In a career spanning 25 years I’ve spent 20 years in consulting (working for a number of organisations) and 5 years in industry (during which time I worked client-side with all 4 of the ‘Big 4’, 2 of the 3 ‘MBB’ firms plus a number of other firms). This article draws on all these experiences and does not relate or reflect on individual firms or people but the sector in general and longitudinal trends. I’ve had some excellent experiences and worked with some amazing people but standards, quality and value for money delivered to clients has been in decline for some time.

Ethics and culture issues aren’t the biggest problem

It’s a time for introspection in the wood-panelled boardrooms of Australia’s big consulting firms with question marks over ethics, standards and poor culture playing out in the public eye. Unfortunately for them this isn’t the only problem they face – it’s a watershed moment as complacency, diminishing quality, greed, client cost pressures and the rapid maturation of Generative AI combine. I’ll mention very little of the ethical or cultural issues as these have been (and continue to be) well reported by the mainstream press.

A relentless focus on growth

The last decade has been boom-time for the big firms – in the past 5 years the consulting arms of the ‘Big 4’ have grown revenue at an average of 13.5% per annum ¹. Over that same period BHP’s revenue grew on average by 5.8% ², Woolworths grew at 2.08% ² and CBA ‘grew’ at -2.45% ². In fuelling this growth, clients have been viewed as revenue sources rather than partners – a dangerous game that risks coming back to bite. Standard charge-out rates have routinely increased year-on-year to fuel growth and increased profit. These elevated prices can be ill-afforded by most corporates in the current economic climate and a premium price can only be commanded for a premium product.

Compromise on standards and leadership talent

To support revenue growth of 13.5% ¹ headcount has increased by circa 10% ¹ per annum. In that same period Australia’s population has grown at 1% per annum ⁴. In the relentless pursuit of growth much of this hiring has been at senior levels with an implicit ‘shift left’ across the bell curve. The Partner-to-Staff ratio has shifted from circa 1:20 to 1:10 creating the need to grow even more to maintain profit. At senior levels this has seen a combination of the recycling of questionable talent between the firms and lateral hiring of people with little to no consulting experience or skills (both of which have implications for talent development and client outcomes). Growth combined with clique cultures has resulted in the growth of highly paid ‘name in box’ roles with minimal client/people impact which must be paid for through further growth.

Ongoing talent drain

Consulting used to be a magnet for talent. Firms attracted, and were willing to pay for, and invest in, the brightest minds. Retaining the best talent has been challenging and they suffered more than the broader market from the ‘great resignation’ with turnover hitting 30 – 40%. It’s impossible to run a business effectively (let alone delight clients while solving their most complex problems) with that level of turnover. This was driven by several factors including lack of leadership engagement, inferior pay compared to industry and a generational shift towards other industries and more fluid career pathways. The current ethics storm will drive further loss of talent through a clear lack of values-alignment.

Lack of talent development

Internal talent development has also gone backwards. When I joined a ‘Big 4’ firm as a graduate in 1999 I received 14 weeks of dedicated, residential training before I set foot in a client office. Nowadays a graduate is lucky to get 2 weeks. Partners are further removed and spend less and less time delivering and developing their teams. Together with faster career trajectories through the firms, many Senior Managers and Directors lack the breadth and depth of experience to effectively deliver client outcomes or develop the raw talent below. Where early career development is provided there is a tendency towards ‘journeys of self-discovery’ over training that will benefit an individual’s career let alone a client who’s paying top dollar. Exceptional talent and potential still exists in the firms and there are still brilliant senior leaders but it is far from guaranteed.

Clients recognise complacency when they see it

Trying to charge premium prices for a non-premium product is complacency personified. Buyers are increasingly astute. They see and experience the mismatch between cost and quality/value first hand. Clients now find themselves investing much more time guiding (and in some cases driving) consulting engagements. A perception of ‘necessity’ has allowed it to get to this point but in a cost-constrained world the tap will be switched off. If clients truly saw immense value from their consulting spend switching it off wouldn’t be the first lever to be pulled in tough times.

On their side clients should consider the contribution FTE caps and other crude mechanisms have made towards an over-reliance on the big consulting firms. Looking forward, Generative AI will be hugely disruptive – clients will increasingly self-serve and look for genuine experience and expertise to augment and support them (at an affordable price point). More on this in a future article.

Complacency always leads to disruption

There are tough times ahead for the big firms (there are already murmurings of blood on the dance-floor). In Australia the industry is ripe for disruption. In 2020 the Australian consulting market was 30% ³ larger than the US market compared to GDP and 3.3% ³ larger than the UK market on the same basis (with a population/talent pool 60% ⁴ smaller). In the subsequent period Australia has grown even more strongly than these markets. Maintaining quality is borderline impossible with that context. In the more regulated (adjacent) accounting profession evidence of diminishing quality is more quantitative with ASIC’s 2022 audit inspection findings highlighting negative findings in 60% ⁵ of audit files and an annual absolute increase of 9% ⁵ in negative findings in audit files associated with the six largest audit firms.

It’s not too late but there’s a long road ahead 

Whether the firms can solve their various ethical and cultural issues (which any good consultant will tell you takes a very long time), adapt to a more symbiotic way of working with their clients to support their growth and improve quality/standards remains to be seen. I for one hope it happens because when done well, consultants contribute a huge amount to their clients’ successes. Arresting the decline will take wholesale cultural and organisational transformation. In the meantime there is a huge opportunity for smaller, more client-focused and experienced firms offering greater value for money. To quote Steve Jobs “A small team of a+ players can run circles around a giant team of B and C players”.

Sources:

¹ Analysis of publicly available information via annual transparency reports and other disclosures
² Analysis of annual statements
³ consultancy.com.au estimates based on Source Global Research
⁴ Australian Bureau of Statistics and Office of National Statistics
⁵ ASIC REP 743 Audit Inspection Report: 1 July 2021 to 30 June 2022