form

Internationaliz- Problems of inter- ation national coor-

dination and planning

Partner commit- Lack of conven- ment through tional "levers" ownership and for strategic control change

Partner autonomy Representative within common democracy im- professional pedes struc- standards tural change

Merger Culture clashes between different corporate styles weaken partnership ethos

Diversification Increasing cultural of activities heterogeneity (growth of weakens profes- nonauditing sional ethos work)

sional employees. Its annual fee income in the 1990s has been several billion dollars worldwide.3

Business Services, in common with other firms in the sector (Hinings et al., 1991; Morris, 1992) has responded to the pressures described earlier by changing its organizational and management structures. In particular, it has had to address the question of how to coordinate cross- nationally in the light of the increasing international integration of its major clients. These issues are the subject of the following subsections.

The Bureaucratization of Management in Business Services

Business Services has been developing more formalized and bureaucratic, if not hierarchical, strirctures of management. In the words of one respondent, "the traditional committee-based way of working was fine when you were a handful of partners but less good with an expanding firm."

The Professionalization of Management in Business Services

In one key national partnership we examined within Business Seruices, there had been a professionalitation of management by the appointment

Ferner, Edwards, and Sisson: Coming Unstuck / 347

of outsiders to functional roles such as the management of human resources (cf. Arkin, 1991). The traditional structure had been for the national firm's executive committee to nominate a partner to take responsibility for staff issues. But such individuals would not typically have a formal training in personnel and were, therefore, ill-equipped to handle the proliferation of personnel issues such as pay, appraisal, and training which the increasing size of firms demanded be handled on a more professional basis. Moreover, partners tended to be appointed to such roles on a temporary basis and to continue to devote themselves at least part-time to their client activities.

Like other such firms, Business Services experimented unsuccessfully in the 1980s with outsider managers who did not understand the pecu- liar culture and authority structure of partnerships; not being partners themselves, they lacked the status to make things happen. Business Ser- vices eventually appointed as director of human resources an individual who had experience both in accounting firms and in outside industry.

The consequences for the traditional management culture are likely to be significant. For the first time a marked division of labour is introduced. The authority structure, previously premised on a very flat hier- archy of equals (all partners are nominally of equal status), is now differ- entiated between the roles of practicing partners and those with full- time management responsibilities.

The Formalization of Management Control Processes

The external challenges facing Business Services were resulting in an increasing formalization of management control through budgeting, appraisal, and even dismissal. As mentioned above, management control and budgeting were traditionally fairly weak, not to say crude (cf. Greenwood et al., 1990, p. 745). Audit work, for example, was divided into several working teams under senior managers (i.e., professionals with management responsibilities who were not yet partners), but there was little in the way of effective budgeting in terms of staff and other costs and fairly weak target-setting processes and monitoring against target.

This state of affairs was attributed by our informants to the nature of the market: for many years, the firm had been top-line driven-that is, its aim was to increase fee income, and thus partners' profits, in the very rapidly expanding market of the 1970s and early 1980s. The cost base was not controlled as well as it might have been. The stagnation of the market in the late 1980s provided the trigger for a greater formalization of management control. A new system of budgeting introduced more frequent reporting, closer monitoring of performance against targets, and the extension of budgetary disaplines down to operating departments.


Hand-in-hand with the formalization of budgeting went the tighten- ing of forms of performance measurement, appraisal, and accountabili- ty, often along lines drawn up by the international firm (see below). Our field data, however, suggest that the implantation of new appraisal systems sat somewhat uneasily with the classic ethos of partnerships. Part- ners were unused to exercising the disciplines of appraisal: partly because of their immersion in client affairs rather than in staff management; partly because of the culture of the word in the ear, the winks and nods, the atmosphere of the gentleman’s club in which things were done on an informal, often semi-tacit basis that resisted formalization. As a result, the professionals working to them felt they were operating in a vacuum without clear objectives. Moreover, since each senior dealt with several different partners, depending on the client mix, there was no single in-line partner to whom he or she reported and by whom he or she was appraised. The line of control was thus diffuse. Much of the link between seniors and partners, including, for example, the distribution of work between departments, appeared to be ad hoc with professional managers’ personal relationships with partners counting for more than formal procedures. There was, then, a tension between the persisting features of partnership organization and the efforts to rationalize and formalize control.

