Is It Time to Make Your Rival an Ally?

Paul Thompson | June 12, 2015 |

Going it alone, whether in politics or business, seems to be steadily going out of fashion. Or so it seems. In the business world, companies are increasingly on the lookout for mergers and acquisitions (M&A). But that’s not all. Companies are also on the lookout for alliances: though they stop short of M&A, they have become the corporate world’s equivalent of marriages. Alliances are proving popular for a variety of reasons, ranging from gaining access to economies of scale, knowledge, and greater market reach, to fortifying their strengths and compensating for weaknesses, to hedging their bets and leveraging opportunities from globalization. Indeed, this sounds much like what’s happening, and why, in the accountancy sector. The IFAC Global SMP Survey 2014 supports this: while only 27% of the 5,083 SMP respondents are currently part of a network, association, or alliance, another quarter are considering joining one. What might accounting practices learn from the experience of alliances in other industries and politics?

What, Why, and How of Corporate Alliances

Alliances, whether formed by companies coming together to form jointly owned subsidiaries (joint ventures) or looser arrangements such as those common in the airline industry, have a long history. And there are studies scrutinizing the what, why, and how as well as how well they have fared. The difficulties have been well documented, as indeed have the failures. Nevertheless, companies are under a number of pressures to keep trying to make them work. Many of these pressures are also in play in the accountancy sector. Pressures on companies to seek alliances show no signs of easing—quite the reverse.  

For example, in industries such as aircraft and automobile manufacturing, as well as telecommunications and pharmaceuticals, the cost of new technologies is so crippling that even the largest companies are either consolidating through mergers and acquisitions or else are forging alliances. Forbes recently reported that consolidation across industries, from telecommunications to pharmaceuticals, has created US$3.8 trillion in M&A transactions in the last 12 months, the highest since 2008. According to The Economist, uneasy alliances, born of necessity rather than desire, are especially common among manufacturers of aircraft and smart phones. These alliances are not just formed with direct competitors, but between manufacturer and supplier, resulting in collaborative, rather than adversarial, relationships between firms. In the accountancy industry, pressures rooted in technological change are modest. 

Another pressure is that new technology can bring together companies from different industries. For example, telecom operators and financial institutions are collaborating to offer mobile payments. At the time of writing CBS, the US TV network, is rumored to be considering a deal with Apple TV. Apple is thought to be planning a slimmed down package of TV channels and CBS may be included in that service. Again, such pressures seem absent, or at least inconsequential, in the accountancy industry.

A third pressure is the compelling benefits of scale and scope, product/service range, and geography. Global airline alliances, like Oneworld, Star Alliance, and SkyTeam, are perhaps the best examples. These alliances dodge the regulatory obstacles and the compromise of national pride that full scale M&A of national flag carriers might present. There are some striking similarities with the accountancy industry: airline alliances look much like sophisticated referral networks. Demand from clients seeking the convenience of one-stop shopping, sourcing as many services from their accounting firm as possible, and a helping hand as they endeavor to become increasingly integrated into the global marketplace, looks to drive yet more alliances. The accountancy sector might have something to learn from the airlines. 

A fourth pressure to get together stems from the consumer or client. As online shopping gains in popularity, owners of brick-and-mortar shops are looking to find new ways to get customers to visit them. Bookstores, under threat from Amazon, and travel agencies, under threat from airline and hotel websites and online booking/customer review portals like Expedia and TripAdvisor, were the first to have to face this pressure. Physical travel agencies have all but disappeared, while bookstores, thanks to in-house coffee shops and broader product offerings, are clinging on.

This desire for online shopping has parallels in the accountancy sector: increasingly, clients, thanks to the cloud, can either do all or some of what their accounting firm did themselves, or else get it done remotely without the face-to-face meetings. The accountancy industry might stand to learn from the alliances prompted by online shopping and to benefit by emulating the likes of Expedia and TripAdvisor by injecting some disruptive innovation. Furthermore, as globalization, fuelled by opportunities presented by technological advances, becomes more pervasive, right down to the smallest entity, accounting practices increasingly need access to international expertise to support them. The IFAC Global SMP Survey 2014 found 44% of SMPs have at least 5% of clients that operate internationally. Cross-border alliances can help such SMPs support these clients.  

What’s the future of alliances in the accountancy sector?

Due in part to the preference for and predominance of the partnership model over incorporation-sector alliances, ranging from the integrated networks of the Big Four to the looser alliances and associations of independent firms, alliances are much more common than M&A in the accountancy sector. Accountancy Age’s annual survey of the Top 40 international accountancy networks and associations reveals strong growth in the past few years. This looks set to continue if not gather pace. The pressures described above show every sign of intensifying, and the IFAC Global SMP Survey 2014 found at least a quarter of SMPs not currently part of a network, association or alliance, are considering joining one.

What might politicians teach accountants about alliances?

There is no shortage, then, of persuasive reasons why accounting practices should seek to collaborate with even their arch rivals. However, politics provides some salutary lessons. Political coalitions can quickly turn sour. Accounting practices forging a new alliance or entering an existing one have to learn how to trust each other while ensuring they are not taken advantage of. Accountants stand to learn from politicians. Politicians are savvy at coping with an environment where the boundaries between friends and enemies are blurred, and with roles and sides often changing back and forth. Politicians understand the importance of maintaining relations through good and bad times, and depending on the issue, competing and collaborating, agreeing and disagreeing. Politicians realize that alliances are often marriages of convenience, sometimes even shotgun weddings. Accountants entering partnerships would do well to take this view.

A subsequent article looks more closely at the benefits of and how to go about joining a network, alliance, or association. Furthermore, we suggest you take a look at the Gateway’s Practice Management resources, including Module 2: Practice Models and Networks of the Guide to Practice Management for Small- and Medium-Sized Practices.

 

Paul Thompson

Director, European Federation of Accountants and Auditors for SMEs

Paul Thompson is EFAA Director and a consultant dedicated to thought leadership and development of the global accountancy profession. From 2004 to 2016 Mr. Thompson worked for IFAC latterly as Director, Global Accountancy Profession Support, a role that extended to overseeing the IFAC Global Knowledge Gateway, research and innovation, and activities in support of small- and medium-sized practices (SMP) and professional accountants in business (PAIB). Mr. Thompson also serves on the SME Implementation Group, an advisory body to the International Accounting Standard Board (Board), and is a member of Nottingham University Business School Malaysia’s Industry Advisory Board (IAB), an advisory group providing strategic advice to the Business School. He advises developing professional accountancy organisations in Europe and Asia. Previously Mr. Thompson worked for Touche Ross & Co., London before going on to lecture on corporate reporting and analysis at universities in the UK, Singapore, and Malaysia. He has a number of publications in academic journals and the professional press in the areas of ethical finance, corporate reporting, corporate governance, integrated reporting, practice management and the future of the profession. Mr. Thompson graduated from the University of Warwick with a bachelor of science in accounting and financial analysis and is a fellow of the Institute of Chartered Accountants in England and Wales. Mr. Thompson is an internationally ranked masters distance runner. See more by Paul Thompson

 

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