Future of consultancy: After Enron the next turn must be right

The post-Enron business landscape promises to be new and challenging terrain for consultants.

As Enron chairman Ken Lay was facing congressional hearings in Washington, tax and audit firms moved quickly to distance themselves from the suddenly controversial practice of providing auditing and consulting to the same client.

First off the blocks on 31 January this year, PricewaterhouseCoopers announced plans to spin off its consulting division in a public offering, an idea first mooted two years ago. This was quickly followed by Deloitte, which on 6 February announced plans to separate its consulting and auditing divisions. It had previously stood fast to the claim that it could provide better service to its clients by keeping its offerings combined.

Others had already moved to split their businesses. KPMG having already spun off its consulting unit, KPMG Consulting, which went public in February last year, now says it hopes to move on from the independence debate to one on the reform of the whole financial reporting system. Similarly pre-emptive was Ernst & Young, which in early 2000 sold its consulting business to French consultancy Cap Gemini.

While the issue of whether one company can audit the books while generating consulting sales from the same source has been quietly smouldering for years, the Enron debacle has catalysed demands for action, with both investors and regulators lodging complaints about possible conflicts of interest that arise at firms that provide both services.

But consulting firms splitting from accountants is not new, and once it happens the consultancies quickly become very different places to work, and more importantly they become very different places to do business with.

The most famous case to date is the split of Arthur Andersen – ironically the auditor at the heart of the Enron scandal – and Andersen Consulting, now Accenture. The breakdown of the relationship between these companies and their eventual split shows that even when operating independently, consulting and accountancy practices operating under the same umbrella can lead to acrimony and very public rows.

Today, as a standalone operation, Accenture is one of the world’s largest management and technology consultancies. However, it took over a decade, a lot of which was spent in expensive legal battles, for the company to achieve the independent status it enjoys today as a publicly quoted company.

The story of its split from Arthur Andersen and its restructuring contains valuable lessons for consultants stuck inside large accountancy practices.

Doing Business with Accenture, an in-depth report by business consultancy Transom Media, provides a detailed history of Accenture from its beginnings, to its split with Arthur Andersen, to how it has restructured and how it is facing the current post dotcom economic downturn. The report provides an insight into the structure of the company globally, and nationally in the UK, profiles some of the key individuals and their responsibilities in the firm and includes appendices containing a UK customer list and an in-depth look at one of its biggest UK contracts at J Sainsbury.

Concerning independence, the report says: “Although Accenture’s antecedents stretch back to the earliest days of data processing, the story of how it gained independence began in 1989 when Andersen Consulting was established as a separate division operating wholly independently of Arthur Andersen.

A cross financing arrangement was agreed whereby one would pay the other depending on their respective financial success. In reality this meant Andersen Consulting annually handing over hundreds of millions of dollars to Arthur Andersen as its revenue streams matched and ultimately exceeded its tax and audit sister firm.”

This was exacerbated when Arthur Andersen established a new business consulting service. This new division was ostensibly aimed at supplying smaller-scale solutions than Andersen Consulting. But inevitably the two found they were frequently competing for the same business. And a complete split became inevitable.

In January 2001 Andersen Consulting changed its name to Accenture and announced plans to float the partnership on the New York Stock Exchange.

The firm duly floated in July 2001 although the company is currently involved in a stock buy-back.

Accenture was undergoing fundamental internal restructuring which radically altered how it came to market and how it engaged with partner organisations.

This began as Accenture made a conscious effort to evolve from a traditional systems integrator to become the global management and technology consulting leader.

In the late ’90s, the then managing partner George Shaheen made the key decision to reorganise the firm along industry lines for the first time in its history. Historically the firm was organised along country partnerships, with the local country managing partner operating as a de facto managing director of his or her operation.

Under the reorganisation the firm was to be run along five global business groupings. The introduction of these industry groupings effectively stripped power away from the country practices. For instance, UK partners working in the Government group now had to report to a new head no longer based in London. US-based partners headed up the other four remaining business groupings.

Ultimately, the reorganisation was geared at servicing the firm’s top clients, global Fortune 500 companies, on a global level with a single point of contact.

The Transom Media report says: “Though the rationale behind the change was laudable, operationally it proved an extremely difficult model to implement. Partners who were used to working closely and quickly with clients in their local market suddenly had another layer of approvals to negotiate. There was a sense that the organisation was becoming heavily centralised around the grouping heads, nearly all of whom resided in the US.”

In the four years since the new organisational structure was implemented, partners, clients, suppliers and employees have all had to learn that many basic, simple decisions cannot be taken locally any more. The arrival of the industry groupings meant that there is always someone, somewhere in the world who has to be consulted before progress can be made.

Further change began in 2000. The firm decided that its internal structure no longer reflected its breadth and scope of skills and expertise and decided to set up new service lines. These new service lines support the groupings and provide access to a spectrum of business and IT solutions and expertise.

While many of these changes are still in effect and the company remains hugely successful, the business has altered radically and it has not all been plain sailing. For example, it was at the forefront of the dotcom boom, establishing a global network dotcom launch centres. These were post-incubation centres where emerging new economy businesses could establish themselves and access Accenture’s business and IT expertise. In return, the firm would frequently take a minority equity stake in the fledgling organisations.

In parallel, the firm established a venture capital arm, Accenture Technology Ventures, and began making investments in emerging new economy companies.

The firm also embraced a new dress-down code that resulted in the demise of the previously ubiquitous dark suit.

Nearly three years on, these initiatives appear na’ve. Last year saw the scaling back of the dotcom launch centres following their rebranding as “business” launch centres, and people are wearing suits again. George Shaheen left the company to head up WebVan which collapsed spectacularly when the dotcom bubble burst.

Notwithstanding the fact that the much vaunted dotcom paradigm failed to materialise, Accenture is a very different organisation to what it was three years ago. Many of the initiatives remain in place and have fundamentally altered the way the organisation goes to market. The company can now be best described as being at the centre of a “network of businesses”, which include partner companies, joint ventures and spin-offs. This meant that the company was open to approaches from outside experts and could seek investment stakes in companies with technologies which complemented its own offerings to clients.

Other consultancies facing big changes will be forced into the type of restructuring undergone at Accenture and they will need to find a message for the market that is credible and compelling, with success determined by how quickly they move and how they react to the inevitable shake-up that will follow. They will be forced to seek new clients and to address existing clients in totally different ways. They will have to refocus on technologies and face battles to attract the best people.

People are wearing suits again at Accenture and whether they ever stop wearing them at PwC or Deloitte Consulting remains to be seen. But the fact is that since splitting from Arthur Andersen, much of Accenture’s success has been based on its ability to react quickly to new technologies and business shifts, unshackled from the pedestrian and highly regulated world of accountancy. It also positioned itself as totally independent and technology focused.

How others embrace the challenge of independence will determine their success or failure but there are clearly lessons to be learned from what happened at Accenture as the report points out: “Although painful to execute, there can be no doubt that the changes that have taken place over the past five years – adoption of industry groupings and Service Lines, adoption of network of businesses concept – have paid off for the company.”

Whether the likes of PwC or Deloitte Consulting adopt winning strategies and reap similar rewards may depend on how averse they are to risk and change, and how fast and how far they want to stand apart from their accountancy friends. It does not appear to have done Accenture any harm.

  • Doing Business with Accenture is the first of a series of in-depth reports on management consultancies by Transom Media. The report costs £1,200 plus VAT. To order, e-mail

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