The news that Ernst & Young has re-entered the advisory services market,
thanks to the end of its non-compete agreement with former consulting partner
Capgemini, is of huge significance to the profession and, above all, the Big
Not only will the giants of the accounting world now be able to broaden out
the range of work they do along with their client base, they will also be able
to rebuild business lines they haven’t touched for years. The advantages don’t
The re-emergence of advisory services, otherwise known as consulting even
though firms are reluctant to use the phrase will also inevitably boost
revenues and enable them to push further ahead from the chasing pack.
The gulf between the mid-tier and the main contenders is already vast, but E
&Y’s repositioning to complete the pack could see Big Four advisory services
revenues rise to over £1bn over 2005 and 2006.
And all this without even touching a big-ticket IT contract. In fact, this
figure will almost certainly surpass 2000 levels of around £700m, when the Big
Four were involved in long-term, large-scale IT implementation deals.
In contrast, mid to lower-tier interest in consultancy work appears to have
dropped off, with only PKF and RSM Robson Rhodes registering significant fee
income, although the latter has seen a dramatic 50% rise in consultancy
revenues. At the opposite end of the scale, Smith & Williamson saw just 2.2%
of its income from consultancy.
At present, Deloitte generates the most revenue (£315m) because of its
refusal to hive off its consulting arm. As a result, it is still the only Big
Four firm to get involved in large-scale IT and outsourcing contracts. Thanks to
this, it made a 7% leap in consulting revenues between 2003 and last year and
increased to £315m the £299m it posted in the last Top 50.
Not only this, it was the only Big Four firm to report ‘consultancy’ revenue
figures in our last survey. Despite once again refusing to disclose and break
down money earned from ‘advisory services’, according to estimates by our sister
title Management Consultancy, second-placed PricewaterhouseCoopers earned an
estimated £200m, but it has made the biggest inroads with a 25% hike in revenues
of £50m over 12 months.
KPMG earned £149m from advisory services, a 23% leap from 2003 to 2004,
however a spokeswoman predicts this figure will grow by over 50% in the next 12
months, which could see the firm overtaking PwC in the advisory services race.
But with E&Y back on the scene things have suddenly changed and the boom
times can now return to one of the most lucrative service lines that firms offer
and how they’ve missed it. Not only will the Big Four be challenging each
other on all the standard fronts, the battle for advisory services can begin
again in earnest.
One of E&Y’s senior partners told Accountancy Age that the firm intends
to seriously raise the stakes in a market in which it sees a ‘huge opportunity’.
It certainly means business and is currently close to appointing a head of
division, as well as heavily recruiting for the 150 or so ‘consultants’ it needs
to match and potentially overtake PwC’s current advisory revenues.
On top of this, it is going back to the Big Four for staff and re-recruiting
from its ex-consulting arm Capgemini, as well as other more traditional
consultancy firms such as Accenture, IBM and Atos Origin.
They may not refer to it as consulting, but the Big Four are without question
undertaking advice-driven work helping clients improve the effectiveness of
their finance functions, reduce costs and improve performance.
PwC, for example, has been a member of trade body, the Management
Consultancies Association, for a number of years. And despite not entering into
large outsourcing or IT deals, PwC, KPMG and now E&Y will be ramping up
their efforts to outgun each other on the opportunistic ‘advisory’ battleground.
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