The changing world of consulting

The bankruptcy of US energy giant Enron caused a major transformation of global auditing groups, which were forced to separate their consulting functions in the wake of concerns about conflict of interest. The transformation has also affected SA, where local consulting firms have had to change the way they do business.

Although globally people refer to the "big five" consulting groups, South African consultants talk about the "big four" - IBM Business Consulting Services, Accenture, Deloitte Consulting and KPMG Consulting - as Ernst & Young`s consulting practice in SA was sold some time ago to Argil Holdings, which was in turn acquired by CS Holdings. While the global Cap Gemini Ernst & Young still operates locally, it is not one of the major players in the South African market.

The local big four have developed different models as they respond to the challenge of separation from the auditing practices, each with its own set of strengths and weaknesses.

The Enron debacle is not the only factor driving the transformation of the consulting industry, which has also been forced to examine itself as a result of the global economic downturn. Many consulting services have become commoditised as a result of emphasis on cost. According to Mike du Toit, head of technology at Deloitte Consulting in SA, another factor is the reality that there does not seem to be a "next big thing" in IT about to appear on the horizon. In the past, consulting groups were able to position themselves around such events as Y2K, the enterprise resource planning wave and e-business. The general view now is that consulting firms need to find ways of generating new streams of annuity income, which is forcing many to move into the outsourcing arena.

Corporates are also changing the way they look at IT. Internationally, companies are being more circumspect about IT spend and technology projects undertaken on the basis of return on investment are being scrutinised carefully. Fewer companies are willing to buy technology purely for the sake of technology itself. A business case has to be made before they invest in new technology, and boards want to see that business objectives are indeed being met.

The overlap in services offered by IT companies and consulting firms has also been growing, and this is likely to prompt further changes in the industry. There is an increasing tendency for previously technology-focused IT companies to move into the services arena, with many attempting to rebrand themselves as IT services groups. At the same time, consulting firms have been expanding into the technology area as they seek to offer a full-spectrum service.

IT companies are coming from technology and products into the model whereas we are coming from the other side.

Pierre Fourie, managing partner, KPMG Consulting

"IT companies are coming from technology and products into the model whereas we are coming from the other side," says KPMG Consulting managing partner Pierre Fourie. "Basically we`re playing in each other`s space and that`s going to lead to a shakeout."

That shakeout may have already begun, with the recent acquisition of PricewaterhouseCoopers (PwC) Consulting by IBM Global Services, part of global IT giant IBM. PwC Consulting had just been separated from its parent and was changing its name to Monday when it was acquired for $3.5 billion by IBM, now referred to by competitors as "I Bought Monday". Those same competitors raise the question of whether the new IBM Business Consulting Services is an independent entity.

Alfons Meyer, who headed PwC Consulting before the acquisition (staff roles at the merged IBM entity are still being finalised), admits that there are bound to be questions around independence when a consulting firm is linked to a technology group. "But if you are linked to an auditing firm, there are also going to be questions of independence," he says. "We will do what is best for clients. If they want an IBM solution, we will give it to them, but if they want another, we`ll give that. We`re not selling boxes.

"There will be some independence issues, but I`d rather be with IBM than on my own."

Another global IT giant, HP, is also rumoured to be looking to acquire a consulting business. It is known to have approached PwC Consulting some time before the IBM acquisition and Meyer speculates that it may look at KPMG`s consulting practice. How that would affect SA is unclear, as KMPG Consulting in SA was recently the subject of a management buyout.

Although a move in the aftermath of the Enron debacle to place Andersen`s non-US firms into KPMG was unsuccessful, KPMG in SA acquired Andersen`s local assets and staff. Following that, KPMG and KPMG Consulting SA announced in September that an agreement had been reached for a management buyout, with the new owners comprising the existing KPMG Consulting partners. The global operation has since been renamed Bearing Point.

Fourie says the management buyout included a global licensing arrangement, which offers the advantage of a global link while affording KPMG Consulting the opportunity for local ownership, black economic empowerment and local employment.

Global professional services organisation Deloitte Touche Tohmatsu announced in February that it was separating Deloitte Consulting, to be renamed Braxton early next year, to enable its audit clients to continue to use Deloitte Consulting`s services without raising public concern about auditor independence.

"We came to this decision very reluctantly," says Deloitte Touche Tohmatsu CE James Copeland. "I believe that, for our firm at least, the independence issue related to providing both auditing and consulting services is one of perception only. However, in the current environment, we cannot expose our clients to possible criticism because of the perception problem surrounding the scope of services audit firms may provide to clients."

Du Toit says one of the advantages of being a global consulting firm is that quality is consistent globally, with people throughout the international operations trained to the same standards.

Accenture, formerly Andersen Consulting, was divorced from Arthur Andersen in an acrimonious split in 2000 and listed on the New York Stock Exchange last year. As Andersen Consulting, Accenture was never involved in accounting or auditing because the consulting and accounting businesses had been run as separate companies within the group since 1989.

The group, which consists of two major divisions: consulting and outsourcing, is redefining itself as what country MD Wayne Furphy describes as "a network of businesses to enhance its consulting and outsourcing expertise through alliances, affiliated companies and other capabilities".

It will come down to competition between Accenture and IBM consulting services because of the size and broad technology and business solutions we can offer. There will be the big two and then the rest.

