Is procurement contributing to the dominance of the large audit / consulting firms?

We featured Deloitte's results yesterday and asked whether greater procurement involvement  in this spend area is beginning to have a noticeable effect on professional services firms.  Now Ed Haigh has written an excellent piece on the Accountancy Age website which touches on this issue – read it here.  Haigh works for Source for Consulting, who we’ve mentioned before, not least because my co-author is one of their directors.  They have an interesting website and carry out very well respected research into the consulting industry.

Ed is looking in this piece at why the big four audit firms are also so strong in the consulting market, particularly in the financial services sector. And although he focuses on that sector, much of what he says applies elsewhere.

Now accounting for about 45% of a £7bn European market, the Big Four have come to dominate the financial services sector in a way they have not managed anywhere else. Given that three of the four were not even in the consulting business eight years ago, what is behind their success?

He identifies four reasons for this impressive achievement.

Scale. “Global problems require global solutions” - the Big Four fit the bill perfectly. Few other firms can put “people on the ground in every major financial centre at a moment's notice”.

Brand. The Big Four have very strong audit brands within the financial services sector, and leverage that into the consulting space to offer other services.

Flexibility. Big firms can offer expertise in a wide range of areas, unlike more specialist outfits – important when major consulting projects can often take off in unexpected directions.

But his fourth reason is particularly relevant– so I’ll quote the article in full:

"The rise of procurement. Procurement departments are taking an increasingly active interest in the way their internal customers use consultants. In an effort to take control of what can be one of the hardest categories of spend to manage, their favoured approach is to drive expenditure through a small number of suppliers with whom they can negotiate global framework deals. Most will try to include some small, local specialists on their preferred supplier lists but all – without exception – will include Big Four firms. In that respect, procurement departments – often seen by consultants as a barrier between them and their clients – might be acting as a barrier that protects rather than challenges the interests of Big Four firms".

So while procurement may moan occasionally about the big consulting firms, it seems that our actions might actually be helping them develop stronger and stronger market positions. Now that may not be a bad thing – frankly, if they didn’t do a good job most of the time, they wouldn’t be as successful as they are. But we should consider in this market, as in any other, whether procurement strategies are helping to develop a dynamic market in the longer term, as well as meeting our current needs.

And do read the full article – as well as what we’ve featured here, it has a lot of other useful insight.

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