No fooling rivals as Deloitte chairman says being No1 is not the main goal

Cometh the hour, cometh the £10m. That’s the margin by which
Deloitte
last week sneaked past it’s self imposed target of £2bn for the year ending May
2008.

Sneaked because though £10m may sound like a very healthy figure if you’re
sitting at the other end of the accountancy market, it’s a small level of
clearance indeed if you are taking in £2bn a year.

Deloitte’s chairman John Connolly was quick to praise his staff ­ and reward
all 12,000 with a £1,000 thank you ­ but the fact that the figure had become
such a landmark number for Deloitte was down to Connolly himself. He originated
the idea in 2006 at a partners’ conference dubbing it ‘2in2’ – £2bn in turnover
within two years. So enthused was he by the goal, and so intent was he that no
one should forget it, that he had desktop ‘2in2’ figures made in brushed metal
that littered Deloitte offices. Whether used as desk ornaments or paperweights,
if you were at Deloitte you could not forget the number.

There will be discussion about the compos-ition of the £2bn ­ a contribution
is made by the Swiss firm ­ but Connolly still laid down a challenge to his
competitors; an indication of how he would continue to grow the business and
challenge PricewaterhouseCoopers even further, and warned that it might be a
while before we saw double digit growth rates again.

Deloitte is recognised as the most aggressive of the Big Four players, in the
UK at least, and Connolly was no shrinking violet when it came to talking up the
firm’s results and what they meant to his Big Four rivals ­ though mostly
PwC.

He may have denied that being the biggest was his driver, but he boldly
claimed that even without the biggest pot of annual income, the markets are
viewing Deloitte differently these days in relation to the firm that currently
dominates.

‘Maybe we have overhauled them already in terms of our standing in the
marketplace,’ he said.

He went further: ‘I have been saying, with some confidence, growth is not at
double digit levels, so to achieve the growth we have required a superior
performance to our competitors. We genuinely do not seek to be larger than other
firms, we seek to be the highest regarded.’

When one highly placed source heard of those remarks the answer was emphatic:
‘Bollocks!’ Like a tabloid dig from Manchester United’s Alex Ferguson aimed at
Arsenal’s Arsene Wenger, the remarks could well have been conceived to wind up
the opposition.

Connolly was not finished. Having laid aside being No 1 as a main driver, he
reflected on the firm’s future and said: ‘The consequence is that we might
become bigger than anybody else.’

If that happens during the next three years ­ before Connolly has to step
down ­ all well and good, and he may just have changed the face of the UK
profession.

At the time of writing, Connolly would not be drawn on what the firm’s next
stated target would be, but it’s clear that a grab for the No 1 post is not a
goal entirely divorced from his agenda.

How will he do it? The ‘big factor’ as Connolly described it, was talent. But
we’re not talking graduate recruits ­ it’s talent at the partner level and
‘putting people into the partnership.’

That was underlined last week with the appointment of 42 partners, bringing
the total this year to 60. As if to make that point more emphatic Ian Powell,
PwC’s new UK chairman, announced 80 new partners for the firm in one go.

Will the race for the top turn into a race to build partner numbers? Deloitte
is approaching 700 partners in the UK while PwC still leads the way with more
than 850.

Without doubt being a partner is clearly as attractive as it ever was, and
remains a lynchpin in the business model of the big firms because it drives
growth through profit payouts. Both will look inside and outside their firms for
talent to push.

But it’s questionable whether organic growth would allow Deloitte to go past
PwC on revenues. It should not be forgotten that the event that propelled
Deloitte into this position was Connolly’s willingness to take on the risk of
hiring all of Andersen’s staff in the UK when the firm collapsed. A risk others,
namely KPMG, were advised was not worth taking. Another merger then? Perhaps an
acquisition of some kind?

Lastly, Connolly warned that we should not expect the same rate of growth for
firms over the next year.

‘In the current market the worst position to get in is over-confidence and we
will find it hard to keep growing at the kind of levels we have been growing
at,’ he said.

That’s to bring us back down to earth. In essence, a message that Deloitte’s
confidence should not be discounted because the firm is well aware of the
dangers too.

And with that Connolly sets the scene for a fascinating period for Big Four
watchers.