Deregulation of the Swedish Audit Industry and Changes in the Competitive Environment : Conflict, Imitation, and Innovativeness

Abstract: This thesis investigates the deregulation of the audit industry in Sweden, the changing competitive environment and innovativeness, a research gap that has not yet been bridged. This paper raises the question of how the innovativeness of firms within the audit industry have changed after deregulation. The ambition of this research is to have both theoretical and practical knowledge contribution. The theoretical framework constructed for this research is rooted in the literature review of three areas: strategy and competition, deregulation, and organizational innovativeness. These three streams of research are used in order to examine the expectations that the industry has on the changing strategic landscape. Four perspectives and schools of thought in strategy and competition literature are reviewed: the competitive forces, strategic conflict school, resource-based school, and dynamic school. These schools are then put into two categories that are substantial opposites of one another; market power and efficiency. The need to consider these perspectives are addressed as follows: the perspective of competitive forces allows for understanding the industry structure, the strategic conflict school – to analyze the moves and interactions between competitors, the resource-based school – to understand firms resources, and finally, the dynamic school – to understand firms processes and capabilities. Summarizing and integrating these perspectives formed a hypothesized understanding that reflected the effects of deregulation and organizational innovativeness. In order to avoid modest pattern of deregulatory effects that could emerge by observations made in the early stage of deregulation, a methodological point of departure that is socially constructed and the production of knowledge that is based on interpretations and narratives were argued for. The research is furthermore based on a mix of deductive and inductive approach. The discussion with an industry member led to an interesting research context chosen as unit of analysis, which included the emerging tension between auditors and accounting-consultants. While the auditors’ believed in negative effects from the deregulation, the accounting-consultants had the opposite perception. Case-study approach with semi-structured and open-ended interviews were conducted on representatives from six firms, half of which represented the auditors and the rest the accounting-consultants.  The presentation of results followed the structure of market power, efficiency, and organizational innovativeness. The analysis of the results shows how firms within the audit industry had changed during the transition towards post-deregulation era. It shows how the previous construction of the audit-industry, characterized by homogeneity, has been decomposed and transformed to become more heterogeneous, by the new attractions and alternatives that now exist on the market. These attractions and alternatives creates incitement for decreased interaction between competitors that causes firms to engage in conflicts, and to redistribute their resources in order to imitate each others processes, which in turn creates new organizational innovativeness. The findings of this research also shows how the resources that were possessed by the firm before the deregulation tend to determine how the firm utilize the innovativeness in relation to the market after the deregulation.