How the Big Four are re-entering the consulting market
KPMG yesterday became the last of the Big Four accounting firms to give its FY 2005 revenue figures. What's clear is not just that the Big Four are enjoying growth fuelled in part by the introduction of the IFRS reporting standards, but that they are also steadily increasing their presence in business consulting, and therefore in the higher end of IT consulting.
Ovum. Douglas Hayward

Comment: Two of the Big Four are already free to compete in the consulting market as vigorously as they want - Deloitte never spun off its consulting arm, and Ernst & Young's non-compete agreement with Capgemini expired a few months ago.

We understand that E&Y has been aggressively hiring consultants in recent months from players including IBM, Accenture, AT Kearney, Capgemini and Deloitte. It recently poached Steve Varley, a senior business-consulting partner at Accenture, to head its newly-created Advisory Services business in the UK. We expect E&Y to compete vigorously for advisory business, especially in the public sector (where it has no audit work to cause conflicts of interest) and in financial services.

KPMG and PwC are still bound by non-compete agreements, but these agreements can't prevent them from advising clients on management issues that naturally include IT advice (if not implementation). We expect them to accelerate this work before their non-compete agreements expire. For example, KPMG recently hired Alex Blues, formerly a director of outsourcing advisory company Orbys Consulting, to create a global sourcing centre of excellence.

These consulting operations will remain business-led, not IT-led. E&Y, PwC and KPMG won't return to the high-volume systems integration business. That market is less lucrative than when they sold their IT consulting operations, and it's becoming more closely bound to outsourcing, a market they have no real chance of entering. Becoming full-range IT services suppliers isn't an option.

Rather, we think they will exploit their boardroom-level clout to play as "trusted advisers", advising clients on aligning IT strategy to business strategy, helping clients to select and manage outsourcers and systems integrators, and keeping big projects on track. Such high-end consultancy work fits better with their brands.

The accounting firms will argue that their strong financial skills and business understanding allows them to take a more holistic view of their clients' business than IT services suppliers would, thus putting IT investment cases under more rigorous scrutiny. This Devil's Advocate role will play well to CEO and CFO audiences. And without systems-integration and outsourcing machines to feed, they will claim to offer advice that's not inherently biased towards recommending big investments.

If they attack the high-end IT consulting market as part of their business-advisory push, and they then use their systems-integration capabilities to support their consulting businesses (rather than vice versa - and that's the difference this time around), they could win a big chunk of end-user spend. That will cause headaches for the IT services players