The preliminary results of our research project into the skills needed by management consultants in 2030 were presented by Chris Sutton at our Global Symposium on November 14. The final report will be published shortly, but to whet your appetite you can see an edited version of Chris’s presentation here.
Mick James looks at the past – and perhaps the future – of the big consulting practices
Recent corporate scandals have provoked another bout of unease with the oligopolistic audit market, and prompted calls for the audit arms to be, once again separated from their lucrative counterparts in tax and consulting.
But as we ponder the potential demise of the Big Four it’s worth reflecting that the term “Big Four Consulting” has quite a chequered history in the industry. Just as the Holy Roman Empire had a dubious claim to be any of those things, so the “Big Four” have at times been neither big, nor consultants, nor quadruple.
There was, a long time ago, an easily identifiable “Big Four”, at least in the UK, when the “Big Four” of AIC, P-E International, PA Consulting and Urwick Orr dominated consulting this side of the Atlantic. There was even a period in the 1970s when PA could lay claim to be the largest consultancy in the world
Expanding the initials of these firms —“associated industrial consultants”, “production engineering” and “personnel administration” –shows how far from the world of accountancy they were positioned. Yet by 1984 Urwick Orr had been acquired by Price Waterhouse, at that time one of a Big Eight of accountancy firms all making rapid inroads into consultancy.
That Eight became Six in 1989 with mergers giving us Ernst & Young (now EY) and Deloitte & Touche (now Deloitte. Nine years later Price Waterhouse and Coopers & Lybrand became PwC, but a proposed merger between Ernst & Young and KPMG came to nothing, so with Arthur Andersen we now had a Big Five.
Or did we? Arthur Andersen had earlier separated its consultants into Andersen Consulting, either an autonomous “sister” firm or a wholly-owned subsidiary (depending which of them you asked).
So in consulting terms the “Big Five” were today’s Big Four plus Andersen Consulting. To complicate things even further, Arthur Andersen then launched its own Business Consulting arm.
Although technically “Big” this fast-growing practice never got very big at all before it was swept away along with the rest of Arthur Andersen by the Enron affair in 2002. The consultants either got other jobs or formed their own start-ups. By sheer good luck Andersen Consulting had already completed its separation a year earlier to become Accenture, but the fallout prompted the surviving Big Four to get rid of their consulting arms
These had by now become very big on the back of the rapid expansion of IT consulting, which led PwC to become for a while the largest employer of SAP consultants in the world.
PwC at first attempted to spin-out this entity Monday (which might have gone better had they registered IntroducingMonday.co.uk before they were cybersquatted). In the event a purchaser was found in IBM, while Ernst & Young’s consultancy became part of CapGemini. KPMG illustrated the fissile nature of these allegedly global partnerships by becoming BearingPoint in the US but selling to Atos in the UK and the Netherlands. Deloitte found itself in the happy position of the man who was in the pub toilets when the fight broke out. Despite having reached the stationery-printing stage of a rebrand as Braxton, the consultants realised that the heat had died down and stayed where they were.
So now we had a Big Four accounting firms, of which only one had a consulting arm, and a variable cast of successor entities to the Big Five consultancies depending on which country you were in.
Ironically, it was at this very moment that the idea of “Big Four consulting” began to emerge in its modern form. Needless to say the term is rarely, if ever used by the Big Four themselves but it has become a parasite brand, used mainly by Big Four alumni setting up on their own. This is either positive (“we offer Big Four Consulting at boutique prices”) or negative (“we wanted to get away from Big Four consulting”).
What we might (and I did) call the “Big N” period came to a close as the remaining Big Four firms inexorably regrew their consulting arms to become the forces we know today.
But it’s anything but business as usual. Where once consultants were considered the somewhat raffish junior partners they are now in the driving seat, at least financially, not only are auditors no longer a source of consultancy clients, but they put some of the biggest companies in the world off limits while being a source of considerable reputational risk.
Since the banking crash the Big Four as auditors have attracted substantial and mounting criticism. Last year (2017) saw a series of record fines, topped by PwC’s eye-watering £5.1m penalty for its audit of RSM Tenon.
More recently the financial meltdown of Carillion has prompted the feeling that all these firms should be punished somehow, and given the impossibility of imposing a global break-up, at least suffer the ignominy of having their consultancy arms lopped off (again).
The issue has become political: while the FRC investigates Carillion’s auditors Labour’s John McDonnell has already promised “no more Carillions under Labour’s watch” and set up its own review of the sector under Professor Prem Sikka, who recently tweeted:
“Corruption is institutionalized within big accountancy firms but the firms are permitted to audit the world’s largest companies, advise govt departments, run PFI schemes and write tax laws”.
While we await the outcome of this impartial process, and indeed the next election, it’s worth pondering what would happen if the Big Four did allow Her Majesty’s Opposition to dictate their futures.
The Big Four’s consultants could not easily be sold off—PwC ‘s consultancy (“advisory”) practice is now about as big as Accenture, McKinsey and IBM put together. It’s idle to speculate on the value of such entities but the Big Four’s combined revenues surpass the total value of IPOS in technology and financial services in 2017.
