Insight Interview: Nigel Slater, KPMG

KPMG’s UK Head of Management Consulting Nigel Slater says that the firm did well in 2016. “We continued our growth of recent years by evolving our offers. We changed our services in banking and insurance, and developed deeper relationships with the key corporates and government.” Many of KPMG’s most important contracts are about technology-based transformation. Nigel highlights a significant shift into a new managed service model in these and other substantial programmes. Frequently, the associated commercials are ‘risk and reward’ with KPMG shouldering significant start up and development costs and building IP based platforms to help clients.

“Last year, we put a lot of investment into setting up a number of these contracts. Our approach is genuinely innovative. We will manage an entire process for a client, transform it and pass it back to them in a substantially improved condition as a managed service.” Nigel is clear that this is not outsourcing. “We do sometimes work with outsourcers to create a distinct value proposition. But historically many outsourcing deals are about achieving a cost reduction through commodity pricing. And it’s not what clients want from us. Our clients want us to convene the best mix of providers and strategic alliances to address their issues.

“Indeed, clients are getting more savvy and more structured in their understanding of what they’re after and whom they hire to get it. When they employ us, they’re seeking quality outcomes. Sometimes they turn to us having found the outsourcing experience underwhelming: costs have been reduced, but new outcomes have not been achieved. By deploying our rich content and business understanding, we can achieve desired outcomes. We can do this either directly with those clients with whom we have long- term relationships, or sitting alongside alliances in a genuine partnership.”

Nigel highlights KPMG’s Civil Service Learning contract as an example of the changing the shape of consulting’s role on the delivery side. “Our deep business understanding, together with the creation and deployment of a specialist team, have allowed us to redesign the service to focus on quality outcomes.”

However, Nigel notes that this model is challenging. “We’re a commercial firm, a partnership, generating returns to fund earnings and growth. So, if too many of these sorts of contracts are in the investment/development stage at the same time, rather than showing a return, then that impacts revenues.” There are ways to get around
this, such as working with through other partners who are geared to withstand the developmental ‘cost’ on their balance sheet. “But there are real challenges in scaling this model in the short term beyond 25% of revenue. “

Nevertheless, Nigel argues that these models are the future. Indeed, he points to the progressive normalisation of risk and reward and other sophisticated commercials in many sectors. “There’s evidence of this already in our 2017 pipeline. In banking, insurance, oil and gas, and life sciences, we are signing commercial deals focused on outcomes rather than resource inputs. However, while there are occasions when we do this in the public sector as yet public service bodies simply doesn’t let enough of these outcome-focused contracts that balance risk and reward.”

Technological disruption, Nigel suggests, is putting pressure on another aspect of the traditional consulting resource cycle. “Consulting has always been a people business. Hence, when the business grows in revenue terms, that growth is almost invariably accompanied by increased staff numbers. Digital technology and especially automation are allowing us to challenge and even break that cycle. It also means we can speed up our service delivery and move great solutions quickly across our clients. As we deploy technological solutions, we are aiming to grow revenues faster than our staff cohort expands.”

From tax and audit to consulting, KPMG as a whole provides a range of automated support services for clients. “There will be ever more of this, with clients given proprietary Cloud-based solutions, provided under licence or paid for through transaction fees.” Nigel also believes that the nature of partnerships with other providers will evolve. “Our alliance models are already longstanding, with important relationships core to our strategy. Our specialist associate base is expanding and we’re working with third parties to improve our o shored services.

“But the partnering approach needs to be more ambitious. In recent times, digital giants like Google have become our industry’s rivals for human resources. But now they are also partners in bids. We will see more of this. Those able to convene and work with partners to create credible content-rich solutions for clients will be the winners.”

These new delivery arrangements and commercial models will necessitate imaginative leadership in consulting. “Tomorrow’s leaders will differ from today’s, with different backgrounds and new skills. But the commercial savvy that characterises our industry’s leadership, especially in the large partnerships, will still be needed. What may change is how our firms manage their resources. Faced with the need to invest heavily in the start-up phases of risk-based contracts, in cutting-edge technology and in developing partner ecosystems, business leaders may need to find a new balance between in-year returns and long-term investments. Existing organisational models could change very fundamentally. That will require bold leadership.”