The new rules of the Big Four game

By Fiona Czerniawska

The consulting industry was founded on the back of regulation: 80 years ago, in the aftermath of the Wall Street crash, the Glass-Steagall Act separated commercial and investment banking and spawned not only the securities industry but the consulting industry too (up to that point, most consulting firms were part of banks).  Today, another act of enforced separation – proposals for the mandatory rotation of auditors and an effective cap on the amount of consulting work which can be done by firms for their audit clients threatens to radically reshape the consulting industry.

In one corner of the regulatory ring, we have the Big Four accounting firms which have, since they re-entered the consulting fray a decade ago (Deloitte of course never left… ), grown at roughly twice the market rate.  In the other are all the consulting firms which have seen their market share eroded (in some cases, almost entirely consumed) by these firms and which are, to put it mildly, spoiling for a fight.  The problems/opportunities are legion: major clients accounts, which have been dominated by an audit firm for years, will suddenly open up to new competition; partners, unaccustomed to having to tout for business, will be forced to do so, stretching both their skills and comfort zone; organisations, knowing their audit will have to be re-tendered, may be more reluctant to give large-scale IT or wider transformation work to a Big Four firm in case the new regulations force them to pull out before it's finished; executives worried about misinterpreting what could be quite complex caps on expenditure, may adopt a position more draconian than that in the regulations.

But firms have always moved in and out of clients’ favour: the real change here is about transparency.  Success in selling consulting work has historically depended on having privileged knowledge, either through better relationships or more systematic account management.  Crucially, what these regulatory changes herald is a world in which anyone with a certain amount of nous can know everything.  Work out which audits are coming up for grabs and you’ll be able to guess what consulting work might be available and who’ll be competing for it.

The critical factor here won’t be personal chemistry, but competitive intelligence.  We’re switching from a game of snakes and ladders, in which the ups and downs of business seem random, the result of a simple roll of the dice, to a game of chess, where it’s possible to anticipate play several moves ahead and move one's pieces around to seize the advantage.  Knowing your enemy will never have been so important – or been as easy.