Professional Services firm makes less money* shock

* but still lots....

If you talk to procurement executives who have an interest in professional services consulting, it usually doesn’t take long before the conversation turns to the “big four” audit firms – who now might also be considered the “big four” in management consulting terms as well. That’s PWC, Deloitte, KPMG and Ernst & Young.

You’ll get mixed comments, but often the procurement view is, “we use them too much”.  Talking to someone on this very topic just last week, their concerns included consultants from the big firms being used in long-term project manager roles– when perhaps an independent contractor at half the price could have been just as effective. It’s the old adage about “never being fired for buying IBM” – but substitute your big 4 firm of choice for IBM.  In other cases, consulting or corporate finance work flows out of their work as auditors, which can again preclude real competitive challenge.

When Fiona Czerniawska and I spoke to procurement directors and category managers as part of the research for our book, their frustration was often evident. They generally had a very clear view of how they could manage professional services categories, including audit and consulting, more successfully. But they often had to battle to get internal stakeholders on board with initiatives designed to bring more competition, and more of a commercial “edge”, to this area of spend.

So do the results announced by Deloitte in the UK last week indicate that perhaps procurement is beginning to succeed? Are we starting to have an impact on the returns the big firms are making?  The Deloitte figures weren’t exactly disastrous, but they did show the first decline in profit per partner for many years.

Revenue actually held up well, up to £2.1 billion from £1.95bn. But as the Independent reported,

“the average profit per partner fell to £758,000 from £873,000 as it spent more on hiring new staff, growing its headcount by 8 per cent. In all, it recruited over 1,500 experienced staff, while more than 1,000 graduates will join the firm this autumn”

Profit before tax fell from £543 to £510 million – so before we get too excited, that’s still a margin of around 25% on revenue, which most businesses would kill for. That also suggests that procurement has some way to go before the big firms are really ‘struggling’!

And maybe the profit effect was because of the gearing up for a new sales drive – Deloitte have grown very successfully over the last few years, increasing market share.  But was there a little pressure on margin in there as well?  Deloitte partners aren’t exactly queuing up at the soup kitchens yet, but might this be a small sign of increased market pressure – and perhaps of more successful procurement intervention?  It’s hard to tell, but we would like to think so – and we’ll keep an eye on this.

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