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Limitless? Big Four strategic moves in consulting

14 April, 2014

. Accounting. beatonbenchmarks. Management consulting. Mergers & Acquisitions. Strategy

Single cell organisms are not born to evolve they are meant to thrive in their existing environment; multicellular organisms mutate to evolve to survive in the changing environment.

Clayton Christensen at the 2013 Business Influentials Seminar in Melbourne

The recent acquisition of Booz & Company by PwC marks another monumental move by the Big Four fraternity in the US$300 billion management consulting industry. The Economist reports a blurring of lines between operations and strategy consultants in the industry galvanised by Big Four acquisitions of ‘mid-sized’ consulting elites and the MBB consulting firms expanding into profitable operations engagements.

Should the Elite Three (aka MBB trio in strategy consulting) be worried about the recent moves by the Big Four firms?

The multicellular mutating Big Four organism

The Big Four accounting firms today are an amalgamation of multiple professional disciplines, ranging from traditional audit (‘boring’?) to digital consulting (‘sexy’?). The Big Four have successfully transferred their brand equity in accountancy to the other professional disciplines. And in the process managed to receive brand permission from clients to provide a very wide range of services to a very large spectrum of client types.

At the core of these firms’ brand reputations are ‘top-tier’ and ‘high quality’, which transcend the traditional boundaries of a single profession. The Big Four firms have leveraged these brand attributed to stretch into many other professional disciplines. Brand permission from the client market enables this phenomenon which is the envy of many and it is very difficult to replicate.

Last year The Economist prophesied a future where the Big Four will derive more revenue from consulting than from traditional auditing work. That future might be nearer than we know. Using the annual revenue figures of these firms, we analysed the firms’ source of revenue by their main service lines.

 Beaton Capital_Big Four revenue by practice 2009+2010+2011+2012+2013

Our analysis reveals in the last five years, amongst the Big Four:

  • Deloitte’s US$13.2 billion consulting practice is the largest, followed by PwC’s US$9.2 billion.
  • Deloitte’s consulting practice is the fastest growing at 11% CAGR, followed by PwC’s 10% CAGR.
  • PwC’s US$14.7 billion assurance practice is the largest, followed by Deloitte’s US$13.1 billion.
  • PwC’s assurance practice is the fastest growing at 3% CAGR, followed by Deloitte and EY’s 2% CAGR.
  • PwC’s US$8.2 billion tax practice is the largest, followed by EY’s US$6.9 billion.
  • KPMG and EY’s tax practices are tied at first, growing at 5% CAGR.

2013 marks the first time any one of these Big Four firms’ consulting revenue eclipsed its traditional accounting practice. In other words it took 168 years, since Deloitte’s foundation in 1845 when William Welch Deloitte opened his own accounting practice at age 25 in London, to transmogrify the accounting firm into a truly multi-disciplinary global professional service firm.

The strategic moves

In the post-Sarbane-Oxley era, all save Deloitte divested their consulting divisions. The early 2000s saw PwC’s $4.9 billion ‘Monday’ sold to IBM, KPMG’s $2.9 billion consulting division became BearingPoint, while Ernst & Young’s $3.4 billion consulting business was acquired by Capgemini. The biggest consulting firm in the world today is Accenture, previously Andersen Consulting.

Fast forward a decade and the Big Four are back in play – only bigger. The global financial crisis (aka the great recession) has changed the consulting landscape as mid-sized strategy consultants who previously would not entertain the thought of being subsumed are now open to the idea of using the bigger firms as platform to bigger – and better – engagements and clients.

Since the turn of the decade, industry headlines have included:

  • June 2010: AT Kearney in discussions with Booz & Company to merge before talks collapsed.
  • November 2010: Deloitte in talks with Roland Berger, but the firm decided to withdraw.
  • January 2013: Deloitte acquired Michael Porter’s Monitor Group to form Monitor Deloitte.
  • April 2013: PwC, Deloitte and EY in talks to acquire Roland Berger Strategy Consultants.
  • July 2013: Accenture in talks to buy Booz & Company.
  • April 2014: PwC completed acquisition of Booz & Company to form Strategy&.

Here is our analysis of PwC’s consulting business and Booz & Company before the creation of Strategy&.

Beaton Capital_PwC and Booz_Revenue and Brand equity 2009+2010+2011+2012+2013

The analysis reveals:

  • Both firms were on an upward trajectory on revenue growth for the last 5 years. PwC’s consulting division was growing at 13% CAGR while Booz & Company was growing at 11%.
  • Both firms’ brand equities in the Australian management consulting industry as measured in Beaton Benchmarks were on an upward trajectory.

The Big Four are clearly signalling a long-term commitment to expand out of their traditional accounting boundaries to build the multi-disciplinary practice and cement their positions at the top ends of the markets in which they operate.

Will the Big Four’s recent deals help eclipse the MBB in the fight for share of client’s mind and wallet?

Big Four and the MBB jostling for share of mind and wallet

To answer this question, we interrogated our intelligence database, Beaton450 and Beaton Benchmarks and we report:

  • Revenue of the Big Four consulting division against the MBB’s
  • Brand equity of the Big Four against the MBB in the Australian management consulting industry.

Each year Beaton Capital publishes Beaton450 a league table of the largest professional service firms in accounting and advisory, consulting engineering, law and management consulting. In the last edition of the Beaton450, 37 of the largest management consulting firms globally made the list.

Our sister company, Beaton Research + Consulting conducts an Annual Business and Professions Study in Australia which produces a Beaton Benchmarks, a benchmarking product for professional service firms in Australia.

The following infographic (click to enlarge) shows how the Big Four compare against the MBB.

Beaton Capital Big 4 vs MBB_revenue and brand equity 2009+2010+2011+2012+2013

Our analysis reveals:

  • All of the Big Four’s consulting arms have outgrown the MBB on annual turnover.
  • Two of the Big Four firms’ brand equity as measured by Beaton Benchmarks are now ahead of the MBB in the Australian management consulting industry.

As the segmentation of the management consulting industry continues to blur, the Big Four are now competing head-on against the Elite Three, as they are sometimes named. The architect of the management consulting as we know it today, Marvin Bower famously stood down as the president of Institute of Management Consultants in 1971 in protest of the admission of consultants from accounting firms. How times change!

The Economist in 2012 lamented – for better or worse – the multicellular Big Four organism will continue to shape the future of the professional service landscape.


If you find this post of interest, you can find more on related topics here:

This post was written by Eric Chin, Senior Analyst at Beaton Capital and Beaton Research + Consulting. Eric is also at Google+ as +Eric Chin. You can connect with Eric on LinkedIn or Twitter.

If you are interested in learning about Beaton Benchmarks, please contact Beaton Research + Consulting’s Mel Anderson.

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