More novel have been moves to introduce partner appraisal in some of Business Services’ national partnerships. Objectives would be set by peers for client service, business development, financial management, and the like. As one respondent put it, ”there is increasing emphasis on the need to perform effectively,” and a move away from partners seeing themselves as ”sole practitioners.” Partner appraisal also raises the prospect that partners will in future be rewarded on a more formalized basis, according to performance against targets, rather than on the much more trust-based and ad hoc traditional process of informal bilateral negotia- tions between individuals and the firm’s senior partner.

Formal control procedures may also entail the development of more rational, formalized mechanisms for the allocation of tasks between partners. This is likely to conflict with the traditionally highly informal method of allocating clients and work: For example, tax or consultancy work generated by an auditing client would be passed on by the audit partner on the basis of personal relationships, rather than through some formal system. This reflected the fact that partners tend to regard themselves as personal advisors to their clients with whom they have estab- lished a relationship based on mutual trust. In short, a clash is implicit between elements of professional ideology and the formalization of management in accounting firms.

Another step in the formalization of management control has been signaled in response to the recent sharp slowdown in the market: redundancies on an unprecedented scale. For the first time redundancies sig- nificantly affected partners. In principle, with an uncertain product mar-

Femer, Edwards, and Sisson: Coming Unstuck l 349

ket, the various strands of management control may be increasingly linked in the future to partner and professional dismissal as well as to remuneration.

Widespread uncertainty appears to be resulting. One partner with personnel responsibilities carried out a study of “10-year in” partners aged 45 or so. In group discussions he found:

great questioning along the lines of ‘do I want to carry on doing what I’m doing?‘ Despite the fact they loved the firm, they were reacting against changes that made work less of a pleasure, more of a drudge, such as increasing financial controls, appraisal-corporate-type measures un- heard of in Business Semices until recently were throwing up a lot of human problems. (field notes)

The consequences for the professionals below partner level are equally significant. Traditionally, the main control mechanism, and at the same time the main motivating device, in Business Services (and other such firms) was the prospect of becoming a partner, but the path to partnership depended on continued expansion (cf. Maister, 1982). Now, with stagnation, the aspiring professional’s prospects of partnership have been clouded. Many would have to start thinking in terms of longer waits, or indeed, see their future outside the firm. Not sur- prisingly, our respondents below partner level saw themselves in an uncomfortable and uncertain position: caught between the thrusting youngsters below them and the layer of partners above, unsure how to read the sometimes obscure signals as to their future career prospects.

“Divisionalization“ of Business Activities

Business Seruices’ different business areas-particularly auditing and consultancy-were being managed more strongly and increasingly developing their own identities and their business-specific policies. One aspect of this was the formalization of separate human resource management arrangements for the different businesses. For example, recruitment needs vary widely between auditing and consultancy : Most accounting and auditing staff come into the firm as new graduates and are trained within the firm while consultants enter at a variety of levels, often with considerable experience. Increasingly, responsibility for decision-making was a matter for business-based structures rather than for the national firm’s executive committee. In some cases, business- based structures are becomingly more formalized at the international level as well.

One result of these developments is to accentuate the cultural differ- ences of the various businesses. The basic root of tensions was the higher growth rate and profitability of management consultancy in the 1980s. While audit partners maintain that their activity opens the way to


the lucrative consultancy and to other advisory contracts with major clients, the consultants press for a greater share of the profits they generate. The controversy has been fueled by the growing problems of litigation against auditors. This incipient conflict is visible in Business Sewices but has gone furthest in the Arthur Andersen firm, leading in 1989 to the split of the accounting and consultancy wings into separate businesses each with its own strategy, mission statement, and profit pool (see Econ- omist, 1991).

