Why the Big Four represent the most formidable competition for the channel

Increased competition is nothing new, but none have been as formidable as this as the titans of industry cast a very long shadow across the channel.

By James Henderson May 22nd 2018

Walk through the revolving doors, past the marble reception desk and into the elevator.

Head skywards towards the top level and arrive at a waiting area akin to a hotel suite, passing on your coffee order to the welcoming wait staff as you enter.

Take in the panoramic view of the city and don’t forget to straighten your back and brush down your jacket, you’re in a different world now.

Welcome to the Big Four, the land of auditing, accounting and assurance, sprinkled with a dose of taxation, legal and finance.

Lazy stereotypes perhaps, but the offices of Deloitte, EY, KPMG and PwC are synonymous with the corporate world, a world built on consulting, guidance and strategy.

But in 2018, the skyscraper offices are combining to cast a very long shadow across the technology industry, advancing at pace into the world of the channel.

Such a shift in behaviour and focus is shaking the channel to its very core, impacting an ecosystem of partners that have until recent years, existed in parallel to their suited and booted counterparts within professional services.

Today however, a line has been crossed.

As one partner with PwC outlined during a recent ARN Exchange event: “You can advise a client for a million dollars about transformation. Or go for the $50 million to carry out the transformation.”

A penny has dropped, falling from the top of the food chain and down into the trenches, with large consultancy firms now not only advising on, but implementing and integrating technology solutions and services.

“The advisory and consulting space is perceived as being able to access and leverage a broad range of best practices, engagements, market trends and skilled practitioners to drive better decision making and outcomes,” observed Jens Butler, services and sourcing advisory director at Tech Research Asia.

“This comes with a focus on problem solving, solution analysis, design and recommendations, which then expanded into the full services implementation and integration arenas.

“Much of this evolution was based on their experience and ability to leverage knowledge of customer requirements, and the creation of frameworks, architectures and programme offices to deliver those large programmes.”

Yet despite such a varied and extensive skill-set, why have the large consultancy firms such as Deloitte, EY, KPMG, PwC, Accenture et el, to some extent, superseded the traditional technology integrators?

“These consultancies have risen to prominence,” Butler added. “Much of this sits with the market’s evolution and expanded customer expectations. This includes taking the excessive noise and attention surrounding the ‘digital journey’, and the need to be on it (whatever ‘it’ is).

“Part of the challenge revolves around clarifying what digital (and all of its sub-components) actually means to the customer, how they best approach it and what their best and most relevant options are.”

Across Australia and New Zealand markets today, Butler said many organisations are seeking clarity and guidance, removing the desire to seek out a suite of tools usually during a predictable sales pitch.

“This is where the likes of Accenture and Deloitte have been able to take mind, and marketshare,” Butler said. “This is through the perception that they are seen as more independent, have a broader level of knowledge of the customer and markets beyond just IT and have the ‘ear of the business’.”

According to Butler, risk management around technology engagement has come to the fore, again.

“Value, cost and applicability play a role in the decision process, but risk is becoming increasingly influential,” he said. “In light of the recent cyber security breaches, privacy issues and legislation and general business impact concerns, a simple technology capability checklist is insufficient.

“And the consultancies, and their associated audit and advisory histories, play a major role on this side – as can be seen by PWC rolling out its technology consulting and architecture practice with a risk pillar/capability embedded in every engagement.”

New territory

Winning mind, and marketshare is no small feat even for large businesses traditionally operating on the fringe of the channel.

But such a shift should come as no surprise in a world fast becoming enveloped with technology. This is, after all, the era when every company is being forced to become a technology company.

“Whether it is a car company with Tesla sneaking up, transportation company with Uber, hospitality company with AirBNB, or any other industry, technological disruption is threatening traditional companies with extinction,” Forrester principal analyst of global channels, Jay McBain, added.

“This means that every ancillary service or consulting company supporting these industries is being forced into technology as well.”

By the year 2020, McBain forecast that more than 80 per cent of accounting and marketing firms will be indistinguishable from traditional technology channel partners. Legal is slightly lower at 55 per cent, but still heading the same direction.

“Now think about every company, in every industry becoming a competitor for these technology dollars that lines of business are increasingly spending,” McBain explained. “This casts a huge shadow and is very tough to compete with.”

