In consulting, human capital is everything. Real experts are rare and have long been fought over, especially in a growth region like the Middle East where cultural compatibility is a key need. Now it looks as if the region’s scarcity of qualified consultants is taking the war for local talent to a whole new level. This is the second installment in a three part investigation into recent developments at Strategy& since it combined forces with global services organization PwC. Read part I here.
[pullquote]What happened was “a meeting of the minds” between PwC and Booz, says Saddi[/pullquote]
From the C-suite narrative, there was a straightforward logic behind the decision to combine Booz & Company with PwC, a move that Booz’s global layer of top stakeholders approved in December 2013 and that was formally sealed in April 2014. What happened was “a meeting of the minds” between PwC and Booz, says Joe Saddi, senior partner and chair of Strategy&’s Middle East business.
For Booz, the process started with introspection into the consulting industry and its future challenges. “It dawned on us that the industry was going through an inflection point in that clients were no longer asking only for strategic advice but also wanted you to [implement] and deliver tangible impacts. To deliver tangible impacts nowadays requires having much more capabilities,” says Saddi. To gain those needed capabilities, the company’s only choices were to either build them internally over time or find a partner that already had such capabilities, he adds.
Having opened the mental doors to the possibility of joining forces with a partner, the leadership of Booz responded to overtures which according to Saddi originated from PwC. The caveat was to engineer the partnership in a way that would have a greater chance of success than other such moves that had accompanied the turbulent growth of the accounting and consulting industries since the days of the Enron scandal. “We spent a lot of time understanding what would make such a partnering succeed,” says Saddi.
Both of the two firms, PwC and Booz, had already lived through complicated exercises in searching for winning corporate formulas of the sort that they expect from their new alliance. PwC’s experience in this regard was shaped by the divestment of its Management Consulting Services unit in 2002. The path of Booz had included the split in 2008 that created Booz & Company as an entity focused on international business and Booz Allen Hamilton as a consultancy initially working on US government contracts, many with military and security flavors. And in 2010 Booz & Company said it had aborted discussions with consultancy peer A.T. Kearney over a possible merger.
In going with PwC, the deal was shaped in a very different way from any other in the consulting industry, “where the smaller company was merged and integrated into the operation of the bigger one,” says Saddi. “This is not the case here. Both sides agreed that in a first step what was Booz & Company would remain intact as a structure. Legacy Booz is going to remain as an entity and have its own identity within the PwC family.”
[pullquote]“I prefer the term ‘combination’ rather than the word ‘merger’ because it is more of a combination than a merger”[/pullquote]
‘Legacy Booz’ is the term by which members of Strategy& frequently refer to their company since joining PwC. Not even the term ‘merger’ appears to express the way in which partners in the consultancy perceive their new identity. “I prefer the term ‘combination’ rather than the word ‘merger’ because it is more of a combination than a merger,” explains George Sarraf, a partner and veteran of Strategy&’s Middle East business.
In addition to the client demand for implementation of strategy that Saddi had discussed, Sarraf mentions three other key benefits to legacy Booz, all related to the much larger scale of the PwC operation when compared with the old Booz & Company.
“In the consulting business you need to invest, and the combination has allowed us access to a much larger pool of investments because of the sheer size and financial strength of a global firm like PwC,” Sarraf says, going on to cite access to new capabilities “that we didn’t have and which we needed access to” and enhanced geographic reach as the second and third new advantage. “Although Booz surely was a global firm and had in excess of 50 offices around the world, there were many countries where we were not present. If you today want to serve in areas like Africa, as an example, the wide geographic presence of a firm like PwC is a big plus,” he explains.
The ‘bigger is better’ argument is well supported by numbers. According to its annual figures for its fiscal year ending June 2014, PwC achieved $33.95 billion in global revenues of which just under 3.5 percent were generated in the Middle East and Africa (MEA). In terms of total revenues, PwC was the world’s number two in the advisory–accounting–consulting multiverse, just behind Deloitte, which reported $34.2 billion in revenues for the 12 months ending May 31, 2014.
PwC’s revenues growth rate for MEA was shown at 9 percent versus 5.8 percent globally. Unpleasantly, as with other global corporate reports, the growth rates shown in the annual overview don’t give details on the performance of MENA markets by themselves. However, the report says that the growth rate for MEA was 15.9 percent at stable exchange rates — which makes it unlikely that growth in the dollar pegged markets of the region, such as the GCC, was as strong as growth in markets against whose currencies the dollar appreciated over that period.
[pullquote]Booz had “hundreds of partners and thousands of employees” worldwide before joining forces with PwC[/pullquote]
A world in need … of consultants
Unlike PwC, Booz as a private partnership organization did not report global or regional revenues but the size differential is shown in the human capital accounts. According to Saddi, Booz had “hundreds of partners and thousands of employees” worldwide before joining forces with PwC; PwC, according to its online data sheet, accounted for 10,000 partners and over 195,000 total staff by the end of June 2014. On a global level, then, Strategy& will rely on PwC’s strength to tap into the lucrative and growing market for consulting services.
Big consulting is at home in the United States and Europe, where top players achieve varying but generally dominant portions of their turnovers. Data from the US market, still the mother lode of consulting activities, say that revenues of management consulting firms grew from $120 billion in 2009 to $138 billion in 2013 and $143 billion in 2014. These figures were compiled by information portal statista.com from US Census data on industry.
In another statistical view on the international consulting industry, a company called Source Information Services found in the autumn of last year that big consulting groups, meaning firms employing more than 50 consultants, achieved revenues surpassing $41 billion from the US market in 2013. The same company, which acts as an analyst and consultant on the consulting business, said on several recent occasions that Southeast Asia and the Middle East and North Africa region — or more exactly the Gulf Cooperation Council bit of it — offer the best growth prospects for big consulting firms.
The Southeast Asia region benefited from political stability and the ASEAN economic area was projected to achieve 5 percent annual growth for the next five years, it said but acknowledged that among the two consultancy growth regions, the GCC market generates higher revenue per consultant and also has a higher propensity to buy consulting services.
[pullquote]The Saudi and Emirati consulting markets have been leading the world in growth rates[/pullquote]
While Source Information Services described the GCC consulting clienteles in unflattering terms as fidgety by comparing typical GCC client behavior to that of a “petulant teenager” and also named MENA markets with $2.2 billion in 2013 in consulting turnover as rather small revenue generators for big firms, it highlighted that the Saudi and Emirati consulting markets have been leading the world in growth rates, respectively registering 26 and 16 percent expansion in 2013.
With such growth rates, it is no wonder that the GCC market is an arena for the ambitions of global consulting firms such as Boston Consulting Group, Booz Allen Hamilton, Bain & Company, McKinsey and Accenture, as well as the consulting units of the globally leading ‘Big Four’ audit firms: Deloitte, KPMG, Ernst & Young and PwC.