- The Big Four account for 40 per cent of the US$150 billion global advisory market.
- PwC, with 2016 revenues of US$16.0 billion globally, has recently retaken the lead from Deloitte (US$15.4 billion in 2016).
- Small firms can draw on some Big Four strategies to build their offerings and remain competitive.
By Louise McCabe and Michelle Lindsay.
When electronics giant LG wanted to create a digital advertising and marketing campaign to position its new smartphone against Samsung Galaxy and the iPhone 7, the firm didn’t turn to a traditional creative agency. Instead, LG appointed accounting multinational, Deloitte Digital.
Just a few years earlier, this may have seemed a strange choice. But today, the Big Four accounting firms – Deloitte, PwC, EY and KPMG – are far more than number-crunchers.
Over the past decade, the Big Four have evolved to become diversified consulting businesses. Through organic growth, strategic acquisition, partnerships and an expanding global presence, they’ve become specialists in everything from healthcare and banking, to sports science, law, indigenous entrepreneurship, technology and even digital creativity.
According to Consulting UK, the Big Four are now the world’s largest consulting firms. PwC, with 2016 revenues of US$16.0 billion globally, has recently retaken the lead from Deloitte (US$15.4 billion in 2016 revenues). EY Advisory ranks third ($US14.5 billion) but is growing fastest; KPMG’s 2016 consulting revenue reached US$11.5 billion. Overall, the Big Four accounted for 40 per cent of the US$150 billion global advisory market.
The Big Four’s presence in consulting is nothing new; they’ve been involved in the sector since the 1960s. What has changed in the past decade is the new scale and diversity of their consulting businesses.
The drive to diversify
The Big Four’s pathway to consulting dominance has been far from straightforward.
Australian-based Dr George Beaton founded, and still heads, specialist professional services consultancy and research firm Beaton. He says the world changed for the Big Four on 30 July 2002, when the US government passed the Sarbanes–Oxley Act. Introduced in the wake of a series of high profile corporate and accounting scandals, including the collapse of Enron and WorldCom, the Act sought to ensure auditor independence by preventing firms providing both auditing and non-auditing services to the same clients.
That rapidly saw three of the Big Four accountants divest their billion-dollar consulting arms. The exception was Deloitte, which continued to build its consulting presence – and has profited ever since from that decision.
But it didn’t take long for Deloitte’s three large competitors to catch up. Over the past decade, they’ve invested heavily in building new consulting practices. Today they are bigger and more powerful than ever.
That's why they're called the Big Four: there's no collective name now that gives expression to what they are, as they're so diversified
Why the rapid turnaround? Beaton says the answer is simple: the need, in an increasingly margin-constricted environment, to find new sources of growth – growth that a mature accounting market simply can’t provide.
“To attract and retain talent, the partnership model must continuously grow – and accounting and auditing is a mature industry, with finite space for growth,” he says. “These companies learned a great deal from the divestment of 2002, and are making the most of their finely-honed leadership capabilities and very big platforms, into which they can plug an almost unlimited range of non-traditional services.”
Acquisitions underpin much of the Big Four’s growth, helping them eliminate competitors and extend their own capabilities. The transaction that caught everyone’s attention was PwC’s 2013 merger with Booz and Co, now rebranded as Strategy&. The deal is rumoured to have been worth around US$1 billion.
That’s just the largest deal. Other significant transactions include EY’s merger with strategic transaction advisory services firm Parthenon Group, and its acquisitions of human behaviour modelling and analytics specialists ISD Analytics and C3. KPMG has recently acquired independent market research firm Acuity Research and innovation and design thinking organisation Methodry. And after some high-profile appointments and acquisitions, Deloitte Digital and PwC Digital Services now rank in the top 10 largest creative agencies.
Snapping up competitors
Deals like these have enabled the Big Four to boost their already impressive array of highly specialised services, with potential benefits for both their clients and the specialist firms they have acquired. As George Beaton points out, the Big Four’s access to boardrooms and C-suites at major companies around the world smooths the way for them to sell additional services and move beyond their traditional accounting and audit activities.
