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Forces that “have disrupted so many businesses, from steel to publishing, are starting to reshape the world of consulting”, a group of academics wrote in a seminal article in Harvard Business Review in 2013. Two years on, disruption is well under way, fuelled by the impact of technological change across the business world.
Where it will lead is uncertain, but already this disruption is provoking shifts in the strategies of the industry’s main organisations, including the “Big Four” accounting and advisory firms — Deloitte, PwC, EY and KPMG — and strategy consultancies such as McKinsey, Bain and Boston Consulting Group.
All these firms are determined to see opportunity in the face of threats from specialist boutiques, low-cost networks of freelance consultants, encroachment by firms from other sectors, data companies and clients who want to handle more projects in-house.
“I have been in consulting for 30 years and there has never been a more exciting time,” says Harry Gaskell, EY’s advisory managing partner for the UK. “It’s great at the moment, just in terms of the quality of the problems and the aspirations that we are working on with our clients.”
Estimates for the size of the global consulting market vary from $90bn to $350bn, depending on the definitions used. Kennedy, a US-based firm that has analysed the sector since the 1970s, puts it at more than $230bn, after growing at a compound annual rate of 4.5 per cent since 2011.
Gartner, another research firm, calculates that the Big Four now have a combined 40 per cent of the market. They have significantly increased their share over the past decade through organic growth and dozens of acquisitions. Gartner said Deloitte was the world’s largest consulting firm in 2014 by revenue.
This has been a turnround for PwC, KPMG and EY, which disposed of their consulting arms when the 2002 Sarbanes-Oxley Act in the US restricted auditors from providing services such as consulting to their audit clients after the collapse of energy giant Enron.
In the mid-2000s, they started to rebuild in consulting, seeing better growth prospects there than in audit and tax. The rapid expansion of Big Four consulting businesses has brought renewed concern about conflicts of interest, though the firms insist the dividing lines are clear.
Much of their growth is in areas such as technology, data analytics and cyber security. “Digital transformation is driving a tremendous amount of change,” says Jim Moffatt, managing director of Deloitte’s global consulting business.
The boundaries with technology firms such as Accenture, which also has a strategy arm, are blurring. Strategy firms have themselves been embracing technology through units such as McKinsey Solutions and Boston Consulting Group’s BCG Digital Ventures. The big strategy houses, still typically seen as the industry’s elite, have undergone shifts. Classic “blue-sky” strategy consulting has declined from 60-70 per cent of the market 30 years ago to about 15 per cent today, according to Kennedy. Firms have moved towards nitty-gritty “functional strategy”, including operational areas such as procurement and supply chain management.
The creation in 2007 of McKinsey Solutions, which embeds analytics and software tools in a client’s business, was a departure from McKinsey’s traditional model of sending in clever consultants to write a report on a company‘s strategic direction for the chief executive.
Strategy, however, is making a bit of a comeback as companies grapple with new technology. The Big Four have been building their strategy capabilities: PwC acquired Booz & Company, now rebranded as Strategy&, while Deloitte bought US strategy consultants Monitor. “Everyone is looking at innovation. You have got convergence of different industries,” says Karen Briggs, who heads KPMG’s UK advisory practice.
Ashley Unwin, PwC’s consulting leader in the UK, Europe, Middle East and Africa, says his firm is trying to create as broad a range of capabilities as possible. “We don’t want to be a one-trick pony, we don’t want to be just an implementer or a technology house or a strategist. We think there’s an opportunity to work that entire continuum.”
PwC has been among those leading a trend towards payment by results rather than hourly rates. “We work with clients on problems that matter to them and we don’t just put 10 per cent at risk, we put 90 per cent at risk. We take significant upside if we get it right and significant downside if we get it wrong,” Mr Unwin says.
Big firms also realise they need to collaborate more with other providers. “The scale and scope of problems now are requiring a broader range of skills,” says Richard Houston, managing partner for consulting at Deloitte UK.
The industry is creating strategic alliances such as PwC’s with Google, Deloitte’s with data-mining company Kaggle and KPMG’s with McLaren Group to use predictive analytics in its audit and consulting work.
In this world of dissolving boundaries, the Big Four can find themselves competing for the same work with strategy, technology and niche firms.
“If you embrace disruption, the opportunities are greater than the threats,” says Mr Moffatt. “The companies that will be at risk will be those that resist it.”