CXO

Does buying bigger make it better?

The billion-dollar players of the consulting industry know that bigger, better, faster, and stronger are the buzzwords of the moment. Will acquisitions of boutique firms help them build their muscle? Columnist Tom Rodenhauser offers his take.


The clock on KPMG Consulting is ticking now that its shares are about to be publicly traded. The company has four years to come up with a different brand. Meanwhile, the company will start actively courting acquisitions.

Many of the e-consultants would love to be on KPMG’s love list. The lucky ones, such as Xpedior-UK, have already found a white knight like Arthur Andersen to save them from the burning towers. Sadly, most of the e-firms will slip into oblivion before anyone comes calling.

The quick and clean demise of so many established names clearly demonstrates that recognizable brands mean little in the future consulting world. And the bare ripple of attention sparked by their passing speaks to an acknowledgement among consultants that massive industry fragmentation is on the horizon.

Bigger, better, faster, stronger: Those are the buzzwords of the new consulting model. Even though the consulting market has slowed, there will be a number of acquisitions and alliances completed this year.

At least 16 consulting firms will tally a minimum of $1 billion in consulting revenues this year. Right down the list, each of those companies have played the acquisition game or itself been part of a merger. There is an almost insatiable desire to add more capabilities, which inevitably leads to more deals.

There is no magic number, but it’s safe to say that once a consulting firm surpasses $1 billion, sustenance itself becomes a major job. Considering the incredibly tight labor supply available to these firms, how can they grow without acquisitions? Even Accenture hasn’t completely answered that question.

We’re already seeing a vast chasm between big and small consultancies. The billion-dollar players will consider the sizable firms of today ($300 million) as mere boutiques tomorrow—and every one of them will be an acquisition target.

Heard on the street
More than a few insiders point out that Razorfish—the brashest of the e-firms over the last couple of years—committed the ultimate sin by not slicing deep enough during its initial round of layoffs last year. The company had to cut loose another 400 people this week. Usually two rounds of cutbacks within the same 12 months are the death knell for a consulting firm.
Inside Consulting is written by Tom Rodenhauser as a free weekly supplement to The Rodenhauser Report. The report informs senior advisors and business executives of consulting trends and best practices. Subscription cost is $295 per year for 10 issues. Copyright 2001, Consulting Information Services, LLC. Reproduction is prohibited. Quotation with attribution is encouraged.

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