Partners are, in summary, now divided between managers and client- oriented professionals and are increasingly located in highly differenti- ated business activities with relatively little staff mobility between them. The relationships of control and authority are becomingly more and more formalized and bureaucratic. The changes in Business Seruices, while in themselves necessary to create consistent responses to the changing environment, can be seen as weakening the very culture of partnership on which the firm's identity rests. Partners may increasingly face a reduction in their strategic autonomy to set goals and define problems (Bailyn, 1985), as a result of proliferating management controls. Bureaucratization would, in short, appear to be taking the case study firm-and others like it-toward the classic tensions between professionals' autonomy and management control that have been identi- fied in more conventionally organized firms (e.g., Vollmer & Mills, 1966, ch. 8; Hall, 1968; Raelin, 1985).

The Conflict between National Autonomy and International Coherence in Business Services: In Search

of the "Corporate Glue"

The strains that operated within the firm as a result of growth and diversification were replicated and intensified at the international level. The basic conundrum for the firm may be stated quite simply: how can an organizational form that grants considerable autonomy to individual national firms, and indeed to individual partners, be reconciled with the need to service global clients? In the absence of authoritative hierarchical control mechanisms, what provides the "corporate glue" in the international firm?

The International Structure of Business Services

Business Semices, like most of the other Big Six, had no strong center capable of integrating the firm, controlling the constituent partnerships, and setting strategic objectives. National profit pools meant that national partnerships' profits were determined by their own performance rather than by that of the world firm.

Ferner, Edwards, and Sisson: Coming Unstuck / 351

International coordination in Business Services was provided through policy-making committees of managing partners at the international level. An international executive committee supervised a range of business committees for auditing, tax and consulting, and for industrial sectors such as banking; as well as functional committees for human resources, quality control, marketing, and strategic planning. Each committee generated ad hoc task forces or subcommittees on issues of relevance to the global firm. For example, at the time of the research there were human resources task forces on international recruitment, transfers, and reten- tion. The recommendations of the task force on recruitment led to the development of harmonized literature and a list of key recruitment criteria, but in these and most other areas of activity, the use of central guidelines and manuals was largely optional for the individual national offices. They were taken up because they were convenient and saved national offices the trouble of developing their own procedures. An example was guidance on performance appraisal and other aspects of human resources through a manual of recommended best practice.

There was a small permanent international office whose job was primarily to develop and administer the policy decisions of the international committees, to collect data from national firms, and to provide sup- port services to some of the weaker national partnerships; it in no way functioned as a corporate headquarters exercising strategic or financial control over the constituent partnerships.

The lnternationul “Corporate Glue“ in Business Services

Given the weakness of conventional forms of central coordination and control, what mechanisms of international coordination were de- ployed in Business Services? The answer appears to center on the forging of a common culture, built on a web of formal and informal networks. Hinings et al. (1991) use the term ”clan control” to characterize the system of cultural cohesion in professional organizations: ”behaviour controlled through common values, traditions and commitment to the organization” (p. 377).

At the most basic level, the adherence by all accounting partners to a common set of professional standards provided a primary cultural refer- ence point for the component parts of the firm. National partnerships wishing to use the international firm’s name had to follow the standards of auditing laid down in a uniform international audit manual whose application was standardized throughout the world. Conformity with the standards was encouraged through an international training program and monitored through periodic international peer review of procedures in national offices. The ultimate sanction for errant firms would be the loss of the right to use the global firm’s imprimatur and with it the


loss of the referred work for multinational clients. As far as one could judge, this was more a theoretical possibility than a reality; problems were generally dealt with by training and by sending in experienced people to help local practices raise quality.

