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Consulting contracts for mid-tier and small firms on the rise, says Anchoram

Profession
31 January 2025

The business landscape for consultants has shifted significantly since the PwC scandal and may see further change following the election, the COO of Anchoram Consulting has said.

The consulting industry was rocked in 2022 when it came to light that PwC’s international tax chief had breached confidentiality by sharing sensitive government client information on upcoming multinational tax laws, tipping off multinational clients to the new laws.

The scandal eroded public trust in big four consultancies EY, Deloitte, KPMG and PwC, especially among government agencies.

This has accelerated existing trends in the accounting advisory world as clients increasingly seek out smaller firms that promise value for money and barriers to entry fall for consultants, Anchoram Consulting chief operating officer, Harry Cheema, told Accounting Times.

“In the last century, the advantage of a big firm was that they had access to information and data that was not freely available,” Cheema said.

“That whole scenario has changed over the last couple of decades,” he said, as data and information have become more widely accessible

“You've got very smart teams and clients who know what they want, and they want value for their money. And I think that's the primary issue with the big four model. The model is built to serve a very small number of senior-most partners. And there's a place for the model, but I think there is increasingly a place for mid to small tier farms as well,” Cheema said.

Large consulting firms fell out of favour with government clients in 2024, with 57 per cent saying they would not consider using the big four for their future needs, according to a survey by Beaton Research and Consulting.

At the same time, contracts for mid-tier and small firms grew.

However, Cheema noted that the fallout of the PwC scandal was not all good news for mid-sized and small consulting businesses.

“When a scandal like PwC happens, the blast area is much bigger than just the big four,” Cheema told Accounting Times.

“Pretty much every consultant gets tarred by the same brush, and we have to continually justify our existence and demonstrate our value. And I've got no problem with that, because I think that's the way it should be.”

According to Cheema, while big four consultancies have the edge when serving large clients with offices in multiple countries, smaller consulting firms can offer similar quality services at more competitive prices when scale isn’t necessary.

“We are a bit more hungry than a big four firm. And so we are getting a lot of repeat business.”

Businesses that can maintain client trust are among those set to benefit the most from the decline of the big four. A 2024 survey by The Australian Financial Review found that clients were almost four times more willing to pay more for the same work if they had high trust in the firm.

The survey found that expertise, reliability and care drive clients’ perceptions of trust, along with the degree to which a firm can put the client’s needs over their own.

Larger firms may be less equipped to perform well in these areas, as partners are expected to shoulder heavy workloads.

“I was spread very thin across multiple engagements,” Cheema said of his time working in a big four consultancy.

“And that just gets worse as you go up the chain, the amount of time partners can actually provide to deliver the work.”

He also spoke of the flexibility and personalisation offered by small and medium-sized consulting firms, where partners have more time to invest in their individual clients. This contrasted with his experience working in larger firms.

“When [clients] hire me, they want me to know the details. They want me to solve the problem,” Cheema said.

“[At large firms] you almost start getting marked down in terms of your progress in the firm, if you are a so-called ‘in the weeds’ kind of leader. And as a practitioner, I take pride in being in the weeds. That's what my clients expect.”

The upcoming election is likely to shape the future outlook for consulting firms, as the two major parties take differing stances on the role external consultants should play in the public sector.

On the Liberal party’s website, one of its listed priorities is to “cut government waste,” promising that “a Dutton coalition government will halt the growth of the Canberra-based public service.”

In contrast, the Labor government recently assembled an in-house consulting body which sought to “reduce over-reliance on external consultants” in the aftermath of the PwC tax scandal.

Labor has committed $10.9 million over two years to create the in-house consulting capability and is trying to shave $3 billion off outsourcing expenses by 2026–27, according to the Financial Review.

According to reporting by the Financial Review, when the Coalition came to power in 2013, annual spending on big four consultancies was less than $400 million. By the time it left in 2022, spending had ballooned to $1.4 billion.

A 2023 finance department audit found that the Coalition’s use of a ‘shadow’ workforce of 53,900 full-time equivalent staff had cost the government $21 billion.

“We have gone through these few cycles where it seems like when the Liberals are in power, they try to get rid of public servants and bring in consultants,” Cheema said when asked about the two major parties’ impacts on the consulting industry.

“Labor is kind of the pendulum going the other way, and that's not ideal either. I think it needs to be in the middle. Whether it will be or not, it's a different story.

“I'm hoping it's not going to go back to the way things were before Labor came into power, because I don't think that was sustainable,” he added, “where consultants are being brought in to do work that should be done by the government.”

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