So What's Next For The 'Big 4' Professional Services Giants, And The Consulting Market In General, And How Does This Affect Talent
Written by J. Crawley on Thursday, 06 October 2016
So what's next for the "Big 4" Professional Services giants, and the consulting market in general, and how does this affect Talent. The accountancy and business consultancy profession has always been an industry of change, both in the size and scope of firms, and in the services they provide. Outside of minor changes every decade or so there is a seismic shift in the operating model and it's been a while since there has been an earthquake, although there have been some tremors which I will come onto later.
For those that can remember the 80's and 90's this was a heyday for what was initially "the Big 8" as they merged themselves into the "Big 6" and then the "Big 5". The earthquake of mergers created a two tier accountancy industry & you were either in the "Big 6/5" and therefore controlled the audits for most of the FTSE 100 or you were a SME player. This was the heyday of MRP and ERP, .com and ecommerce and large scale integration programmes. Auditors were unrestricted in other services they could sell to their clients, and growth was rampant. Then the second earthquake happened, and whilst it wasn't 9/11 directly that caused it, the Tsunami that followed washed away one of the "Big 5" - Arthur Anderson.
The Enron scandal caused the largest shift in the accountancy world we had ever seen and led to increased regulations preventing auditors from selling many of their additional services to audit clients. The "Big 5" were now the "Big 4" and all but Deloitte sold their consulting businesses, predominantly to System Integration firms, and we ended up with two distinct types of professional services firms; consulting houses and accountancy houses.
This split did not last long, and the firms realised that actually restrictions weren't as all inclusive as they were led to believe, the test case being Deloitte who remained whole, and in the middle of the 2000's slowly but surely the "Big 4" returned to consulting, attracting back much of the senior talent it had sold to the likes of IBM, Cap Gemini, Atos etc. This has been a pretty much unqualified success across the board globally, and whilst some markets are more mature than others, in 90% of geographies, the "Big 4" are seeing the greatest revenue growth in their Advisory/Consulting units and healthy return on their investment. Given it's been a decade since the aftershocks from the last earthquake ceased, is it time for another eruption?
Some might say it's already happening. Over the past couple of years we have seen the "Big 4" marching directly towards the battle lines of the world's leading strategy houses, who have always maintained this superior vantage point above general consulting marketplace, and several have already fallen to the advance - Monitor to Deloitte and Booz (Strategy&) to PwC being the highest profile casualties, but a raft of slightly smaller firms have followed such as Parthenon to EY with rumours abounding the AT Kearney and Bain are up for grabs to the right bidder. But these I would counter are tremors not earthquakes. The big event is still to come and no one knows quite when that will be.
3 factors that could affect this:
Globalisation is becoming the key to success in the provision of advisory and professional services, as international businesses themselves adopt global rather than country specific operating models. Clients want a consistent output wherever they engage in the world and for all the "Big 4"'s branding efforts let us not forget they are individual member firms who share a name which is where the corporate models of Accenture, IBM etc. could win out if they can secure the right talent.
Audit rotation regulations could force the "Big 4" to separate out their advisory businesses so that they can continue to work with such a broad range of clients. Perhaps the birth of another Andersen Consulting/Accenture is on the cards.
The entry of a new player - Google, Microsoft etc could well decide to diversify. They certainly have deep enough pockets to purchase most professional services firms out of the petty cash draw. As we head into a more virtual online based world, maybe it will make sense for these firms to buy some market share.
The Effect on Talent?
Every Seismic shift has a knock effect for talent. In 2001 - 2004 there was a mass exodus from professional services firms into banks and corporates at the Manager and Senior Manager Grade (25-30 yr. olds) coupled with the lowest number of graduates being recruited into the industry. The net effect of that was a lack of Senior Manager talent from 2005 - 2010 for all the firms trying to rebuild their consulting businesses and more recently a lack of Partner talent which is where those individuals who left would be now in their career.
What we are facing now is a more global war for talent, as the larger firms seek to replicate the success of the advisory growth in developed economies such as the US, UK and Germany into more emerging markets in Africa, Middle East, CEE/CIS, South America and last but not least Asia. Consulting is a people business and firms can only sell what they have, so as the talent pool is stretched thinner across their global networks, their growth rates must slow. Industry has also woken up to the fact that it is cheaper to hire an Senior Engagement Manager from McKinsey directly than it is to hire McKinsey to provide one. Markets such as risk and regulatory are equally hot skilled at the moment with banks competing directly and effectively for talent.
The net effect of all of this is that we are in boon time for both the professional services firms in general and the individual professionals themselves. There has never been a better time to be a consultant in terms of prospects for the future, but don't forget that earthquake will come sooner rather than later.