A second mechanism of international cohesion was the dense network of international committees and task forces already discussed. These were staffed in the main by partners from the dominant national firms. The international human resource committee, for example, was composed of the senior partners responsible for personnel in their own national practices. The committees, seen as the nuts and bolts of the system, were essentially a device for distilling the collective will of national partnerships, at least of the most powerful. While their policy guidelines were not mandatory, the fact that these had been recommended by representatives of the major practices ensured their general adoption in large parts of the international firm.

In addition, the committee structure was one key element in a fundamental coordinating device of international accounting firms: international networking. Networking involves a wide range of peer relationships providing access to specialist knowledge, expertise, and market opportunities (Greenwood et al., 1991). Thus as well as being policy- making forums, committees allowed powerful national figures to mix with their counterparts from other counties, to become attuned to international issues and developments, and to develop cross-national business opportunities.

Several other facets of networking deserve mention. The first is the use of international transfers (see below). At any one time, several hundred Business Sentices staff were on international assignment throughout the world. These transfers were seen as providing the sort of knowledge and experience of the business that multinational clients were seeking; they were also seen as a way for individuals to build up networks of contacts and to absorb the international ethos and practices of the firm- part of what Edstrom and Galbraith (1977) refer to as an international control strategy based on socialization.

The second is the importance of training and seminars. Regional training centers ran courses, for example, in auditing techniques and consulting skills which provided both a common training and a forum for peer contact. A prestigious program of international management development seminars facilitated networking between partners being groomed for future key positions in the international firm. Indeed, one of the formal objectives of the firm's European training center was to promote international culture.

Third, offices throughout the world were linked by a network of thousands of computers running similar software. This was both a basic tool of business, particularly in auditing, and a means of communication binding different parts of the firm together.


Coming Unstuck? Flaws in the Glue

The strength of the corporate glue was suspect in a number of important respects. First, the glue appeared to be far weaker in more peripheral parts of the international firm, away from the dominant Anglo- Saxon and northern European center. This is reflected in the pattern of international transfers: overwhelmingly between Anglo-Saxon countries. One aspect of this is certainly language: A Spanish respondent commented that the standard of his English was not adequate for contact-building and networking. Another is the sheer financial burden imposed by networking. Even within Europe, attendance at conferences and committees for those on the geographical periphery is very expen- sive. One national firm had decided to fly in its own instructor to run an annual training course for consultants, rather than to use the regional training center. This worked out to be much cheaper, avoided the language problem, and allowed the firm to tailor the courses to its own need; but the national firm missed out on exposure to the international philosophy and lost the sense of belonging to an international company.

Second, and relatedly, the cohesive force of the corporate glue was weakened by the obvious importance of power relations between the different parts of the firm. There was a significant imbalance between the powerful national partnerships that generated the bulk of international business and the less powerful who were dependent on referred work generated elsewhere. Thus when a national firm wins the auditing account of a major multinational client headquartered in that country, a market is created for auditing (and follow-on consultancy) contracts in countries in which the multinational’s foreign subsidiaries operate. In one instance, a key national partnership was trying to win a major audit contract with a home country multinational. To do so, it had to offer lower fees for auditing the company’s foreign subsidiaries. Other national partnerships would feel obliged to go along with this because if they failed to cooperate by offering low fees, they would alienate the goodwill of the powerful national firm on which they were dependent for an important proportion of their business. In general, firms in the countries that were home to the major multinationals and hence were the originators of major client contracts, were likely to have far more influence than those in countries that were primarily the recipients of foreign investment.

A third flaw in the corporate glue is that Business Services was the product of the merger of two international firms with very different cultures (Greenwood et al., 1991). One was a relatively centralized world firm with strong international guidelines and procedures; the other was a decentralized federation of firms without a common audit manual or uniform training and appraisal systems. After the merger, the culture of the older centralized firm gave the new firm a coherence it had not previously had but at the price of greater autonomy and differentiation

354 J Human Resource Management, Fall 1995

of national firms. Gradually, as we have seen, the merged firm was developing a range of international policies and guidelines, although without the central power to impose them on component national firms.