“What’s vital is the permission the market gives [the Big Four] brands to make promises,” Beaton says. “By leveraging their own knowledge of clients, then growing the breadth of services through acquisition, they are able to deeply understand and meet their clients' needs.”
As a result, Beaton believes the Big Four are reinventing the way they engage with a client base swept up in huge global changes. “Digitisation, disintermediation, commoditisation and globalisation … You don't help the major institutions with these global trends by coming at it piecemeal.”
In the process, Beaton says, the Big Four have become entirely new kinds of organisations. “They blur traditional disciplines to the point you don't recognise them, and they are inventing new integrated services. That's why they're called the Big Four: there's no collective name now that gives expression to what they are, as they're so diversified.”
The Big Four get creative
Perhaps nothing better illustrates the Big Four’s transformation from number-crunchers than their push into the digital creative space. In Australia, for instance, Deloitte Digital recently acquired four of McCann Melbourne’s executive team to lead its new creative and media offering. In March this year, PwC appointed high-profile advertising executive and regular on the ABC’s popular Gruen Transfer, Russel Howcroft, as chief creative officer of the firm’s new CMO Advisory practice.
(Pictured: Russel Howcroft)
Howcroft points out that the practice differs from creative agencies in that its role is to deliver strategic marketing advice. He says marketers today face enormous challenges in finding the best mix of platforms for their media expenditure, and in dealing with the huge amounts of data available to them.
“It’s a growing area for consultancies because of this dilemma about what is the right investment for growth… [and] where to put the money,” says Howcroft. “Organisations like PwC have incredible capability around data and analytics to assist businesses with these decisions.”
Richard Marrison, Technology Leader at KPMG says KPMG’s approach in the digital creative space has been to acquire leaders with expertise in using creatives to deliver real business value. They’ve recently acquired high-profile industry leaders Lisa Bora from Google and ex-Virgin Chief Customer Officer Mark Hassell for their Customer, Brand & Marketing practice.
“There’s a need for us to have strong alliances with creatives in the industry so we’re getting fresh, diverse thinking,” he says. “We want to partner with people who know how to commercialise what the creative agencies produce.”
Why companies need consultants
Dr Natalia Nikolova, Senior Lecturer in the Business School at the University of Technology Sydney, agrees with Beaton on the forces driving companies to consultancies. She says digital disruption is shortening business cycles and increasing customer expectations, but companies that have downsized since the global financial crisis lack the resources to take on these challenges. “Quite a few clients say: ‘Sometimes we just need more bodies, but we don't want to go on a full recruitment spree because it's just about a specific project.’”
Dr Nikolova also points out that companies engage consultants in both good times and bad. In profitable cycles, they’re taking on consultants to help them exploit opportunities such as data mining or better engaging their customers; and in not so good times, they’re turning to consultancies to help them create efficiencies.
Other changes in the business landscape are also pushing businesses to consultancies – from the impact of automation, to a turbulent social environment, which has given rise to events like Brexit, to possibly the greatest economic challenge of all – climate change.
(Pictured: Matthew Bell)
Dr Matthew Bell is Managing Partner of EY's Climate Change and Sustainability practice across Oceania, and his work exemplifies these new forces. He says institutional and individual investors are increasingly factoring in environment, social and governance considerations into their investment decisions. At the same time, global businesses are adjusting their business strategies to meet the Paris Agreement requirements of a net zero carbon economy by 2050. Very few companies have the resources to adequately address these multi-faceted issues, so they’re turning to consultancies for help.
“EY recognised a long while ago that these matters need to be in our wheelhouse of experience,” explains Bell. “[That’s why] we built a Climate Change and Sustainability practice made up of an assortment of disciplines from engineering and science, to policy and the economy, and now behavioural psychology expertise to assist companies grapple with these challenges – and, more importantly, opportunities.”
The next challengers
The dominance of the Big Four firms may not go unchallenged for long. Dr Natalia Nikolova says the next few years could see new competitors emerge, especially from China. While their international presence is relatively small today, accounting firms like ShineWing have demonstrated a capacity for rapid growth, underpinned by a huge and increasingly affluent home market and a sympathetic government.
