THE CARD HE HANDS OUT now reads ‘Partner and National Director, Business Advisory Services, Ernst and Young’ (E&Y), but some months ago Sunil Chandiramani’s designation was National Director, Risk and Business Solutions. The change in his title hasn’t changed his role, but it signifies an important change his firm brought in on July 1, 2007. The accounting major quietly created a separate advisory services group and then split the division into two service lines — risk and business advisory. It wasn’t just a cosmetic change or a minor realignment but a clear demarcation of the paths the two service lines were to follow. “We have aggressive growth plans for the newly created business advisory services, hence we realigned the division on global lines to bring focus in each service line,” says Chandiramani. ‘Business advisory’ is the nomenclature E&Y uses for its consulting arm and in the months that followed, Chandiramani hired close to half a dozen partners and nearly 100 associates in the business advisory side and the hiring spree is still going strong.
Interestingly, it was this particular business that most (Price waterhouse Coopers, E&Y and in some parts of the world, KPMG) of the Big Four disposed off globally some years ago, in the aftermath of Enron and subsequent disintegration of Andersen Consulting. In India too, KPMG (which bought out Andersen’s consulting arm in India) and Deloitte Touche Tohmatsu (DTT) carried on with consulting work but in a low-key way. The reason for the sudden disinterest was a slew of new Sarbanes Oxley (SOX) and other regulations that forbid the firms to offer many service lines because the regulators, wanting to avert another Enron, thought there was a built-in ‘conflict of interest’ in many such situations. The accounting firms didn’t actually stop but carried on consulting discretely with small teams embedded within various other service lines, but they didn’t speak about their work and it was done selectively for a few clients.
But all that started changing during the last couple of years as the Big Four started rebuilding their teams globally. In India, the consulting arms of accounting firms are back in the business with a bang and chasing clients as aggressively as before. “We think India is going to be a big market for consulting services and we want to be a major player,” says Rajiv Memani, Country Managing Partner, E&Y.
“We have been strengthening our consulting services through the last few years. Since we didn’t get out of the business, we have established a credible track record of consistent delivery with our clients,” adds Russell Parera, CEO, KPMG. The Business Performance Services (BPS) of KPMG has grown over 40 per cent over the last three years.
So as not to compare apples with oranges, it’s important to understand what the accounting firms mean when they say consulting. The Big Four are structured differently, so in some cases the consulting part is a part of a larger division. For example, the Business Performance Services (KPMG-speak for consulting) is part of Risk Advisory Services (that includes IT and Risk) in the firm, and in PWC the advisory business overall includes performance improvement, transactions, internal audit, Government reforms and infrastructure development. The consulting parts would be just performance improvement and some parts of IT. E&Y and DTT have a separate consulting division. Just the consulting parts of the E&Y, PWC, and KPMG have grown at more than 40 per cent on an average in the last two years, and though the firms are willing to share the larger division numbers but refuse to divulge the consulting figures,industry experts estimate E&Y and KPMG may each have around 200 associates doing consulting work.
WHY ARE THEY BACK?
But why are these firms back in the consulting space? A host of factors actually. Some relate to individual firms and some are linked with the sector as a whole. “The most important reason has been the easing of the regulatory restrictions over a period of time,” explains Ashwani Puri, executive director, PricewaterhouseCoopers. That allowed the firms to increase their scope of work and mine relationships more effectively. For E&Y and PWC, the non-compete period they had settled with the acquirers of their consulting practice was over and they could grow their business again legitimately.
In India, a major reason for the firms to beef up their consulting capabilities fast has been the sheer demand for these services. The galloping 9 per cent GDP growth coupled with India Inc’s newfound desire to explore opportunities abroad have lead to a situation where the companies are chasing growth like never below. And most of the companies need help growing — be it with strategy, people, processes, or technology. SEAT AT THE TABLE
BUNDLING IT UP
That’s where the consulting arms are stepping in, selling services as a bundle. While the bigger groups chose to employ costlier blueblooded consultants like Mckinsey, Bain, BCG, and AT Kearney for major transformational exercises and strategic initiatives, there are lots of smaller bits of consulting work that fall into hands of these firms.