A fourth source of weakness in efforts to generate an international culture is the growing diversification of the activities of the firm. The cultural contrasts between the auditing and consulting businesses have been pointed out by Goodridge (1991): the features of strong audit departments are not those of a good consultancy service, with major differ- ences in the nature of the work, the type of individual who is successful, and the form of organizing for success. The increasing importance of consultancy in the global firm thus throws into question the previously dominant accounting culture and makes more difficult the cultivation of a common international philosophy. It is also likely to undermine the integrative potential of common audit standards, especially since consultancy is less susceptible than auditing to a highly standardized international approach. The measurement of consulting quality is far more subjective, so international peer review is rather less practicable; the very difficulty of establishing objective criteria of quality also greatly reduces the fear of litigation which has been one of the motivations for central control of auditing work in all the major accounting firms.

In any case the cohesive value of the common audit manual, while an article of faith in Business Services, was perhaps not as absolute as it appeared. Auditing procedures appear to be subject to an element of fashion and subjectivity: respondents suggested that a trend in the 1970s and 1980s toward more disciplined and systematic mechanisms of evaluation, based on statistical sampling, was giving way to a more judge- mental, commonsensical style. The notion that there could be complete standardization across the world was questioned, given the different working environments in different countries-for example with respect to litigation.

FinaZZy, it is clear that the glue remains problematic in areas where there is a divergence between the interests of the national and global firms. One example from the area of strategic human resource management concerns international transfers. International transfers of staff between national offices were seen as an increasingly strategic question. The firm wished, first, to plan and develop the international career of fast-track, high-fliers. Second, it wanted to use strategic transfers to plan its global needs for expertise in particular areas: developing worldwide expertise in growth sectors and opening offices in new geographical areas of operation such as eastern Europe; despatching “gray hairs’’ to help out struggling smaller offices in developing countries; and having people with appropriate expertise follow the client-for example, a Ger- man partner was in place in the New York office of the American firm to handle the interests of German multinationals in the United States. Third, the internationalization of organizational structures-for example, the Europeanization of management consulting with different

Femer, Edwards, and Sisson: Coming Unstuck / 355

specialist skills concentrated in particular European cities-required planned transfers of expertise.

The strategic use of transfers, however, had to overcome a traditional pattern in which transfers were unplanned, ad hoc responses to the wishes of individuals. Movements of staff were overwhelmingly between Anglo-Saxon countries. More importantly, the international firm's strategic aims were not necessarily compatible with the interests of national firms. Because profits pools operated on a national basis, there were barriers to operating a transfers system in the same way that a multinational corporation would. A successful national practice would have an interest in retaining good profit-generating staff-precisely those most likely to be seen as candidates for strategic transfer. For the same reason, it would also be wary about accepting inward transfers (as such transfers would not add value) from offices in less developed parts of the world.

A possible solution was the funding of strategic transfers through the international office, but this was seen as a "very thorny and ticklish issue. . . . The problem is that if money is made available centrally, people will try to use it to fund transfers that would have happened anyway" (field notes). In short, strategic planning in the absence of authoritative control mechanisms is impeded by the different perspectives and interests of national partnerships.

CONCLUSIONS: ANALYTICAL AND PRACTICAL IMPLICATIONS

The argument of this article has been that the organizational form of the partnership, designed to meet the needs of local groupings of professionals in the nineteenth century, is faced with severe difficulties in coping with the internationalized market for professional services in the last decade of the twentieth century. International accounting firms are built on an essentially devolved and fragmented federal structure, more akin to a franchise than to a corporate multinational. Yet, unlike most franchises, they are serving not local markets but transnationally integrated global clients expecting coherent and coordinated international service.

