Edward Carey, vice chairman, national managing partner, U.S. industries, Deloitte & Touche, recently spoke to Consulting Magazine about his firm’s growing industry ambitions and the strategy he’s deploying to realize them.
CM: When it comes to industry expertise inside Deloitte, are you charged with rebuilding? How would you characterize Deloitte’s efforts?
Carey: We’ve always had a very strong tradition of industry practices, and it focused on bringing industry expertise to market. But what’s happening here is that our clients continue to ask for more and more industry insights and knowledge about their businesses. So we continue to focus as a firm on improving and strengthening our industry expertise. We think that by doing this, by combining our functional expertise and this industry expertise, that we’ll create more valuable services for our clients and differentiate ourselves in the marketplace.
CM: Deloitte has recently added some notable names to a number of its industry practices. What exactly is the role these people play?
Carey: We actually call these people Game Changers, and we have found them in government, in industry, and at professional services firms. These Game Changers are senior industry practitioners who are very, very visible in the marketplace and have generally large networks and have significant credibility.
The Game Changers have generally come on to do a number of things: One, to build our eminence in a particular industry sector. Two, to provide access, in some cases, to executives in a particular industry. And three, quite frankly, to help us build our revenues. So those individuals have been able to come in and help us accelerate our visibility and credibility in an industry sector, working with the industry partners that already are in the program.
CM: We know that Tommy Thompson, the former Secretary of Health and Human Services, is one of your Game Changers, and so is retired general Harry Raduege . . .
Carey: Yes, these are well-known individuals, people who are recognized in their industry sectors. Some of the individuals from government are maybe a bit more widely known because you may have seen them in the press. But each of these individuals in their own individual sector is notable. For example, we just hired Joe Stanislaw, who co-founded Cambridge Energy Research Associates (CERA); he is now helping us up our game in oil and gas.
CM: When you look back at Deloitte Consulting's accomplishments over the past 12 months, what comes to mind?
Lattner: If I look at the past 12 months, I see that we beat our plan in terms of both revenue and earnings. Workforce attrition is down. I think that we have begun reconnecting with our people.
CM: You mentioned Deloitte's workforce attrition has dropped. It's a workforce that experienced some turmoil a while back. What's happening today?
Lattner: We hired about 2,900 people last year. About 45 percent of those were referrals from within, which I think speaks well of our organization, that our people would recommend their friends and associates to us. About 52 percent of those were of minority backgrounds, as well. We went down about 1.5 percent in attrition, so that helped, as well. And we promoted 1,000 people. So we are pushing down very strongly in reconnecting with our people, getting back to our people, getting back to our roots, getting back to our culture, to training.
CM: Just in terms of how we should expect this organization to grow, what can you share with us, looking forward?
Lattner: Candidly, growth was higher during these past 12 months than what we had in our plan. We grew by double digits. And when I talk double digits, I'm not talking 99. I'm talking teens. Which surpassed my expectations. I would now expect that we will continue to see that level of growth, but it depends on which forecasts you look at and which services you provide, because the forecasts vary by service. Strategy and operations types of consulting will probably grow somewhere between 6 and 7 percent. Human capital types of growth would probably be closer to 8 or 9 percent. Technology, enterprise applications, would probably be in the low 3s, 4s, 5s. But now with our focus and how we want to go to industry and how we want to go to clients and how we want to focus our investments, I expect that to be double digits.
CM: When did you turn the corner as far as the challenges facing the firm in the wake of the reintegration of Deloitte’s consulting unit go?
Lattner: Our fiscal year begins on June 1, so it was probably during the first quarter of last year that I guess I could say I started believing that what we were doing was working, and that we had hopefully captured the hearts and minds of our professional staff, of our partners in the firm, and of the marketplace.
CM: We hear that you’re paying better, too . . .
Lattner: There were some other things that we did economically that helped. It isn’t news that industry had caught up to the consulting profession with respect to wages and salaries, so there were some economic fixes that we had to address, particularly for our high-talent people. So there were a number of things in that regard that we did as well.
We put back in a program that we call the Deloitte Difference program, for the new people who come in. It’s a face-to-face kind of culture-building school. We used to have a strategy that was -- if you put it into three words -- growth, profits, and people. We shifted that to people, profits, and growth.
CM: What’s the outlook for Deloitte’s value-based billing offerings? Does this look like a sizable part of the portfolio?
Lattner: I would like it to make up, in the future, about 20 percent of our business. It’s a lot smaller than that. Our original plan was three years. We have almost doubled the opportunities in value-based types of opportunities and engagements. When you explain to the client the value that can be had and what they’re going to have to buy in as well as what we’re going to have to buy in, sometimes they say, "No, I think we ought to just go back to time and material." So about 50 percent of our opportunities -- the value-based opportunities -- go away once you explain what the whole scenario is.
CM: Why are they nixing it? What’s not attractive to them?
Lattner: Two or three things. I think the first one is, "Wow, if you really do achieve these results, that’s a big number." And the calculation itself may be so complex, that part about, "If we do this . . ." They’re so interconnected that they say, "That’s too much trouble to try to monitor." And what we try to do is say, "If we’re in it, you need to be in it as well. So we need your best and your brightest, and there are risks and rewards on both sides."
CM: What have you found, for those clients that have said yes to time-based billing . . . what do they have in common? Is it a question of what size the engagement is?
Lattner: No, it's really not size. We've gone all the way from clients who say, "Let me test the water on this smaller piece," to those who say, "Yes, I want you to do it in technology and I want you to do it in Human Resources." It takes a lot of courage, and not only for the consulting firm, but it takes a lot of courage on the client's part to say, "We're going to see it through."
CM: What can you tell us about Deloitte’s audit/attest work and how it complements the firm’s consulting offerings?
Lattner: We are very careful relative to going through attest clients. In fact, less than 1 percent of our revenue in consulting is going to be in that space. But, for instance, one of the easiest examples is a Sarbanes-Oxley job where our auditors may be working with clients and doing what they call remediation or compliance work. They need consultants in there to help them understand the operation's improvements that they have to continue to remediate or improve. They need the technology guys from a security standpoint to make sure that they're doing all of the reporting correctly from a regulatory standpoint. Meanwhile, we are doing quite a bit of mergers and acquisitions work and postmerger integration work. This takes a whole gamut of deal structure, tax-influenced organization, and tax-advantaged organization pieces. The consulting piece of "How do I merge two organizations together?" and that merger of those two organizations, goes all the way from the boardroom to the shop floor and from strategy to technology. So that's probably another prime example of where all of those multidisciplines are applicable. And we're doing quite a bit of that, without naming clients.
CM: Here’s a hypothetical: There’s a nonattest client that in fact is using a lot of Deloitte audit talent inside a SOX challenge, and it blossoms into some additional consulting work. But the client comes to you and says: "You know, we really like your people, and in fact we’d like to talk to you about some attest work." What happens?
Lattner: What happens is that a business decision is made at the U.S. Executive Committee within our organization that says, "Do we want to serve this client as an attest client or as a nonattest client?"
We have the discipline to say, "Let’s make the business decision. Do we want to serve this client as an attest or a nonattest client?" We learned a long time ago in consulting that it’s all relationship-driven, and you just can’t go in there and plug-and-play and then walk away, because you’ll never have the relationship with the client. They’ll never ask you back again. It’s where you add value . . . how you get the intellectual capital flowing. And we’ve made investments in our clients to continue to walk the halls after they’ve said, "We’ve got fee fatigue right now. We’re not going to hire any consultants." That’s okay. We still walk the halls. And it’s the relationship piece of our business that has maintained our success.