Big Four make plans for growth in consulting

A new government intent on pulling the fiscal purse strings might seem like a scary prospect for the consulting industry.

A key plank of the coalition’s strategy for its first year in power was to cut more than £6bn in wasteful spend in the public sector, of which consulting projects and travel costs will account for £1bn.

Ministers will also have to sign off on consulting projects costing more than £20,000 – a move that some have suggested has effectively closed the door on big projects for the time being.

Despite the apparent doom and gloom, the Big Four firms are intent on aggressive growth plans that will not be shaken by public sector austerity.

“It’s temporary in the sense that the government will need to undertake large scale projects before long,” said Alan Downey, head of KPMG’s European consulting business in infrastructure, government and health.

Even if the central government market shrinks, advisers suggest that projects will be of higher value and better focused than in the past. “They won’t open the floodgates, but use [consultants] where there is high value,” he added.

The firms see huge opportunities to step back into consulting, in what they perceive as a very fragmented market, split between the big IT hitters such as IBM Global Services and Atos Origin, with the pure strategy houses such as McKinsey and Booz at the other end of the scale.

Clients, they argue, will gain more value with their already trusted accounting advisers.
Evidence of that is seen in their growth plans. KPMG is expecting to triple its business over three to four years, bringing in 1,300 new people into its consulting arm. PwC is 14 months into a four-year growth plan steered by consulting boss Ashley Unwin to boost revenues to £700m (excluding its HR consulting division).

Ernst & Young intends to double its £300m consulting operation in revenue terms by 2014, while substantially increasing its headcount beyond the current level of 1,500. “We could still all grow, taking market share,” said Unwin.

Deloitte, led by David Owen, was the only one of the Big four to retain its consulting arm after the others were divested at the turn of the century.

Owen doesn’t like to refer to his business as “mature”, preferring “established”. Its growth plans stack up to the others in ambition. High double-digit growth for the £400m arm is planned for in the coming year, which will include integrating two recent acquisitions.

The firms’ structures and strengths all differ, affecting their plans in the current climate. KPMG, for example, has built a strong IT implementation arm, but government cuts will be painful.

On the plus side, financial services’ IT spend has been very strong due to risk management projects, and in insurance planning to deal with capital requirements from Solvency II legislation. It will also pick up advisory work as government’s efficiency plans are borne out.

The government’s shake up of local government will provide opportunities to the others. Restructuring the NHS will also require the use of consultants to drive out value, they predict.

None of the firms are blinkered to the fact that in the short term, the government’s spending plans will make every penny made in consulting hard earned but, as with the NHS, any change will require advice to make it work best, and they hope this will mitigate the loss of other projects that have been canned.

“Anyone that says it’s not significant is telling untruths, but [E&Y] is prepared against it,” said Martin Cook, Ernst & Young lead partner, advisory, markets.

Good cheer for the industry comes in the form of the private sector – not just financial services.

Some sectors are calling on consultants to help the begin tentative growth plans. Utilities, clean technology, telecoms, retail and banking were cited by the firms.

“We’re seeing signs of recovery. Clients asking for more than cost reduction advice, such as customer service and pricing,” said Cook.

The firms suggest it will be clearer by the end of the year what the net effect of the government’s spending cutbacks and efficiency drive will have on the consulting industry, and their ambitious plans to grow.

“I know it’ll be challenging, but I am approaching it with relish,” PwC’s Unwin added.

In our view

With audit, tax and corporate finance stagnant, driving back into the consulting industry is a huge focus for the biggest firms this year. They have put on a collective brave face about the government's planned cuts, saying it had been well trailed. It will be fascinating to see how they all perform with their very public growth plans. Fighting for the same staff and clients in challenging market conditions – Accountancy Age predicts it will get very messy.