Lacking the formal hierarchical means to coordinate their activities, they are thrown back on other mechanisms; these can be problematic for the following reasons: First, growth, internationalization, and diversification have encouraged a bureaucratization of structures of control that sit uneasily with the ethos of professionalism in partnership-based service firms. Second, cultural homogeneity has been compromised: by a process of growth through the merger of heterogeneous firms, and by the increasing diversification of business away from the culturally ho- mogeneous core of auditing and accounting work. That such organiza-


tional forms hold at all is in large part due to the mediation of the common interests of the most powerful firms through a network of international committees.

Perhaps the wonder is not that partnerships function badly, but that they function at all. This suggests that despite all its limitations, the corporate glue of a network-based culture of professionals holds lessons for the emerging multi-centered international corporations, not to mention the proliferating international joint ventures, strategic alliances, and other corporate hybrids of the 1990s. As an adjunct to formal hierarchical organization, such coordinating devices as are evident in Business Ser- vices may be a key integrating mechanism in the heterarchic firms that increasingly dominate the European and world economy. In firms centered on the notion of ”core competences” (Prahalad & Hamel, 1990) rather than on core organizational structures, the model of the network based around professional knowledge may be particularly pertinent.

At a more practical level, the growing tension, between a structure of federated quasi-autonomous firms and a strategy of providing integrated global business services, raises a series of choices for strategic decision- makers in such firms. Three possible future paths suggest themselves.

First, one possible endpoint of the processes taking place in business service firms is the demise of the corporate form; that is, the major firms will turn themselves into something similar to conventional multinational corporations. The advantages of partnership, such as the close link between ownership and control, have already been eroded by the developments described (Morris, 1992; Hinings et al., 1991). Indeed, Morris cites the economics literature to argue that partnership is ill-suited for larger groupings since with increasing numbers of partners the proportion of losses borne by an individual diminishes and with it the spur to performance. Furthermore, the remaining advantages of partnership, of profit participation for example, may be secured equally well under the corporate form. New professional service sectors, such as information technology, are organized as corporate forms rather than partnerships, suggesting that the latter are a historical vestige rather than a currently efficient form.

Nonetheless, given that international partnerships are knowledge- based organizations par excellence, any move toward incorporation is likely to exacerbate the already apparent tensions between management control systems and the ethos of professionalism (Raelin, 1985, 1991); and in any case a cataclysmic crisis in the sector may be required to induce partnerships to vote themselves out of existence. A second broad strategy, therefore, is to attempt to manage the contradictions. It could be argued, indeed, that this is the essence of the managerial task in general, since solutions inevitably generate further complications-as is suggested by the extensive literature on the uneasy balance between centralization and decentralization in large firms (Dunning, 1993). More- over, international corporate service firms appear to remain markedly


profitable, so it could be argued that they are already highly successful at operating with ambiguity.

The implications of this article, however, are that tensions are likely to intens+, as a result of external pressures. A third strategy is to find ways of strengthening the corporate glue. This may have a number of compo- nents. One element is the management of expectations of professionals. A senior human resource partner in Business Services spoke of the notion of mini-careers; young professionals coming into the firm would see partnership less as “being there for life,” more as one of several career phases, possibly leading on to different things. In other words, one gambit is explicitly to redefine the culture of partnership and professionalism. A second possibility, visible to a degree in the consultancy business, is the restructuring of the provision of services around the core of vital work done by permanent partners and professionals, contracting the more peripheral work to associates who may be called on from time to time as the workload demands. This would enable the protection of the values of partnership for at least a group of firm members, while diminishing pressure for the routinkation of their activities.

A third way of strengthening the glue is the development of the notion of core competences, both at the national and international levels. By incorporating understanding of international business management, for example, in the definition of core competence, the excessive emphasis on the functional expertise of the client-oriented partner could be redressed. In Business Services this process was seen as a potentially powerful integrating force, relating business strategy to HR policies.

