According to our textbook Figure 11.1, it shows the determinants of strategy, organizational architecture, and firm value. The most common categories are business environment strategy, and organizational architecture.
External Business Environment
Technology, markets and regulations are three aspects of a firm’s external business environment. Andersen started with a stable environment. Technology was used effectively. In 1950 Josef Glickauf demonstrated that computers can be used to automate bookkeeping. Company developed the largest technology practice. Structure of its markets helped Anderson to grow along with its reputation. Arthur Andersen was well respected, reputable auditing company for many customers. Early 1950s Andersen entered in computer consulting business. Regulations also made Anderson became prominent in the market. The federal law in 1930’s which required companies to provide their financial statements to an independent auditor each year helped Andersen’s grow.
Quality audits were valued more than higher short-run firm profits. “Four cornerstones” of good service, quality audits, well managed staff and profits. Auditors were rewarded and
promoted for making sound audit decisions. Mid-level partner was making average $160,000
in today’s currency. In 1990s AA formulated a new strategy that focused on generating new
business and cutting costs. It included how partners should empathize with clients.
AA’s both business (auditing and consulting) had significant decision rights over its business.
New “2X” performance evaluation system was introduced. The job was not secure for partners anymore. Earlier years of companies “tradition” was changed in 1990s. Employees were known to be “one of kind” in the Andersen’s early years, but it is changed. The dress code was very professional; the wooden doors at AA’s office entrance were removed.