IT consulting and the Big Four

The recent announcement that PwC is acquiring Diamond Consultants isn't – and is – a surprise.

In the race to close the gap that Deloitte is perceived to have opened up between itself and the consulting practices of the other Big Four firms, technology is critical. Whether you like it or not, much consulting is driven directly or indirectly by IT changes. New systems don’t just create work for the software vendors and others who implement technology, but typically trigger a raft of changes to working practices and organisational structures.

IT expenditure is therefore like underground water in an arid landscape: if consulting firms are to survive and grow through the driest seasons, they have to tap into it. But how do they do so? In the 1990s, the volume of spin-off spending (from ERP systems, for example) was enough to justify the larger firms drilling their own wells, allowing them to control access to the water at whatever point they chose. Few firms would be confident in heading off into the wilderness today in the hope of striking it rich, so it makes more sense to find existing wells and buy them – as PwC has done. But independent IT consultancies, which would make good acquisitions or alliance partners, are like oases, dotted around the desert: they’re few and far between.

The reasons for this lie in the dynamics of the consulting industry. Big IT firms and systems integrators need consulting skills but find it hard to retain them because people who want to be management consultants don’t always want to work for an IT firm, even an IT consulting firm. To make up the short-fall, these firms constantly absorb small, specialist consultancies, so at any given time, the number of such firms available – the number of oases in the desert – is limited.

So the surprising thing about PwC’s announcement is that they managed to find one. And the interesting question is where this leaves KPMG and Ernst & Young. They’ll undoubtedly want to replicate, ideally improve on, PwC’s move, but there aren’t a lot of firms to choose from....