Explain how the business risks differ between traditional tax and audit services and management consulting services. In your opinion, what are the three biggest risks the firm faces if it diversifies into the new service line?
As the rate of innovation increases, companies face expanding product/service lines, shorter product and service lifecycles, and more frequent product/service transitions. All of these can bring tremendous value but also pose enormous challenges and risks.
The article “The Art of Managing New Product Transitions” by Erhun, Gonclave, and Hopman (2007) from the readings for this module includes a matrix titled “Product Drivers and Risk Factors,” which focuses on Intel, a company that manufactures high-tech products (p. 76). Based on your readings and research, address the following issues:
- Redesign the product risk factor matrix so that the factors are appropriate for a services firm that delivers traditional tax accounting and audit services. For example, among the supply risks, assume that the company relies on individuals with specific knowledge of the tax law in the jurisdictions where its clients operate, be it state, federal, or foreign.
- Now, assume that the firm wants to develop a management consultancy practice. (Alternatively, you may choose to add a legal services line instead.). Create a separate new matrix that summarizes the additional risk factors for this firm launching a management consultancy or legal services line. What additional risk factors are you adding to your matrix?
- Explain how the business risks differ between traditional tax and audit services and management consulting services. In your opinion, what are the three biggest risks the firm faces if it diversifies into the new service line?
- Recommend whether the firm should organically grow into a consultancy service or acquire a third party to achieve new goals. Justify your recommendations.