Despite all the bad publicity it’s not inconceivable that these firms would opt to retain the equity in the Big Four brands for tax and advisory work and instead dispose of the audit function.
Again this has been considered before. In the 1990s EY had a well-developed plan to spin off the audit arms into a low-cost, commoditised venture based on the recruitment of school leavers into a very flat pyramid. This could be greatly facilitated by the growth of apprenticeships and the desire of many would-be young professionals to start working and avoid a massive student debt.
How this would improve the quality of audit is debatable. Arguably the separation of audit and advisory work has prevented the Big Four from offering more substantive support to troubled clients. Whether that is an issue for the consultants is debatable. Despite losing ground repeatedly to accountants, no consultancy firms have ever shown the least interest in entering the audit market. And it is highly unlikely is that such diminished audit entities could ever again regain any sort of consultancy presence
So in future “Big Four” might again refer unequivocally to consultancies, and future historians will write articles along the lines of Once Were Accountants: the forgotten origins of the consultancy industry.
“I could tell you were a management consultant as soon as I saw you!”
This was the director’s greeting when I arrived on set for a training film for management consultants; I was the technical advisor.
But what was it that made me recognisably a management consultant? In days of yore there were dress rules (even to the style of trilby hat, when there were few female consultants), but by the time of that film those days were past.
There are image consultants aplenty who will tell you that you never get a second chance to make a first impression, and that impression is based on how you look. “Imagine,” said one, “how much effort goes into the design of the packaging of an item costing only a few pounds in the supermarket. How much more we should consider the packaging of a consultant costing hundreds of that per day!”
So we included an image session on the training courses I ran for consultants to develop their selling skills. The image advisor would arrive carrying a variety of neckties and shirts (men tended to need a lot more advice than women!) and the trainees would marvel how a well-cut shirt or style of tie, and the right choice of colour for clothing, could enliven their appearance.
But as for a uniform? The advisor told us to vary it according to the audience. The sharp suit that might be de rigueur in the City would not have the same favourable impact if worn to a rural public sector client. We boiled it down to the advice “dress how you think your clients would like their consultants to dress. And if in doubt, err on the side of formality.”
So I guess that I looked like how that film director thought a management consultant should look, and certainly the male players in the film were dressed similarly to me – with no technical advice on my part.
To finish the story: my work didn’t finish on that set. The director came to me and said, “That final scene, where the two main characters have a conversation highlighting all the lessons from the drama. It doesn’t work. We want you to do a commentary to camera, and we’ll film it in your house.”
So early one morning the film crew arrived. They took one look at my furniture and decided to hire better stuff from the local antique shop.
Five minutes of voice to camera took most of a day to film. Set up takes ages. And in that short piece with me alone in shot, behind the camera were the director, the director’s assistant, the cameraman, the sound man, the lighting man, the teleprompter operator – all squeezed into my small room.
If you ever see that film I’ll leave it to you to decide whether I look like a management consultant.
With the launch of this new Centre for Management Consulting Excellence, this is a relevant question.
There are plenty of standards for consulting – for example, those for Certified Management Consultant, promoted by the International Council of Management Consulting Institutes, shown here.
These and other standards usually focus on professionalism – the ethical and business standards by which all consultants must abide – and competence in conducting their work.
Sometimes the standards are precepts applying to a whole consulting firm, as for example the Consulting Excellence framework promoted by the UK-based Management Consultancies Association, shown here.
There are also qualifications in consulting – for example, those offered in professional consulting by the Institute of Consulting shown here.
Earlier this year an ISO standard for consulting services (ISO 20700: 2017 Guidelines for management consultancy service) has been published; this follows on from an earlier European standard EN16114 for management consultancy services.
These standards are mainly about the quality of consultants and consulting firms; what clients are perhaps more interested in is the quality of the results they achieve.
‘Quality ‘of course is one of those words in the world of management, along with ‘strategy’ and ‘communication’ open to a variety of interpretations. One writer has come up with a number of different definitions for the manufacturing sector;
- The transcendent approach where quality is synonymous with “innate excellence”
- The manufacturing based approach where the concept is to make products “free of errors”
- The user based approach where the object is to make sure the product is “fit for purpose”
- The product based approach which views quality as a precise “measurable set of characteristics” that are required to satisfy the customer
- The value based approach which takes the manufacturing approach a stage further and defines quality in terms of “cost and price”
Management consulting is perhaps less amenable to such a set of product based definitions; where consulting projects are more like bespoke tailoring than an off-the-peg suit.
So for me, the interesting area of study – and debatably the concern of this Centre – is what it is that enables management consultants to achieve outstanding results for their clients. I believe that management consulting is a performance art: one like music. The concert pianist may know the theory of music, but there is something more that results in a delighted audience.
And that is why this piece is under the heading of ‘debating point’. What are the factors that enable management consultants to deliver outstanding results to delight their clients?
Please feel free to contribute to the debate.