Consulting's New World Order

By Tom Rodenhauser, Managing Partner, Kennedy Intelligence I Consulting Industry’s Strategic Insights Partner I Host and Editor of Consultants Talk podcast

The Big 4's Inevitable Disruption

In our ongoing strategy sessions with global consulting clients, we explained two recent events that paint conflicting pictures of where the audit companies are headed. First, PwC conducted its second round of layoffs since last Fall; it's yet another example of the Big 4 trimming staff to adjust for continued over-capacity. At the same time, Baker Tilly announced its PE-backed merger with Moss Adams; the new entity is positioned as an alternative to the massive multi-service firms that have audit as their backbone.

The Big 4's inevitable disruption

While the Big 4 adjust their resources, the "Little 4" seem intent on building more scale. We went through an acquisition cycle ~10-15 years ago when the Big 4 bolstered their consulting businesses by buying high-profile strategy management consultancies.

But that wasn't the consolidation play we're seeing today. Back then, the Big 4 were filling capability gaps to advance the premise of strategy-to-execution. In reality, "execution" was a euphemism for the implementation work that had become core to their business. Attaching a well-regarded strategy brand posited that they could set the strategy rather than just implement one developed elsewhere -- thereby capturing more share of wallet.

Inside Consulting's New World Order

Fast forward to today and resource-based service delivery is drastically changing as AI-led solutions come to the forefront. People and expertise are still important, but input-based billing doesn't align to a world where outcomes (not outputs) are the standard that determine value. To us, these Big 4 layoffs acknowledge a fundamental truth -- an implementation-based model is unsustainable when implementation is no longer the market driver.

So why would Baker Tilly and Grant Thornton and smaller audit-based firms continue down the same path?

We believe they're seeking to reproduce the "trusted advisor" multi-service model honed by the Big 4 but focus on the middle market and at a much smaller (and sustainable?) scale.

This leaves the Big 4 consulting businesses betwixt and between. AI, particularly in operations, is an augmentation opportunity, not pure automation. Consulting's value-add is change, not implementation. AI itself is not another bolt-on implementation business for the Big 4. You can't sell change by the hour. In the near future, consulting providers must base their "value proposition" -- and commercial model -- on actual value creation.

At the same time, clients' growth and risk agendas -- the intersection at which the Big 4 thrived -- are moving further apart. Due to the high barrier to entry and increased demand for expertise, the Little 4, restructuring providers, and even the tax and risk business of the Big 4 will want to stay resource-based given the specialized needs.

The consulting world is shifting as we speak. To compete with other value-based consulting providers in this world, it's inevitable the Big 4 consulting businesses must separate, either in whole or in part. 

Ultimately, Consulting’s New World Order signals the breaking point for the Big 4’s people-heavy model and the rise of more agile, value-focused firms ready to compete in the next era.

It's just a matter of time. Or more succinctly, a lack of billable time.

About the Author: Tom Rodenhauser has been tracking the global consulting industry for more than 30 years. Kennedy Intelligence helps leaders adapt to changing landscapes and position their firms for success. Reach out to discuss:

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Note: This article is for educational and informational purposes only and does not constitute investment, tax, or legal advice. The views and opinions expressed in this article are those of the author and do not represent the views of any affiliate organization. Any opinions or views expressed are as of the date written and are subject to change without notice and may be updated or modified at any time.