After all, it wasn’t until the mid-1980s that the large firms, led by Andersen, emerged as strong players. But now, less than two decades on, what were once the firms’ fastest-growing business arms have all but disappeared.
And just as the firms have been forced to step back from growing consulting arms further within their own partnerships, their former bitter rivals from outside the industry have wasted no time in moving in to pick up the business – particularly in the outsourcing area.
After several years of ongoing battles with regulators, the firms have finally bitten the bullet, forsaking these lucrative service lines to salvage their reputations and thus their livelihoods.
Of course some jumped before they were pushed by circumstance. But the rapid disintegration of Andersen is testament to just how essential the shift was.
The new restrictions now placed on the accountancy industry as far as offering consulting services to audit clients provides a huge opportunity for service providers not conflicted out. Large and small outsourcing companies like Xansa and Carapeople, which all saw their main competitors in this field of work as the then Big Five, now have the chance to pick up lucrative contracts.
Peter Grogan, chief executive at Carapeople, a payroll and HR outsourcing company, agrees. ‘A big opportunity has been given to our industry,’ he says. ‘Customers who traditionally go to the Big Four are now coming to us.’
Grogan estimates there is around a 10% share in the marketplace now available due to the regulatory clampdown on the accountancy industry. ‘It’s quite a lucrative percentage,’ he said.
For example, Xansa recently announced the UK’s biggest outsourcing deal with British Telecom, saving the telecoms company a phenomenal #93m over seven years.
It wasn’t so long ago that these sorts of contracts were routinely picked up by accountants. In 1999, for instance, Andersen Consulting, now Accenture, had already won one of the largest deals of its time when it signed a #100m five-year deal with BP.
On many occasions these days that sort of deal isn’t an option for the accountancy firms. Just ask PricewaterhouseCoopers. The world’s largest accountancy firm, had to step back from competing for the BT contract due to the potential conflicts of interest that could arise due to its job as BT’s auditors.
Xansa now manages BT’s general ledger, sales ledger, accounts payable, business expenses, audit processing and payroll functions. It has also taken on over 500 of BT’s staff. The deal was opportune for Xansa given that PwC announced the final sale of its consulting arm to IBM just weeks ago.
PwC Consulting, or Monday as it is now called, would have almost certainly been in with a shout of bagging the contract had it already divorced from its auditing parent.
It was only a couple of weeks ago that PwC shelved plans to float its consulting business and jumped into bed with computer giant IBM in a deal worth $3.5bn (£2.3bn) in cash and stocks. In May, PwC stood accused by some of its own partners of rushing the sale of its consulting arm in a bid to stave off the possible defection of clients. Had the IBM deal come later the firm risked trying to sell on a dwindling client roster and diminished intellectual capital as staff jumped ship.
A number of companies are already putting out feelers to other service providers to take on services that the Big Four can no longer offer.
And Carapeople’s Grogan is determined to make sure his company is there at the forefront. He has his eyes trained on the ex-patriate market for the moment.
The international reach of the large accountancy firms like PwC, Ernst & Young and KPMG means they have had a ‘stranglehold’ on offering tax, payroll and other such services. But now companies like Carapeople can step in.
‘Because of our experience in the different tax regimes in Ireland and the UK, we can expand into Europe soon,’ enthuses Grogan.
But it is not just the clampdown on accountancy firms offering other services to their audit clients that has driven the increase in work for outsourcing firms. Positive research results show how outsourcing critical services that are not core to a business also increases shareholder value and significantly cuts costs.
A MORI poll carried out for Xansa found that as many as 78% of US analysts agree that outsourcing can have a positive impact on a company’s share price. The figure for UK analysts stood at a comparatively low 60%.
More than three quarters of the analysts listed guaranteed savings and cost reductions as their two main criteria. Mike Wood, development director of business process management at Xansa, says: ‘A future deal for Xansa could easily include HR as well as payroll. We want to work with our clients to see what they want.
‘We may also get into niche areas that are sector specific. Companies are looking to outsource more.’
Now that most of the large accountancy firms face greater restrictions in the consulting industry observers say a clear alternative could be to pair up with the high flying outsourcing providers who will undoubtedly need accountants’ expertise.
The shake-up in the market has only just begun.
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