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01/01/2014

Consultancy Market in Transition

Major tax advisory and auditing companies are entering the consulting field. Is this development fundamentally important for the market? BeraterGuide talked to Gerd Kerkhoff of the Düsseldorf-based procurement consultancy Kerkhoff Consulting.

The procurement and supply chain consulting market is changing. PWC, for instance, acquired the supply chain specialist PRTM. What does that mean for procurement and supply chain consultancies?

It's a fundamental and radical change because the major business consulting companies are interested not only in procurement and supply chain consultancies. Instead, they are interested much rather in small and medium-sized consultancies with a clear profile and a certain relevance on the market.

And, in your opinion, what is the reason for such a pronounced interest?

The major tax advisory and auditing companies see that the areas of procurement and supply chain can be highly exciting and lucrative. It therefore stands to reason that they want to build up another pillar in classical management consulting firms. Also, they have come to realize that profitability in their core business had been waning for years. The major players mostly opt for rapid growth to regain control in this respect. But that rules out healthy, organic growth, and companies will be going on an acquisition tour.

What does that mean exactly in concrete terms?

A particular area of expertise will be picked out and a relevant corporate size will be acquired which renders it possible to carry out projects in this segment.

Will there be any resulting change for clients of procurement consultancies?

Actually, there will be a lot of change: Not only the name of the purchasing consultancy will change but primarily the corporate culture of the consultants. The formerly owner-managed consultancies with a manageable number of staff are now part of a major group. At the same time, they will represent divergent interests within the group due to the orientation of an auditing company. It's not an easy constellation.

So buyers and tax auditors should not be in the same boat?

That harbors a lot of challenges. According to my experience, the integration of another organization is a major challenge since any enterprise has its own culture, of course. And in that case, we will be talking especially about a specific SME character. I know of only a few companies which have mastered this process. Quality may here fall by the wayside – any new owner must be aware of that. What is certain is that tax advisory and auditing companies will be managed by the partners of the tax advisory division or, respectively, by the partners of the auditing segment. That's the way it's been in the past, and it will remain that way in the future as well.

So there is no solution for it? For instance, by letting the acquired consultancies largely work on their own?

The new consultancy division will become part of the overriding group. One problem might then be that the supplier possibly is an existing client of the tax advisory or auditing company or is supposed to be acquired just then by the partners of that division.

So you think that conflicts are inevitable and preprogrammed?

Let's put it that way: If you retain a law firm, they will first check whether there is any potential problem of collision with your adversary. That's the same question any tax advisory company with an affiliated management consultancy must also ask itself. The case might be such that they are active for a client on the procurement side and then negotiate with suppliers which are, at the same time, clients of their own.

Do you think that this would present a major conflict of interest?

I should certainly think so.On the one hand, consultation would be provided for the client in purchasing and procurement; but, on the other hand, due to the supplier's auditing process, one would also have available that particular supplier's total facts and figures in detail. I would certainly say that the supplier might have the shadow of a doubt concerning the Chinese walls between the auditing company and the consultancy. Especially if the supplier is put under pressure by negotiations with purchasing.

What does that development mean for companies who want to improve their purchasing and procurement by means of procurement consultancies? What will they increasingly need to pay attention to?

It's extremely important that the procurement consultancy wants to realize the best possible result for its client and does not need to make any compromise because of other interests being pursued internally.

Does this market change have any effect on you as a "boutique procurement consultancy"?

Major auditing companies are no appreciable competitors as opposed to the independent procurement consultancies. That's the reason why we are relaxed in anticipating the development. Our position on the SME market will be much rather strengthened thereby.

So the development will hold just benefits and advantages for you?

You could say that. Because I'm not in any conflict and I can realize the economic maximum for my client.

The author

Gerd Kerkhoff is Chairman of the Board of Kerkhoff Consulting. He is responsible for its strategic business development nationally and internationally. After having completed his studies, the business graduate (Diplom-Kaufmann) was first the managing director of a medium-sized company and founder of trading companies for brand articles. In 1999, he founded Kerkhoff Consulting.