Boom times for Big Four accounting and consulting firms in Germany

15 January 2019 Consultancy.eu

A boom in advisory work has driven the business of the world’s largest professional services firms in Germany to record levels. The Big Four of PwC, EY, KPMG and Deloitte grew by an average of 10% in the last fiscal year, significantly faster than the overall German economy.

Europe’s biggest economy has been flirting with recession over the past few months. Germany is thought to have already fulfilled the technical definition of recession – two consecutive quarters of falling output – with the latest news from the country suggesting it may have struggled to grow in the fourth quarter, following a 0.2% contraction in the third. While this usually bodes poorly for the majority of businesses in any economy facing slowing growth, the same is not always true of consulting firms, which are often sought out at the start of a crisis by firms looking for help with finding savings and securing profits. 

This has been exemplified by the Big Four’s German operations in particular, with market leader PwC achieving last year €2.2 billion in total fee income alone. That represented a 5.4% spike, while fellow Big Four member EY followed at €2 billion, with a rise of 8%. KPMG, the number three in Germany's accountancy and consultancy landscape, increased its overall performance by 10% to €1.83 billion, while Deloitte recorded the fastest growth of the quartet by gaining 18% to generate €1.47 billion. Combined, the Big Four now realise aggregate sales of €7.5 billion in Germany, increasing by 36% on the €5.5 billion figure generated in 2015.

Consulting driving growth

Companies in the professional services sector are seeing a considerable consulting division boom at present. They have been expanding their advisory divisions for several years and are subsequently profiting greatly from peak times in the industry. According to BDU, the local association for management consulting firms, Germany's consulting market is now worth over €30 billion.

Revenue of Big Four accounting and consulting firms in Germany

At Deloitte and PwC, the consulting divisions are now larger than the firms’ respective auditing divisions. Meanwhile at KPMG, the advisory business is now in line with auditing, and both generated sales of around €670 million, with the consulting division growing by 17%.

The consulting business is driven by the internationalisation of customers, as consultancies are allowed to advise companies on these issues, as long as they are not also auditing the same clients. Another major driver is technology and digital consulting, as digital innovation is booming. This is impacting everything, from strategy and business models to operational matters, such as new operating models in finance, purchasing or human resources. Also in high demand are consulting services in the area of risk management, with the growing need to battle white-collar crime and maintain cybersecurity.

Besides organic growth, M&A has been a key part of expansion. All major providers of consulting services have bought a number of firms in recent years. This usually involves the purchase of smaller, specialist providers. An exception of this was seen when in 2014 PwC shocked the world by taking on a larger strategy expert in the form of Booz & Company, now rebranded as Strategy&. The other Big Four players were actually quite close to poaching Roland Berger too, but that firm decided to maintain its independence after a last ditch injection of funding from its namesake founder, keeping EY and Deloitte at bay. 

EY then turned its attentions to the Parthenon Group, which it acquired in the US, before rolling out expansion drives across Europe which saw the firm acquire parts of OC&C Strategy Consultants, most notably in Germany and France. Since being picked up, EY-Parthenon has grown from around 350 consultants to over 1,200 consutlants today. PwC’s Strategy& is the largest strategy consulting wing of the Big Four, with Deloitte in second place – the firm serves the segment with Monitor Deloitte, which originated after it bought the global Monitor Group back in 2012.

Despite the possible economic slowdown, the Big Four are optimistic for the coming year. PwC and EY expect high single-digit growth rates, while Deloitte anticipates improvement of 10%. Elsewhere, KPMG has not revealed expectations for the current fiscal year, however Klaus Becker, KPMG Board Spokesman, has spoken about achieving similar growth rates as seen in the previous year.

Profiles

80% of clients satisfied with management consulting services

25 February 2019 Consultancy.eu

According to research among private and public sector consultancy buyers in the UK, 8 out of 10 clients are satisfied with the work carried out by management consultants. 84% of the clients polled by the British association of management consulting firms said that they use consulting services when they are in need of strategic, transformation or change support. 

The study found that 81% of the respondents believed that the delivery of consultancy services had met or exceeded their expectations. Additionally, more than half of respondents said that consulting work provided had consistently exceeded or substantially exceeded their expectations. At the other end of the spectrum, less than 9% felt that money spent on management consultants was not worth the investment.

Based on the results, UK’s consulting association – operating as the Management Consultancies Association (MCA), the counterpart of the BDU in Germany or Consult'in France in France – concludes that across the board, the quality of management consultancy services in the country has grown in the past years. Main reasons for the professionalisation include growing competition spurring the need for maturity, technology-led innovation which bolsters service propositions and quality assurance and more scrutiny from clients on who they hire and for what. 

However, critics of the study accuse the industrial representative body of bias, drawing an analogy with a butcher who is inspecting the quality of his own meat. The MCA however rebuffed the accusations of bias, pointing out that the survey was conducted by an external research agency, ensuring an impartial methodology and set of results.Do consulting projects add value to clients“We’re encouraged by the feedback from business leaders about the value of consulting,” said Tamzen Isacsson, CEO of the MCA. While the study didn’t look into the hard return on investment of consulting spend, the UK association did conduct such a study a few years ago, finding that clients were getting a return of £6 for every £1 invested. In the recent report, 16% of respondents listed value for money as an aspect of engaging consultants they especially appreciated, however, non-monetary aims were more important for consultancy buyers. Top reasons cited as to why management consultants were hired include independent thinking and transformational outcomes (49% each), and knowledge transfer and achievement of project goals (35% each). 

When asked for which services they typically hire consultants, business transformation came on top by some distance. This is mainly due to the changing environment in which organisations operate, with aspects such as heightened competition, tech-led disruption, a changing workforce and more demanding consumers leading the need for change. In order to adapt to these and other forces, organisations need to revamp their business strategies and operating models, meaning that larger business transformation efforts are required to remain successful.

Not surprisingly, digital and technology ranked second, with nearly all companies nowadays looking into how emerging technologies can benefit their business. In manufacturing, Industry 4.0 holds major promise for operational improvement, in aviation, the internet of things will be crucial for smoother maintenance & operations, while in automotive, robotisation is becoming key to streamline production lines. Technology also can massively benefit the public sector, including areas such as communication with inhabitants and entrepreneurs, as well as internal processes.Which consulting services are used most by organisationsFunctional areas of management consulting that remain in high demand are strategy, finance, project management and change management. 

Looking ahead into 2019, efficiency is the top businesses challenge clients will seek to hire consultants for, at 47% of responses. Not surprisingly, Brexit ranks high – the UK and EU still are working on ways to settle Brexit by the end of March, and in its slipstream the impact on businesses and governments. Digital implementation and crafting strategies to deal with digital disruption round off the list of top priorities. 

For more information on the study, see the article ‘8 out of 10 UK companies hire consultants, and are satisfied’ on Consultancy.uk. 

Related: Italy's management consulting market grows 7% to €4.3 billion.