(Pictured: Dr Natalia Nikolova)
“ShineWing is heavily supported by the Chinese government, which wants to see more Chinese-owned companies doing auditing services,” says Nikolova. “ShineWing is now positioning itself to play quite a big role in Australian markets, because they're saying to all the big Chinese clients coming to Australia, ‘We're here, we're Chinese, we know what you're doing, come to us, don't go to the Big Four’.”
From strategy to execution
Crucial for the Big Four has been their willingness to implement ideas – not just come up with them. McKinsey, in particular, for many years focused on providing strategy advice, avoiding putting its own pricey ideas into practice. The Big Four took a different approach, combining strategic advice with implementation techniques that solve real world business problems.
This ability to combine strategy with execution at scale is a key part of the Big Four’s competitive advantage, says Dr Nikolova. It allows them to offer a more comprehensive service at a lower price than traditional consulting firms.
“Companies may want to use McKinsey, BCG and Bain for strategy work, but they're more expensive [and] they’re smaller and they can’t provide the same implementation service support that the Big Four can. So by using one of the Big Four, [clients] may end up with a cheaper service but one that is also high-quality.”
Richard Marrison, Technology Leader at KPMG, has seen this from the inside. He says KPMG uses its wide range of skills around finance, workforce optimisation, supply chain and technical expertise to achieve business outcomes, rather than simply selling standalone services like advice or technology consulting.
(Pictured: Richard Marrison)
“Our large clients want one adviser they can partner with, who can help them achieve an overall outcome,” says Marrison. “You can only provide part of the story if you haven’t got the technology capability.”
Marrison and his firm now aim to create what he calls “KPMG-powered enterprises”, embedding consulting expertise into packaged technology solutions that they can implement rapidly and at low risk.
“We call ourselves business integrators – not system integrators,” he says. “We’re coming at this from a ‘business first’ perspective. We use a mix of consulting and technology to help businesses make the necessary changes to remain competitive.”
A permanent consulting shift
As you’d expect, the strategy specialists have responded to changes in demand for consulting: McKinsey, for instance, now boasts several implementation-oriented services, including McKinsey Implementation and McKinsey Recovery & Transformation Service.
But the Big Four’s 40 per cent market share is hard to argue with. As global consulting revenues soar above US$150 billion, the consulting game has changed for good.
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Louise McCabe and Michelle Lindsay are senior consultants at Crafted Financial Writing, working with some of Australia's leading financial and professional services organisations.
Additional information: Four Lessons from the Big Four
The drive to diversify isn’t confined to the Big Four. The spread of offshoring, and online accounting solutions has inspired many smaller and mid-sized firms to search for other ways to boost their revenue. They’re also searching for new growth opportunities amid the changing business and social landscape.
For instance, Dr Matthew Bell points out that accountants and financial advisers will soon need to consider sustainability issues along with financials when advising clients. He says that while smaller firms won’t be able to build capacity across all disciplines, they can add value by building specialist teams that partner with other advisers to better serve their clients.
Meanwhile, Russel Howcroft believes that small businesses can benefit from social media – but warns that they need to be relentless with their marketing.
“The great opportunity that social and digital media provides is that the platform itself is easily and readily accessible … but you can’t dip your toe into social media and think it’s going to work for you,” he says. “You need to be at it 24/7, 365.”
Dr Natalia Nikolova says forward-thinking mid-sized firms are responding with similar strategies to the Big Four, diversifying their services and focusing on higher value-added activities, or creating specialist services for niche markets.
With this in mind, here are four ways small firms can emulate the success of the Big Four:
1. Specialise. Choose a niche service or industry, then develop a unique offering based on specialist expertise.
2. Join forces. Partner with a larger business or financial advice licensee to expand your range of services.
3. Embrace technology. Create an integrated platform that both your clients and staff can use, so you can deliver a more responsive service at lower cost.
4. Focus on high value activities. Look for opportunities to outsource administration and low-value services to external providers, liberating your staff to focus on the highest value activities.