AS RECENTLY as 2002, three of the Big Four firms did not have advisory practices at all. Now, collectively, the Big Four account for nearly half of the entire management consulting market within the financial services sector. What has been going on?
These are not easy times to be in the management consulting business. Many organisations used the recent recession as an excuse to turn the screw on their consulting expenditure; some even tried to stop it completely. Those who are still spending tend to negotiate fees more aggressively than they used to, and keep a keen eye on what they are getting for their money.
Under those circumstances, cutbacks in the public sector – until recently the industry's biggest client – might have landed a devastating blow were it not for a sustained period of growth in the financial services sector. Demand there might be wobbling slightly under the strain of worsening economic conditions, but the sector's consulting spend has already returned to pre-recession levels and the demands placed on it by regulation should protect it from falling back too far again. That is good news for any consulting firm with a financial services practice, yet it is benefitting one group of firms more than any others: the Big Four.
Dominating financial services
Now accounting for about 45% of a £7bn European market, the Big Four have come to dominate the financial services sector in a way they have not managed anywhere else. Given that three of the four were not even in the consulting business eight years ago, what is behind their success?
• Scale. The recent economic crisis served to illustrate many things, but none was more obvious than the fact that our banks are part of a global financial system. Global problems require global solutions and this is where the Big Four fit the bill perfectly. Any consulting firm can have a global view of a problem but the Big Four can put people on the ground in every major financial centre at a moment's notice, all contracting under one framework agreement, all working under one brand.
• Brand. Most might not have been in the consulting business eight years ago, but the Big Four have had very strong brands within the financial services sector for a lot longer than that. And, as Claire Sonnenberg, managing director of BNY Mellon's consultant insight division explains, they are now leveraging the brands they have built up through their accountancy practices to offer other services.
She says: "They're building senior relationships with people across the board and making sure we know about their capability in areas we haven't used them in the past." It's working, too, as she continues: "We're almost always using the Big Four for something these days"
But the influence does not stop there: there is a growing body of anecdotal evidence suggesting that the regulatory authorities, under whose scrutiny the financial services sector operates, have what amounts to an unofficial preferred supplier list with which they like to see organisations working. That list starts and ends with the Big Four.
• Flexibility. The nature of consulting work means that it is often very difficult to envisage the full scope of a project at the outset. Clients need to be able to add, remove or change consultants quickly and with the minimum of fuss. Smaller firms often struggle to do this because a single project will account for a far greater proportion of their workforce, meaning a far greater degree of resource planning. For big firms it is much simpler and – perhaps equally importantly from the client's perspective – much more impersonal.
• The rise of procurement. Procurement departments are taking an increasingly active interest in the way their internal customers use consultants. In an effort to take control of what can be one of the hardest categories of spend to manage, their favoured approach is to drive expenditure through a small number of suppliers with whom they can negotiate global framework deals. Most will try to include some small, local specialists on their preferred supplier lists but all – without exception – will include Big Four firms. In that respect, procurement departments – often seen by consultants as a barrier between them and their clients – might be acting as a barrier that protects rather than challenges the interests of Big Four firms.
What now for smaller firms?
Where does this leave smaller consulting firms that are trying to grow their financial services practices? "There's a significant gulf between the Big Four and the next in line," says Cameron Smith, a procurement consultant to the financial services sector. But talk to any client and they will tell you that there is still a place for smaller, specialist firms.
"We don't always have the luxury of taking a generalist approach to a situation," says Sonnenberg."Often what we need is to be able to zero in on a specific problem and talk to a specialist that can help us to deal with that problem in the most efficient way."
That suits firms such as Navigant Consulting, which has built a strong reputation for its work in the financial services sector. "Clients choose us because they want real, practical advice from people who have deep experience in their sectors," says Simon Kent, head of Navigant's financial services practice in London.
Indeed, pick away at the surface and this is where you find perhaps the only real threat to the dominance of the Big Four. Their scale and flexibility might suit the demands of today's financial services client and their brands might be strong enough for clients to trust them with their business, yet there is a sense that – at the moment – they would trust specialist advisors from small firms with something even more valuable: their careers. Do not put it past Big Four firms to figure that one out too, though.
Sourceforconsulting.com recently launched its Consulting Market Report 2011. For further information, visit www.sourceforconsulting.com.
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.