The bean-counters have an inherent advantage – they are wide spectrum firms with a bouquet of service lines (assurance, audit, tax, transaction advisory, and risk & business solutions) and deal with hundreds of clients serving various needs. Hence they can access these relationships and cross-sell services more effectively than specialist firms. “For the accounting firms, offering consulting is just an extension of service and it’s a very good way of increasing revenues,” says R Ventkaraman, Partner, AT Kearney. On an average, more than 50 per cent of clients use firms’ other services too.
In some combinations, the Big Four claim they offer superior solutions compared to pure play consulting firms. For example,
supply chain
restructuring may sometimes involve a fair bit of tax work as well, or a mergers and acquisition assignment may require a fair bit of corporate finance work. “Clients are telling us that they want complete solutions, and that includes doing parts of strategy, tax planning, transactions related work and also some advisory. We are in a unique position to offer that,” says Parera of KPMG.
These firms are also cheaper than pure-play consultants and are willing to work on smaller projects that the bigger firms won’t touch with a barge pole.
But if you ask the pure play consultants about the attempts of accounting firms to get into consulting, most would shrug it off. “Everybody will claim to do everything. Consulting involves CEO and board level engagement. If the client is a CFO, then the project is mere control related, and that’s not consulting. That’s the level that these firms work at,” says a senior partner in a consulting firm, contemptuously.
Experts explain the rush towards accounting firms as a mere demand-supply situation. “India is on such a growth path that a lot of companies need help dealing with scale and scope issues. And a lot of these companies are first time buyers of consulting services who will learn by trial and error and become mature buyers slowly, till then they will experiment with a lot of firms. So a whole host of vendors are getting work,” says Dr Janmejaya Sinha, managing director, BCG.
Another common dig the high priests of consulting take against their poor cousins is that they are not equipped to handle proper consulting assignments. “Most of these firms have Chartered Accountant’s (CAs) masquerading as consultants. They are more suitable for number crunching and ‘preparing project plans’ than handling big transformation assignments that require a deeper understand of an organisation and domain expertise,” says another respected consultant from the big three in consulting.
BRICK BY BRICK
Not to be ruffled by the criticism, this time around the Big Four are rebuilding their businesses prudently. For example, the majority of their clients in India are now non-audit clients (more than 90 per cent), so the compliance part is taken care of. Secondly, the firms are also attempting to bring in greater domain expertise, for example, in last two years, KPMG has hired respected consultants with deep industry knowledge like Arvind Mahajan, Ravi Trivedi, and Dr Ganesh Sharman to head different industry verticals, while E&Y’s business advisory team boasts of 12 partners and 6 directors now, of which five partners have come on board in last one year.
Thirdly, this time around the firms are also exploiting their global linkages better. E&Y has brought in experts from its Norway practice to help a client in the oil and gas sector. Similarly, for another client in the entertainment space, help was sought from its London office. Both its New York and London offices were involved in an assignment for a financial company. Similarly, KPMG is working closely with its UK practice on a public-private participation assignment and some actuarial type of work as well.
Finally, the firms this time around are making clear decisions about what kind of work they will do and what they won’t do. For example, E&Y and KPMG are not getting into IT implementation, while Deloitte and PWC have chosen to play heavily in IT. “We think that model for IT implementation is different and we don’t want any play in that,” says Memani.
CHALLENGES ABOUND
Despite the beefed up teams and a favourable environment, the going will not be easy for the comeback consultants. The competition is intense, be it within the Big Four or with other consulting firms. At the top end of the competitive spectrum there are the big daddies of strategy and then there are other consulting firms like Accenture in the middle. Then there are specialists like Kerkhoff and at the lower end the boutiques like Halcyon, Positron, and Axis. “The consulting market is segregated with firms working at different levels, and there is space for everyone because of the sheer demand,” says Abhijeet Virmani, co-founder, Positron.
There are other stiff challenges too, that the Big Four face. The biggest one is talent. With aggressive plans to ramp up, there is a shortage of people who can be put on consulting p r o j e c t s straightaway. So firms are processing ‘consultants’ and that may be leading to a slip in quality in delivery of services. “We are just ‘adopting’, passing on the religion and away you go on an assignment,” says a senior consultant with one of the Big Four. That apart, internally too the consulting arms face some challenges — sometimes they have to lower their rates due to internal pressures and that can lower the overall realisations of the divison.
