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EY: Letting the genie out of the bottle

The proposal to split the firm, now halted, has been the biggest news story in the professional services industry in a decade. And it won’t stop here.

EY’s announcement was never just about EY but raised fundamental questions about the future of professional services, especially consulting and audit. In this article, we present the five main questions we hear people—clients and firms—asking.  

1. How can professional firms best respond to clients’ increasingly multifaceted and complex problems?

Research we carried out last summer found that eight out of 10 clients thought that the success of a consulting project in part depended on a firm’s ability to take a multidisciplinary approach. More recent research explains why: Three quarters of clients say that achieving their corporate goals will heavily depend on collaboration between different parts of their organisation (see figure 1). In the debate about the EY split, the term multidisciplinary was weaponised, applied to the relationship between audit and other services, which is generally not what clients think of when they talk about it.

While the audit-consulting relationship does bring benefits (a reputation for trust, and a mix of volatile and stable income, for example), regulatory changes that increase restrictions around what services firms can provide to their audit clients mean that there there’s less synergy than there used to be. Clients, facing unprecedented challenges want firms to create better solutions by combining different perspectives and skillsets; they want diversity of viewpoints, not specifically a firm that provides audit and consulting services.

2. How can professional services firms be more innovative?

Three years after the pandemic and a year into the polycrisis, clients are looking for innovation. For the vast majority of them, that means exploiting technology faster and with more tangible results. Technology-related services look set to be the fastest areas of growth in the professional services sector, but the opportunity—and the challenge—is to embed technology in other professional services.

Let’s take productivity improvement as an example—and one that’s very pertinent in the current economic environment. Only 12% of clients say they’d make extensive use of support in solving productivity issues, largely because they think consultants won’t add concrete and/or lasting value. If consulting firms want to persuade clients to hire them in this area, they need to provide more innovative solutions, ones that demonstrate what they, the consulting firm, can do that the client can’t. That innovation will have to be technology and data-led: When we asked clients where they expected to make the biggest efficiency gains, 59% said they need better technology and to make better use of data & analytics (see figure 2).

3. How should professional services firms and technology companies work together in the future?

Fifty-seven percent of clients in the US say they’ll be investing in digital transformation in the next 18 months, more than in any other area we asked about. Three quarters believe that they will have to update their technology as soon as possible in order to survive (figure 3). Technology is simultaneously the universal panacea to clients’ issues and a source of fascination to them—a third think that ChatGPT and similar tools are relevant to their organisation now, and a further 49% think such tools could be relevant in the future. Technology also creates opportunities for a new generation of managed services in which consulting expertise is combined with software, proprietary data, and deep expertise.

EY’s desire to have greater freedom to forge relationships with key technology companies by removing conflicts of interest with existing audit relationships was an important driver behind the proposed split. It might also have created an opportunity to develop a more technology-led audit business. Partnerships between consulting firms and platform providers, such as SAP and Salesforce, are table stakes where clients are concerned, and now need to evolve if they’re to be genuine differentiators. A new generation of managed services is emerging, in which a combination of software, data & analytics, and deep industry expertise creates value for client organisations (as opposed to cutting cost, as was true with traditional outsourcing). The proposed split highlighted the extent to which the entire relationship between the professional services and technology industries will need to be rethought.

4. How can firms make decisions more quickly?

Perhaps the most obvious casualty of the last couple of weeks has been the credibility of the partnership model. That model has its advantages: It can mean, for example, that private partnerships, because they’re not tied to public, quarterly updates, are better placed than corporates to put their clients’ interests ahead of their own. However, the partnership model can also make major change harder, as the biggest decisions depend on a complex and lengthy voting process in which partners may put their self-interest ahead of the firm’s. Fast and effective decision-making is clearly also crucial to a firm’s ability to adapt to clients’ rapidly evolving needs.  

However, academic research after Accenture’s IPO in 2001 suggested that its more corporate culture paved the way for the IPO, rather than vice versa. That suggests that professional services firms’ efforts to accelerate decision-making shouldn’t just be focused on structural changes, but need to include a broader discussion about culture, organisational structure, etc. Whatever the cause, a firm’s ability to re-configure its business to meeting clients’ evolving needs, to re-think its relationship with technology companies, and to invest in innovation, will unquestionably depend on having a fast and effective decision-making process. 

5. Are clients already interested in new competitors?

As we noted in this blog, almost every piece of research we do highlights the range of potential suppliers that clients are willing to consider. This is partly the result of collective buying processes, themselves the result of cross-functional projects. While none of these newish entrants have really established themselves in clients’ minds, such firms are having an impact on what clients believe to be possible—typically, they move faster, make better use of technology, etc. That may be enough to change the rules of engagement in the future.

Moreover, it’s possible to look back at all the discussion around EY’s proposed split and argue that it kept a lid on changes by the competition. Another Big Four firm, voicing ideas about how they planned to adapt to clients’ changing demands and new competition, might have been accused of following in EY’s lead. Now they’re free to pursue variants to EY’s approach, albeit probably smaller-scale ones.

As with Schrödinger's cat—in a box, dead or alive depending on the perspective of the viewer—the debate about EY’s future has opened up a wide range of issues to client scrutiny and may well frame buying behaviour going forwards. This genie is unlikely to go back in its bottle.