And competition in the local channel is fierce. With emerging start-ups biting ankles from below, now resellers, integrators and service providers must contend with professional services firms coming down the ladder in pursuit of technology dollars.

With deep pockets, and a deeper base of global customers, they make for formidable competitors.

“Given the footprint they have across the customer and IT environments, they do sit in an enviable position,” Butler acknowledged. “However, the pace of change and evolution is so rapid, they cannot rest.

“Their current procurement binge as they acquire intellectual property, integration capabilities, technology and industry solutions in not just artificial intelligence, machine learning and analytics, but also traditional system integration arenas, shows they mean to stay ahead of the game.

“Will they lose their ‘closeness to the decision makers’? Only time will tell, but they are a good representation of how the services arena is evolving, at a rate far faster than many in the market are comfortable with.”

Business technology

Locally, and globally speaker, emerging technologies are capturing the imagination of businesses irrespective or size or stature.

From artificial intelligence to the internet of things (IoT) and everything in-between, customers are exploring and experimenting at record pace, with creative levels heightening across the market.

An openness to technological change has always favoured the more nimble players within the channel, players with a rich history of customer engagement and a long line of continued innovation.

Therefore in theory, an increase in end-user enthusiasm should provide an advantage to traditional providers.

“One would think this would be the case,” Butler said. “Yes, the current mind and increasingly budget share is heavily AI, robotics, IoT and machine learning oriented – but the gap between the desire and actual execution currently stands between 12 and 18 months in the Australia and New Zealand environments.”

But why is this?

“The majority of customers understand they need to transition from legacy to newer platforms,” Butler explained. “Therefore they want to take advantage of the substantial opportunities that these emerging technologies could deliver and get it in a secure, budgeted and business-aligned manner.”

On the flip side however, Butler acknowledged that they also know that budgets increasingly sit with the business and this is where the need for adoption is emanating.

“Therefore, any investment demands a clear understanding of ‘how will this help the business’ – how will that chatbot help improve my customer interaction KPIs or improve share of wallet?” Butler said.

“And this is where, again, the business/IT consulting shops are able to talk at multiple levels and help orient and target the business, and not just sexy/cool technology, reasoning behind the options.”

In assessing changing customer demands, Butler observed that technology is no longer a technology conversation.

“Customers’ internal and external business drivers are playing a far greater role in the selection, usage and implementation of technology,” he explained. “It is becoming crucial for almost every business function to evolve into core and differentiating functions within an enterprise’s armoury, while also expanding outside the mysterious realm of ‘IT’.

“And the consultancies have a history and deep capability around such conversations.”

Coupled with the fact that most technology adoption is no longer siloed around end-user compute, mobile or SAP solutions, for example, then a significant shift is underway.

“It has become a function of how all of the disparate technology components fit together,” Butler added. “Such as how the IoT device’s gathered data and the associated analysis helps drive an improved traffic management system or proactive vehicle maintenance.

“It is an integrated conversation that demands the ability to connect in both a top-down and bottom-up manner.”

Fighting chance?

For the stalwarts of the channel coming to grips with this new breed of competitor, solace is seemingly in short supply due to the vast capabilities on offer along the corridors of power within professional services firms.

One additional consideration, as explained by Butler, revolves around relationships with many of the technology providers themselves.

“The ever evolving and expanding ecosystem of partnerships - mainly due to the growing demand amongst customers and growing volume of technologies - does create tension,” Butler acknowledged.

“Many traditional integrators struggle to play across the ever-expanding multiple technologies and relationships. They have to remain loyal to certain partners, partially through history and also how they have structured their organisations to service those technologies, but they may also sometimes clash with their own offerings.

“The consultancies have generally been able to engage with most technology providers due to the fact they do not, themselves, produce them and are seen as less of a threat.”

Alluding to the adage of - the bigger they are, the harder they fall - integrators and service providers still have an edge through competitive pricing and mid-market expertise, areas of the channel not usually associated with the large advisory firms.

For those adopting a more open mindset however, a head-on collision can be avoided through effective partnering at the top end of town, chiefly through providing integration and technical capabilities to complement consulting strategies.

Or perhaps another path to progress, considering recent market dynamics, is to simply put up a ‘For Sale’ flag and wait to become acquired.

Whatever the approach, the channel must move fast to get out of the shadows and back in front of the customer.