Another big challenge for the firms is brand building. After their absence from the market for some time, the firms need to undertake a brand building initiative to create awareness and also need to differentiate their services offerings sharply to create distinct positioning. And maybe they will require external help, but then who will consult the consultants? McKinsey, maybe?
~ courtesy - The Economic Times.
Interestingly, it was this particular business that most (Price waterhouse Coopers, E&Y and in some parts of the world, KPMG) of the Big Four disposed off globally some years ago, in the aftermath of Enron and subsequent disintegration of Andersen Consulting. In India too, KPMG (which bought out Andersen’s consulting arm in India) and Deloitte Touche Tohmatsu (DTT) carried on with consulting work but in a low-key way. The reason for the sudden disinterest was a slew of new Sarbanes Oxley (SOX) and other regulations that forbid the firms to offer many service lines because the regulators, wanting to avert another Enron, thought there was a built-in ‘conflict of interest’ in many such situations. The accounting firms didn’t actually stop but carried on consulting discretely with small teams embedded within various other service lines, but they didn’t speak about their work and it was done selectively for a few clients.
But all that started changing during the last couple of years as the Big Four started rebuilding their teams globally. In India, the consulting arms of accounting firms are back in the business with a bang and chasing clients as aggressively as before. “We think India is going to be a big market for consulting services and we want to be a major player,” says Rajiv Memani, Country Managing Partner, E&Y.
“We have been strengthening our consulting services through the last few years. Since we didn’t get out of the business, we have established a credible track record of consistent delivery with our clients,” adds Russell Parera, CEO, KPMG. The Business Performance Services (BPS) of KPMG has grown over 40 per cent over the last three years.
So as not to compare apples with oranges, it’s important to understand what the accounting firms mean when they say consulting. The Big Four are structured differently, so in some cases the consulting part is a part of a larger division. For example, the Business Performance Services (KPMG-speak for consulting) is part of Risk Advisory Services (that includes IT and Risk) in the firm, and in PWC the advisory business overall includes performance improvement, transactions, internal audit, Government reforms and infrastructure development. The consulting parts would be just performance improvement and some parts of IT. E&Y and DTT have a separate consulting division. Just the consulting parts of the E&Y, PWC, and KPMG have grown at more than 40 per cent on an average in the last two years, and though the firms are willing to share the larger division numbers but refuse to divulge the consulting figures,industry experts estimate E&Y and KPMG may each have around 200 associates doing consulting work.
WHY ARE THEY BACK?
But why are these firms back in the consulting space? A host of factors actually. Some relate to individual firms and some are linked with the sector as a whole. “The most important reason has been the easing of the regulatory restrictions over a period of time,” explains Ashwani Puri, executive director, PricewaterhouseCoopers. That allowed the firms to increase their scope of work and mine relationships more effectively. For E&Y and PWC, the non-compete period they had settled with the acquirers of their consulting practice was over and they could grow their business again legitimately.
In India, a major reason for the firms to beef up their consulting capabilities fast has been the sheer demand for these services. The galloping 9 per cent GDP growth coupled with India Inc’s newfound desire to explore opportunities abroad have lead to a situation where the companies are chasing growth like never below. And most of the companies need help growing — be it with strategy, people, processes, or technology. SEAT AT THE TABLE
BUNDLING IT UP
That’s where the consulting arms are stepping in, selling services as a bundle. While the bigger groups chose to employ costlier blueblooded consultants like Mckinsey, Bain, BCG, and AT Kearney for major transformational exercises and strategic initiatives, there are lots of smaller bits of consulting work that fall into hands of these firms.
The bean-counters have an inherent advantage – they are wide spectrum firms with a bouquet of service lines (assurance, audit, tax, transaction advisory, and risk & business solutions) and deal with hundreds of clients serving various needs. Hence they can access these relationships and cross-sell services more effectively than specialist firms. “For the accounting firms, offering consulting is just an extension of service and it’s a very good way of increasing revenues,” says R Ventkaraman, Partner, AT Kearney. On an average, more than 50 per cent of clients use firms’ other services too.
