Capstone Case Study – Arthur Andersen LLP
Individual Project
Capstone Case Study – Arthur Andersen LLP
Bus 680 – Economics for Business Decisions
Summer 2013
1. Discuss the environmental, strategic and organizational changes that occurred over the life of Andersen in the context of figure 11.1.
While Andersen started off as a stable environment, once changes started being made to the main focus of the company many changes were expedited. While still successful in it’s auditing business, other opportunities arose that allowed for quicker and more dynamic revenue growth. This strategic shift from auditing only to offering a number of other services (automated bookkeeping, information technologies, consulting, corporate staffing) eventually led to a rift within the company, the separation of operations into two companies under one umbrella, and the eventually severance of those two companies into two wholly separate corporate entities.
Once the two companies (Andersen Consulting and Arthur Anderson) split, Arthur Andersen, which was originally the auditing only arm, but had dipped back into the consulting business even though it should not have per it’s agreement with AC, went full force into offering the full range of services. In the quest for the biggest sale and to drive non-audit revenue, managers were compensated based on sales targets instead of performance or quality of work. This lack of quality control and change in the focus of the business was the beginning of the downward projection of AA.
The fact that there were changes in all three areas, environmental, strategic and organizational, made it difficult for there to be tight control at AA and almost made it acceptable to make questionable decisions as long as the clients got what they wanted and revenues continued to come in.
2. Evaluate Andersen’s claim that their problems on the Enron audit were due to a few “bad partners” in the organization. If you agree with this claim, discuss what you think were the root causes of the problem.
Capstone Case Study – Arthur Andersen LLP
Bus 680 – Economics for Business Decisions
Summer 2013
1. Discuss the environmental, strategic and organizational changes that occurred over the life of Andersen in the context of figure 11.1.
While Andersen started off as a stable environment, once changes started being made to the main focus of the company many changes were expedited. While still successful in it’s auditing business, other opportunities arose that allowed for quicker and more dynamic revenue growth. This strategic shift from auditing only to offering a number of other services (automated bookkeeping, information technologies, consulting, corporate staffing) eventually led to a rift within the company, the separation of operations into two companies under one umbrella, and the eventually severance of those two companies into two wholly separate corporate entities.
Once the two companies (Andersen Consulting and Arthur Anderson) split, Arthur Andersen, which was originally the auditing only arm, but had dipped back into the consulting business even though it should not have per it’s agreement with AC, went full force into offering the full range of services. In the quest for the biggest sale and to drive non-audit revenue, managers were compensated based on sales targets instead of performance or quality of work. This lack of quality control and change in the focus of the business was the beginning of the downward projection of AA.
The fact that there were changes in all three areas, environmental, strategic and organizational, made it difficult for there to be tight control at AA and almost made it acceptable to make questionable decisions as long as the clients got what they wanted and revenues continued to come in.
2. Evaluate Andersen’s claim that their problems on the Enron audit were due to a few “bad partners” in the organization. If you agree with this claim, discuss what you think were the root causes of the problem.