What are the big four up to now?

The big four auditors are back in the consulting game, with a new model that could see the market split in two. Mick James finds that it’s now all about advice and not delivery

By the beginning of 2003 it seemed as if the big accountancy firms were out of the consulting business. Now, however, they are making moves back into the market, and they bring a new consulting model with them.

In 2003, Arthur Andersen had split from Andersen Consulting (which became Accenture), which had been brought down by the Enron affair. Of the “big four” auditors, PricewaterhouseCoopers, Ernst & Young and KPMG had already shed their consulting arms, and Deloitte was about to spin off its consulting arm as Braxton.

With a few exceptions, management consultancy now appeared to be largely a sub-brand of the IT industry. With the acquisition of PwC and Ernst & Young’s consultants, firms such as IBM and Capgemini could now not only deliver consultancy advice, but also follow all the way through to a solution based on their systems integration or outsourcing capabilities. The wild ride that had taken an accountancy firm such as PwC to be the world’s largest SAP implementer was over.

But it was not to be that simple. Deloitte withdrew at the last moment from the Braxton spin-off and found itself alone in a potentially lucrative gap that was opening between the systems houses and the strategy boutiques.

“When we dismantled the Braxton concept we had no strategy other than to fold the consultants back into the local firms,” says John Reeve, a senior technology consulting partner at Deloitte. “We did this with some trepidation because we had talked ourselves into believing that consultancy and audit could not live together.”

Deloitte’s reborn consulting arm also gained a boost when it acquired several units from the fragmenting Andersen Business Consulting network. Rather than compete head-on with the systems houses, Deloitte moved away from a delivery model to rebrand itself as an adviser.

“We help business get more value out of technology,” says Reeve. “All business problems involve IT, and our core business is the fusion of business and IT.”

Reeve believes it is this area that the rest of the big four are heading back towards. “My spin is that when the other big four firms left the market, they left some wonderful business on the table that we are now taking,” he says. “They have now realised that and have started rebuilding.”

How much “rebuilding” they will have to do is open to debate, as many other firms retained substantial in-house advisories. PwC, for example, has remained a member of the Management Consultancies Association throughout.

“What we sold to IBM was 80% SAP,” says Steve Beet, a partner in PwC’s advisory business. “Management consultancy had become a brand name for big-ticket IT practices, and when consultancy went down that path a number of us moved across into the audit practice, so the people who advised management were not actually in the management consulting practice at that time.”

Despite an agreement of non-competition with IBM – which is also a significant audit client – PwC has been able to forge ahead with its advisory business. “What is attractive to clients is that we advise them about the direction they want to go in,” says Jeff Thomson, head of performance improvement at PwC.

“There is a big slot in the middle where you translate strategy into business. How do you hire the big systems houses and manage them? We would not be involved in a typical outsourcing contract, but when the client wants to outsource a problem they would look for our assistance.”

Analyst firms such as Ovum have questioned whether there really is a big enough gap in the market for the big four to re-enter and then subsequently defend. But the concept of “client-side adviser” sits as much alongside other players in the consultancy value chain as it does in between.

“People ask, why spend all this money on one set of consultants and then get another lot in?” says Alan Downey, chief operating officer for KPMG Risk Advisory Services (the firm has no plans to recreate a “consulting” brand name). “But when you are spending tens or even hundreds of millions of pounds on a project, the scope for failure can be huge. In a commercial organisation it can be an overriding argument that you can spend a tiny fraction of that to ensure you extract the value you thought you were going to get.”

Downey says that while firms such as KPMG always retained their audit and assurance involvement in IT, they are increasingly involved in areas that range from “health checks” on IT systems, through to supplier selection and management and IT strategy.

“Where we see the greater growth potential is in genuine IT advisory services to the CIO, as IT is driven to get better value for money,” he says.

“Organisations have been getting much better and smarter at how they do this, and while they will have some of the expertise they need, it is not always easy to retain that in-house capability. Often they will need to turn to someone outside, and that is where we have a role to play.”

This means that the big four are increasingly “riding shotgun” on projects that are being delivered by someone else. This is fine for pure play systems integrators, but for firms such as Accenture, IBM and Capgemini, the risk is that they will lose out on the top end consultancy work and the boardroom access that comes with it.

Both IBM and Accenture have launched major consultancy recruitment programmes. However, the same Ovum report that doubted the ability of the big four to establish a foothold in consultancy, also questioned Accenture’s ability to re-establish itself as a business consultancy brand alongside them.

And this is because competition in consultancy is not all about the hearts and minds of clients. In a growing market, competition for skills is equally important. Already there have been murmurs that aggressive big four recruitment is pushing up salaries and creating excess capacity in the market, and there has undoubtedly been a large move of senior staff out of IT-based firms into either start-ups or back to their big four roots.

“The big systems integrators do not seem to have the business capacity any more,” says Steve Varley, head of advisory services at Ernst & Young.

“There is a big difference between working in a publicly-quoted business and being in a partnership where you are seen as very valuable, you are paid very well and there are different expectations.”

Put bluntly, Varley says he can afford to pay more for consultants and enterprise architects because he can charge them out for more. “They have a value that I am not sure fits well in a big systems integration company, where they are more about building a system than creating complicated business solutions,” he says. 

Varley believes that the market is splitting into two halves: high-level “architects” such as Ernst & Young, and systems integrators and outsourcers who deliver to their designs.

“The rise and rise of offshore work has accelerated that separation. CIOs are increasingly asking, who are my low cost commodity suppliers and who are my high value architects?” says Varley.

From a big four viewpoint, the rest of the consultancy industry has made a fundamental mistake in attaching itself to huge implementation and outsourcing resources, which at best offer commodity returns and at worst compromise the independence of the consulting advice they provide.

“The depth that matters is the depth of analytic and advisory capability – the depth of delivery skills is irrelevant,” says Reeve. Deloitte has retained more IT capacity than the rest of the big four, but Reeve says this is as much for internal skilling as anything else. “You cannot credibly offer advice on IT if you do not do it day to day,” he says.

An issue for the big four is whether they can avoid being sucked back into the world of implementation by the twin pulls of client demand and large sums of money.

“We are building up our IT advisory capability, and that organisation is being subscribed to by our clients as a logical extension of what we do,” says Downey. “But over time the boundary of what we will do will change and we will push deeper into that space. We already have people working for us who know as much about SAP as anyone doing implementation.”

Currently, the big four are pushing in a different direction. In the 1990s, consultancy very much followed its own path, but now integration is the name of the game.

“We are a very tightly integrated company,” says Thomson. “For example if people are looking for low-cost providers we are very well placed with our international network to know what is available, and also what are the tax implications and where to place things in the supply chain.”

Deloitte is also launching what it calls “propositions”. “That is evolving into our key ‘go-to-market’ approach,” says Reeve. “We will take the most relevant skills we have from whatever part of the business they may be in and apply it to a client’s problems.”

Although the big four are back – the most recent figures from the Management Consultancies Association suggest that accountancy firms account for 16% of their members’ consulting revenues – their new model has some way to go before it can be considered to be established. “Just tell us what you do and do not do” was the main demand at a recent meeting of the Institute for Business Consulting’s Consultancy Purchasing Group, according to Downey.

“It is still confusing for clients because the landscape has been changing and client perceptions have lagged behind,” says Reeve. “And consultancy and IT companies are only too happy to muddy the waters.”

Accenture ups intake of IT professionals >>

Management Consultancies Association >>

PricewaterhouseCoopers >>

Ernst & Young >>

KPMG Risk Advisory Services >>

Deloitte >>

Institute for Business Consulting >>

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