Alfons Meyer, former PwC Consulting head, IBM Business Consulting Services

Until the IBM-PwC deal, Accenture was the world`s largest management and technology consulting group, generating net revenue of $11.4 billion in the 2001 financial year. There is naturally some debate over whether it remains the largest, with some arguing that since IBM`s business consulting services are part of the larger IT group it is not a pure-play consulting group.

Although his competitors may disagree, Meyer says he believes that ultimately the industry will be whittled down to "the big two".

"It will come down to competition between Accenture and IBM consulting services because of the size and broad technology and business solutions we can offer. There will be the big two and then the rest," Meyer says. "There`ll be a big shift where the top two will be able to offer end-to-end solutions while the others will struggle to be global. The only other competition comes from EDS and Dimension Data, but they`re struggling because they don`t have a consulting culture."

Although competition between the four large consultancies is fierce, the consulting firms are selective about their clients and the projects they take on, which Claude Martin, partner and head of manufacturing industry at Deloitte Consulting, says is a legacy of the auditing firm relationships. However, he says projects undertaken by any one of the big four are usually delivered "more satisfactorily" than by others. Their industry focus overlaps to a large extent, although some are stronger in some areas than others.

Accenture in SA has five vertical industry groups - communications, financial services, government, products and resources. Country MD Wayne Furphy says the government group is the strongest revenue generator, producing 25% to 30% of total income. It is followed by resources, products, financial services and communications, although he points out that figures may vary according to market demand and changes within the market environment.

"The company has well-defined processes which include, for example, that clients may choose the people they wish to work with. Service providers have the right to decide to whom they will offer services and clients are regularly asked for in-depth feedback on the people they work with and the services Accenture is providing," Furphy says.

Fourie says KPMG Consulting`s autonomy allows it to have an industry focus adapted to the South African market, which has its own needs in areas such as healthcare and mining, rather than imposing the global model. Including these two industry sectors, Fourie describes as "strong" KPMG`s ability to offers its services to other sectors such as public services; financial services; utilities and energy; and hospitality, tourism and leisure. He describes as "average" its involvement in the consumer and industrial sectors.

Du Toit says Deloitte Consulting focuses on seven industry areas: financial services, healthcare (although not in SA), energy (including utilities), the public sector, consumer business and communications (including media). The group's focus is also on a select number of clients as it tends to prefer larger companies and companies which are part of entities Deloitte serves on a global basis. "The reason we are selective is those clients are managed in a very proactive manner, so there is a lot of time and energy spent in getting to know their business."

Meyer says IBM Consulting wants fewer partnerships but longer-term relationships, and for that reason focuses on larger companies. "The days are gone where implementation took longer. Clients want experienced people because they want quicker implementation. They want demonstrations in a laboratory and they want low risk and rapid implementation at a better price. You can only do it quicker if you have done it before. That`s where we have the advantage of a global model which we can adapt for SA."

He says his firm is very strong in financial services, telecommunications and mining, and "selective" in consumer business. "We are not that strong in retail because it`s a difficult business to get into."

Despite the fact that industry changes are forcing the consulting industry to change the way it operates, each one of the "big four" consulting groups insist they are still not there to do the work that could be done by the client itself. They are not there as extra hands. Deloitte Consulting published a booklet last year ("How to Get the Most Out of Your Consultant") which points out that too often consultants are brought in at the wrong time for the wrong reasons.

People get retrenched, hired back on a contract basis to do their old jobs, and then they`re referred to as consultants.

Alfons Meyer, former PwC Consulting head, IBM Business Consulting Services

Among other things, it says that while clients could bring in consultants to help figure out where they need to go, "don`t ask them to take you there before you`ve figured out just where there is". Clients should also not bring in people to do things they are perfectly capable of doing themselves.

Consultants are not cheap, and so the choice of whether to use one, and which one to use, should not be made lightly. The client`s choice will be made on, among other factors, what the consultant`s industry focus is, what solutions it offers and what partnerships it has.

Deloitte also suggests asking some "killer questions": What don`t you do well? Name a client that you wouldn`t give as a reference and why? How do you plan to leave? If we don`t hire you, which of your competitors should we hire and why?

It says the answers to these questions will tell the prospective client a lot about the consultant before the dotted line is signed.

That the consulting industry is changing there can be no doubt, and the changes are not over. Among other things, regulation is likely to become an issue as the consulting industry establishes itself in the wake of the changes it has experienced. Fourie says the "consulting game is unregulated and there are a lot of players. At a briefing for a tender there are often more than 100 management consultants there, so you have to ask whether it`s in the interest of the industry to have some house rules or regulation."

Meyer agrees that the industry is a complex one, and the fact that there is not even a standard definition of a consultant means there are widely contrasting estimates of its size. "People get retrenched, hired back on a contract basis to do their old jobs, and then they`re referred to as consultants." The groups say that often people who are retired also often offer their services as consultants. With the number of such people increasing, the question of regulation is likely to be raised.

Despite all the changes facing the industry, the ultimate responsibility for ensuring a consultant`s project works still lies in the hands of the client. It is important to decide whether a consultant is in fact required, and to choose the right consultant with the proper industry focus and solutions for the defined job. Then the client needs to participate in the project at all levels, as the ownership is the client`s not the consultant`s. Only then can the experience be a successful one.