The waning days of winter brought some major news in the consulting world: Deloitte Consulting, soon to have been Braxton, won't be, since privately held corporate parent Deloitte Touche Tohmatsu has called off plans to spin off the consulting arm reported Dana Stiffler of AMR Newswire. Separately, but with impeccable timing, the U.S. Securities & Exchange Commission (SEC) issued rules this week that require listed companies to separate the audit and advisory activities that they buy from firms like Deloitte or face delisting. It all adds up to be a rather big deal for customers and the industry, but in the long run, it was necessary for the consulting arm's survival. The consulting side of the business has overseen thousands of enterprise resource planning (ERP) and other technology implementations over the years. The tax, audit and risk practices work closely with clients to help them comply with new SEC regulations like the Sarbanes-Oxley Act, which has serious IT implications. Separating would have allowed the two organizations to retain large, lucrative customers that were consulting and public audit clients.
Now these clients must choose which group they will continue to work with, resulting in a net loss to the fortunes of Deloitte as a whole. This upfront hit to the wallet notwithstanding, the alternative continuing on the path to separation would have been worse, especially for consultants going to Braxton. The new firm wouldn't have survived for long in the current market. The problem now is that both groups have been restructuring to survive separately for the past 14 months and have to reverse gears and fit into a completely different regulatory environment, as shown in the new SEC rules. As Deloitte finds old footing in a new world, questions that arise include the following:
- Will management structure be rationalized between DTT Consulting and Deloitte Consulting?
- Which side audit or advisory will take dominance over which types of accounts?
- How will corporate risk management (with its significant IT implications) mesh with the IT consulting part of the business?
Having lost out on significant business due to mixed signals about the separation, Deloitte must address these questions right away, to shut its competitors' window of opportunity as quickly as possible. If it can do so, Deloitte's size, depth and thought leadership should allow it to emerge a viable global player. In which precise service segments, however, we don't yet know.
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