The competitive environment in the assurance industry : a South African case study de Villiers R.H.
De Villiers, Rihard Holmes
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The assurance industry is fiercely competitive with intense rivalry among the Big Four assurance firms. Clients also exert extreme pricing pressure on audit fees to further strain profitability. Understanding and analysing the various drivers within the competitive assurance environment help an organisation to better combat the competitive forces and derive a strategy that will enable it to obtain a competitive advantage. This study analyses the competitive South African assurance environment by means of the Porter Five Forces model which identifies the drivers constituting the five competitive forces and determines which forces are the most influential in the industry. From this analysis the most appropriate strategy to compete and obtain a competitive advantage is identified. Porter?s renowned model has mostly been applied in manufacturing and product industries and this study tests the theoretical appeal of the model against its practical usefulness for professional services firms, for which minimal empirical research on competitive environment analysis was found in existing literature. Semi–structured interviews with eight partners from Organisation X, the subject of a case study that was executed to answer the research questions, found the dominant force in the industry to be the bargaining power that buyers exert over assurance providers, followed closely by the rivalry among competitors. In addition the biggest concerns, challenges and developments in the industry were found to be in the areas of regulation, globalisation, skills shortages and pricing pressure. Organisation X chose to compete via a strategy of differentiation with a specific market sector focus. A gap identified in Porter?s model was its sole focus on the external environment and negligence to aid organisations in developing their chosen competitive strategy; hence the Resource–based approach to strategy formulation is suggested specifically for the African investment case. Consequently, in developing an organisation's strategy to compete, management should utilise the various strategic models available to evaluate both the organisation's internal resources and capabilities and the external environmental forces affecting their organisation.