2. The Spectacular Development in the Second Half of the XX Century
From the 50s onwards, once the founder’s passing had been overcome, Arthur Andersen grew spectacularly throughout the world, becoming the leading worldwide professional services Firm.
In the auditing field it took a place of honor among the great firms, initially the big eight and then smaller numbers along the successive merger movements. From being a small American firm it became one of the leading worldwide firms. Since the figures for the auditing business in all firms were never totally public and clear, it was not known for sure which one was the leader in fee revenue, but Andersen was surely among the first three. It can certainly be said, in any case, that Arthur Andersen was the firm of reference, in innovation, quality and prestige.
On tax advice it conquered a worldwide leadership, with a practice that went beyond tax compliance, developing tax planning advice in a way unknown before, although always within the legal framework.
Something special happened in consultancy: it can be said that Andersen created in fact information systems consultancy. The Firm’s innate calling for consultancy, already present with the founder, along with the extraordinary investment effort made in the forties and fifties towards the creation of a previously unknown practice, that nobody (not even IBM) was betting on, resulted in a true success explosion when computers made their resounding and decisive appearance in the business world and, indeed, changed the world.
Andersen helped in changing the world. And one still tangible result of all that is Andersen Consulting, the number one Firm in the world for consultancy.The largest, the best and the most profitable. A success that keeps alive as Accenture, once the brothers apportioned the inheritance and the young brother abandoned the father’s home.
What always marked everybody at Andersen’s, auditors, tax advisers and consultants, was their concern for understanding the client’s business and to insert their work and their value contribution in the framework of the client’s needs and business goals. And that was something never done before, and even now many professionals don’t do it. Some of them from lack of education, drive or practice, others because they don’t share that approach. The authors believe that clients value this attitude. They have demonstrated their appreciation of it over our many years of professional practice.
The underlying idea was that we were all consultants, which we all worked to help our client make money. In a market where the work of the auditor, tax advisor or consultant was seen as a mere unavoidable expense, acting that way implied going beyond the client’s expectations. That was an essential maxim, as we will see, in Arthur Andersen’s creed: to exceed the client’s expectations.
Conquered countries and “converted” countries
Andersen developed in many countries during the 60s and 70s. In so doing, it found very mature markets, more or less mature ones or practically virgin ones. It was a function of the auditing development and the economic development background in the country. Mature were countries like Canada, United Kingdom, Germany or Sweden, and of course the USA. In them, though Andersen did established itself and fought to get a place in the sun, he had to share leadership with the great auditing firms.
An intermediate position was that of France or Japan, for instance. Andersen tactic was in general the acquisition of a local firm to get market share and native roots in quite closed markets, both because of regulations and national character.
And last, in countries where the economy and the auditing and consulting practice were in an incipient stage in the 60s and 70s, the arrival of Andersen, with the strong philosophy of a serious, professional, global and methodical action, the policy of recruiting the best professionals in the country, the policy of appointing local partners and be considered a local firm, resulted in a big success. It happened, for instance, in the Latin countries: Spain, Italy, Portugal, Mexico, Argentina…
In these countries, somehow, Arthur Andersen was not just a Firm; it became a “religion”. In them, auditing meant Arthur Andersen. In fact it was Andersen who developed auditing, in its more formal expression, in most of those countries. The result was that Andersen took an all but monopolistic position, and not only in auditing but in the three Firm’s practices: auditing, tax advice and consulting.
The creation of the Accenture phenomenon
As we have already explained, between 1988 and 1989, Arthur Andersen split, as a cell in evolution, in two parts, two children, two sub-firms: one dedicated to the consulting practice, especially, but not exclusively, on information systems, that took the name of Andersen Consulting, and another dedicated to auditing, tax advice and financial and business consulting, excluding information systems, that kept using the Arthur Andersen name.
Time showed that the decision to split the Firm in two sub-firms was wrong, not by having taken it at that moment, since probably there was no other option open, but by the way in which it was designed and the way the separation was carried out.
An example of how misguided the process was is given by the asymmetry in the use of the name, that delivered a message of unilateral separation rather than strategic reorganization, placing de facto Andersen Consulting out of the Firm and Arthur Andersen inside.
There were in the separation many other factors, which we cannot analyze now because of their complexity, pointing the same way. They undermined the Firm’s foundations until the total separation was reached, leaving Arthur Andersen rudderless, as a Titanic before colliding with the Enron “iceberg”.
In any case, and this is what should be our interest now, Andersen Consulting, that was Andersen as much as Arthur Andersen, was a successful launching. Andersen created the number one consultancy firm in the world. To the same prestige level of any other, including the reference firms in consulting, like McKinsey&CO, specialized in strategic consulting.
Andersen Consulting organized itself in four great practice areas: strategy, processes, technology and management of change. On each of these areas it competed and still competes with different rivals. For example, it competed in Strategy with the aforementioned McKinsey or Boston Consulting Group, or in Processes or Technology, with Cap Gemini.
With Andersen Consulting’s creation the Firm set an example of how to create a leader and even a new class of services. When Andersen Consulting was created there was nothing like it. Nobody had the global capacities on the new Firm, hence its phenomenal success. AC was powered by the Andersen culture, a culture of quality, commitment, homogeneous global response. Nobody was able to form a multinational, multidisciplinary working team, with specialized and industry-specific knowledge, at any place in the world in a matter of days, in order to develop any project, whatever its complexity and size, with well-founded guarantees of a successful completion in the planned time term. Even today, Accenture is one of the few firms, if not the only one, able to do it.
The emergence of Andersen Consulting was, no doubt about it, the cause of one of the greatest entrepreneurial transformations ever known: that of IBM from a hardware and software company to a service company, with the creation of IBM Consulting.
Many factors played in Andersen Consulting success, but we believe two of them at least should be remarked: the organization by industries and the development of Method/1 technology.
The approach by sectors: the industries
Andersen was the first Firm that organized itself by sectors or industries. This organization by industry was done with the aim of getting the professionals not just to contribute their knowledge of the professional practice they had been assigned, but also the knowledge of the industry, the economic sector their clients were in: banking, manufacture, services, commerce, public administration, etc.
Later on this approach has become more general, but initially only Andersen did it, obtaining an advantage that explains part of its success. It was and still is obvious that the professional services clients prefer those that do not need an explanation about the client’s business. Andersen made a bid for specialization by sector, with the training and the development of industry solutions. In the field of information systems it even developed demonstration environments for innovative solutions in many of these sectors, like distribution or banking.
Method/1
Arthur Andersen decided to invest in the development of a project management technology when entering full out in consultancy ground and started the development and implementation of complex information processing systems. The result of such effort was a methodology that in the words of those who developed it, “allowed for the implementation of an accounting system or for taking a man to the moon”. Step by step, it entailed a hugely effective guide to carry out all type of projects, the more complex the better. They called it Method/1.
In our opinion, it can be said without doubt that Method/1 is the main secret behind Andersen Consulting success.
M/1 methodology provided Andersen with a common language in the complex world of consulting projects, a tool that turned out vital at the time of preparing winning offers by its perfect dissection of the project’s tasks, facilitating time planning, necessary teams and work-hours estimates and fee calculation. That same ease could be transferred to the execution stage and project follow-up, permitting the teams to use a common language to plan and distribute tasks and workloads and control progress. Achieving that is the most important issue in complex projects development.
M/1 has gone through an evolution, integrating Internet and new technology facilities, but it remains the basic tool in the Accenture project development consultancy.
The concepts handled in M/1 keep being useful to all ex-Arthurs who used them and many of them have become standards in big projects planning, development and control.