A final strand of this third strategy is to reduce the cultural stresses between audit and other work (particularly consultancy) by redefining their relationship. One approach, already forced upon Arthur Andersen, is formally to separate the two activities. This is likely to be disruptive, since it would oblige firms to confront hidden cross-subsidization between auditing and consultancy and pose serious questions as to the viability of a stand-alone auditing function. This might result in a further wave of cost-cutting rationalization. On the other hand, it would have the advantage of strengthening cultural homogeneity. It could also help defuse increasingly posed ethical questions concerning the use of audit work to secure additional lucrative consulting contracts (Sikka, Puxty, & Willmott, 1993). What may be perfectly acceptable commercial practice may yet undermine ideal-typical notions of professionalism based on a moral authority and integrity and immune to extraneous pressures; such notions are already reeling from the body blow of corporate litigation.

Another possibility is to promote a greater cultural and organizational integration of auditing and consultancy activities. In one national partnership in Business Services, for example, the firm was developing business units focused on particular clients or industries and offering a wide range of auditing, tax, and consultancy services. It remains to be seen whether such developments offer a suitable model for these firms; the

358 1 Human Resource Management, Fall 1995

need to have explicit forms of coordination within a business unit may merely exacerbate some of the tensions between management control and professional autonomy already discussed.

The authors wish to acknowledge the help of the partners and professionals in Business Services who made it possible for them to carry out the study on which this article is based. A number of them also provided valuable comments on an early draft. We would like to thank the editors of Human Resource Management for their helpful and detailed comments on an earlier draft. We are also grateful for helpful remarks by Richard Ormerod and anonymous comments from referees.

Anthony Ferner is Principal Research Fellow at the Industrial Relations Research Unit (IRRU), University of Wanoick, UK. His main research interests are the public sector, privatization, comparative industrial relations, and multinational enterprises. Publications include Consent and Efficiency (1984) (with E. Batstone and M . Terry), Governments, Managers and Industrial Relations (1988), and (co-edited with R. Hyman) Industrial Relations in the New Eu- rope (1992) and New Frontiers in European Industrial Relations (1994).

Paul Edwards is Professor of Industrial Relations and Deputy Director of IRRU. His books include The Social Organization of Industrial Conflict (1982) (with H. Scullion), Conflict at Work (1986), Managing the Factory (1987), and Attending to Work (1993) (with C. Whitston). His current research interests focus on changing workplace industrial relations.

Keith Sisson is Professor of Industrial Relations and Director of IRRU. His publications include Industrial Relations in Fleet Street (1975), The Man- agement of Collective Bargaining (1987), and Personnel Management (1994). He was also founder-editor of the British Human Resource Manage- ment Journal.

REFERENCES

The Accountant (1992). U.S. Survey. April, pp. 13-18. Arkin, A. (1991). Personnel Practices in Partnerships. Personnel Management,

May, 32-37. Bailyn, L. (1985). Autonomy in the Industrial R&D Lab. Human Resource Manage-

ment, Summer, 24(2), 129-146. Daniels, P., Thrift, N., & Leyshon, A. (1989). Internationalisation of Professional

Producer Services: Accountancy Conglomerates. In Enderwick, P. (Ed.), Mul- tinational service firms (pp. 79-106). London & New York Routledge.

Dunning, J. (1993). Multinational Enterprises and the Global Economy. Wokingham/Reading, MA. : Addison-Wesley.

The Economist (1988). ‘Accountant, Consult Thyself’. The Economist, 10 Septem- ber, 115-16.

The Economist (1991). ‘Civil War at Arthur Andersen‘. The Economist, 17 August, 66-7.


The Economist (1992). Accountancy. All Change. The Economist, 17 October, 25-6.

Edstrom, A., & Galbraith, J. (1977). Transfer of Managers as a Coordination and Control Strategy in Multinational Organizations. Administrative Science Quar-

Forsgren, M. (1990). Managing the International Multi-Centre Firm. European Management Journal, 8(2), 261-267.

Forsgren, M., Holm, U., & Johanson, J. (1992). Internationalization of the Second Degree: The Emergence of European-Based Centres in Swedish Finns. In S. Young and J. Hamill (Eds.), Europe and the Multinationals (pp. 235-253). Al- dershot: Edward Elgar.