In some combinations, the Big Four claim they offer superior solutions compared to pure play consulting firms. For example,
supply chain
restructuring may sometimes involve a fair bit of tax work as well, or a mergers and acquisition assignment may require a fair bit of corporate finance work. “Clients are telling us that they want complete solutions, and that includes doing parts of strategy, tax planning, transactions related work and also some advisory. We are in a unique position to offer that,” says Parera of KPMG.
These firms are also cheaper than pure-play consultants and are willing to work on smaller projects that the bigger firms won’t touch with a barge pole.
But if you ask the pure play consultants about the attempts of accounting firms to get into consulting, most would shrug it off. “Everybody will claim to do everything. Consulting involves CEO and board level engagement. If the client is a CFO, then the project is mere control related, and that’s not consulting. That’s the level that these firms work at,” says a senior partner in a consulting firm, contemptuously.
Experts explain the rush towards accounting firms as a mere demand-supply situation. “India is on such a growth path that a lot of companies need help dealing with scale and scope issues. And a lot of these companies are first time buyers of consulting services who will learn by trial and error and become mature buyers slowly, till then they will experiment with a lot of firms. So a whole host of vendors are getting work,” says Dr Janmejaya Sinha, managing director, BCG.
Another common dig the high priests of consulting take against their poor cousins is that they are not equipped to handle proper consulting assignments. “Most of these firms have Chartered Accountant’s (CAs) masquerading as consultants. They are more suitable for number crunching and ‘preparing project plans’ than handling big transformation assignments that require a deeper understand of an organisation and domain expertise,” says another respected consultant from the big three in consulting.
BRICK BY BRICK
Not to be ruffled by the criticism, this time around the Big Four are rebuilding their businesses prudently. For example, the majority of their clients in India are now non-audit clients (more than 90 per cent), so the compliance part is taken care of. Secondly, the firms are also attempting to bring in greater domain expertise, for example, in last two years, KPMG has hired respected consultants with deep industry knowledge like Arvind Mahajan, Ravi Trivedi, and Dr Ganesh Sharman to head different industry verticals, while E&Y’s business advisory team boasts of 12 partners and 6 directors now, of which five partners have come on board in last one year.
Thirdly, this time around the firms are also exploiting their global linkages better. E&Y has brought in experts from its Norway practice to help a client in the oil and gas sector. Similarly, for another client in the entertainment space, help was sought from its London office. Both its New York and London offices were involved in an assignment for a financial company. Similarly, KPMG is working closely with its UK practice on a public-private participation assignment and some actuarial type of work as well.
Finally, the firms this time around are making clear decisions about what kind of work they will do and what they won’t do. For example, E&Y and KPMG are not getting into IT implementation, while Deloitte and PWC have chosen to play heavily in IT. “We think that model for IT implementation is different and we don’t want any play in that,” says Memani.
CHALLENGES ABOUND
Despite the beefed up teams and a favourable environment, the going will not be easy for the comeback consultants. The competition is intense, be it within the Big Four or with other consulting firms. At the top end of the competitive spectrum there are the big daddies of strategy and then there are other consulting firms like Accenture in the middle. Then there are specialists like Kerkhoff and at the lower end the boutiques like Halcyon, Positron, and Axis. “The consulting market is segregated with firms working at different levels, and there is space for everyone because of the sheer demand,” says Abhijeet Virmani, co-founder, Positron.
There are other stiff challenges too, that the Big Four face. The biggest one is talent. With aggressive plans to ramp up, there is a shortage of people who can be put on consulting p r o j e c t s straightaway. So firms are processing ‘consultants’ and that may be leading to a slip in quality in delivery of services. “We are just ‘adopting’, passing on the religion and away you go on an assignment,” says a senior consultant with one of the Big Four. That apart, internally too the consulting arms face some challenges — sometimes they have to lower their rates due to internal pressures and that can lower the overall realisations of the divison.
Another big challenge for the firms is brand building. After their absence from the market for some time, the firms need to undertake a brand building initiative to create awareness and also need to differentiate their services offerings sharply to create distinct positioning. And maybe they will require external help, but then who will consult the consultants? McKinsey, maybe?
~ courtesy - The Economic Times.