Ghoshal, S., & Bartlett, C. (1990). The Multinational Corporation as an Inter- organizational Network. Academy of Management Review, 15, 603-625.

Goodridge, M. (1991). Do Accountants Need a Cultural Revolution? Accountancy,

Greenwood, R., Brown, J., & Hinings, C. (1990). "P2-Form" Strategic Manage- ment: Corporate Practices in Professional Partnerships. Academy of Manage- ment Journal, 33(4), 725-755.

Greenwood, R., Brown, J., & Hinings, C. (1991). Merging Professional Service Firms. University of Alberta, typescript.

Hall, J. (1968). Professionalization and Bureaucratization. American Sociological Review, 33, 92-104.

Handy, C. (1992). Balancing Corporate Power. Harvard Business Review, November-December, 59-72.

Hedlund, G. (1986). The Hypermodern MNC. Human Resource Management, 25,

Hinings, C., Brown, J., & Greenwood, R. (1991). Change in Autonomous Profes- sional Organization. Journal of Management Studies, 28(4), 375-93.

Maister, D. (1982). Balancing the Professional Service Firm. Sloan Management Review, Fall, 15-29.

Manardo, J. (1991). Managing the Successful Multinational of the 21st Century: Impact of Global Competition. European Management Journal, 9(2), 121-126.

Mills, P., Hall, J., Leidecker, J., & Margulies, N. (1983). Flexiform: A Model for Professional Service Organizations. Academy of Management Review, 8(1),

Montagna, P. (1968). Professionalization and Bureaucratization in Large Profes- sional Organizations. American Journul of Sociology, 74, 68-69; July, 138-145.

Montagna, P. (1971). The Public Accounting Profession. Organization, Ideology, and Social Power. American Behavioural Scientist, 14(4), 475-491.

Moms, T. (1992). The End of Partnership? Paper for Conference on Knowledge Workers in Contemporary Organisutions, University of Lancaster, September.

OToole, J., & Bennis, W. (1992). Our Federalist Future. California Management Review, Summer, 73-90.

Prahalad, C., & Hamel, G. (1990). The Core Competences of the Corporation. H a m r d Business Review, 68(3), 79-91.

Raelin, J. (1985). The Basis for the Professional's Resistance to Managerial Con- trol. Human Resource Management, 24(2), 174-175.

Raelin, J. (1991). The Chsh of Cultures. Managers Managing Professionals. Boston: Harvard Business School Press.

Roslender, R. (1992). Sociological Perspectives on Modern Accountancy. London & New York: Routledge.

Sikka, P., Puxty, A., & Willmott, H. (1993). Where Relationships May Be Too Close for Independence. Financial Times, 25 March.

Vollmer, H., & Mills, D. (1966). Professionalization. Englewood Cliffs, NJ: Prentice-Hall.

terly, 22, 248-263.

107, 75-76.

9-36.

118-131.

360 I Human Resource Mnnagement, Fall 1995

ENDNOTES

1. The arguments of this article are based on a small-scale case study of one of the major international accounting and management consultancy firms carried out between autumn 1990 and autumn 1993. The study was part of a larger project on the management and control of human resources (HR) in multinational enterprises conducted at the Industrial Relations Research Unit with finance from the UK Economic and Social Research Council. In-depth interviews were carried out with partners and senior professionals, mainly in Britain and Spain. Respondents in Canada and in the firm's international office in Europe were also interviewed.

2. Important exceptions are Maister, 1982; Mills et al., 1983; Blau, 1984; Green- wood et al., 1990; Hinings et al., 1991. There is virtually no organizational behavior literature to our knowledge dealing with the implications of the internationalization of business service firms.

3. The details of the case study firm have been kept vague to protect its anonym- ity and that of our respondents.


Coming unstuck? In search of the “corporate glue” in an international professional service firm

Documents

Transcript of Coming unstuck? In search of the “corporate glue” in an international professional service firm