Deloitte Consulting rejoins parent

Paul Robinson, former head of Deloitte Consulting's public sector practice

Mixed impact on government business expected

Deloitte Consulting will not to split from Deloitte Touche Tohmatsu after all. More than a year after announcing plans to separate from its parent company, Deloitte Consulting, a wholly owned subsidiary, officially rejoined the New York-based global professional services firm June 1 after two months of intense discussions between top executives of the two firms.

The decision not to split and form an independent company was necessary because of the tight credit market and the uncertainty of the economy, company officials said in a March 28 announcement.

Overseeing the reintegration will be Paul Robinson, former head of the firm's public-sector practice, who was confirmed as chief executive officer of Deloitte Consulting by the firm's partners last month.

Under the arrangement, Deloitte Consulting will become the largest of four operating divisions within DTT and will absorb several disparate consulting groups that have resided in other parts of the company, Robinson said.

The firm's public-sector business will become a top priority in the new environment, Robinson said.

"There is room for quite significant growth" in the public sector, he said. "One of the main priorities of the firm is to make sure we don't underplay our hand in the public sector."

The firm's government sales amounted to about 18 percent of Deloitte Consulting's $3 billion in annual revenue in fiscal 2002 -- about $540 million, company officials said. Robinson wants to increase the firm's government sales to 20 percent or more of its annual revenue over the next several years.

In the state and local market, Deloitte Consulting has expertise in finance and administration, human services and justice as well as e-government, according to analysts and company officials. The firm has major IT projects in large states such as Florida, New York and Texas.

The firm's three-year-old federal practice, which is smaller than that of many large systems integrators, is likely to benefit most from the merger with the global firm, said Bob Campbell, the firm's global senior partner for public sector.

Company officials would not provide revenue figures for the federal practice, but company spokeswoman Pauline Weger said the practice has more than doubled in size each year since it was established in 2000.

In the federal sector, the company has noteworthy projects with the Defense Department and intelligence community, the Transportation Security Administration and U.S. Postal Service.

Assimilating the additional consulting groups also will mean more manpower for marketing and business development, Robinson said. His near-term objectives are to successfully complete the reintegration and improve profitability over the next year.

Robinson said it will be three to four months before the new structure is in order, and everything is functioning as it is intended.

Deloitte Consulting's decision to rejoin DTT reverses a three-year trend in which consulting operations of the Big Five accounting firms separated from their parent companies.

"For the last several years, consultancies have been spinning off business units that had strong information technology or systems play," said Ray Bjorklund, a vice president of consulting services at market research firm Federal Sources Inc., McLean, Va.

BearingPoint Inc., also of McLean, is the former KPMG Consulting. It spun off from KPMG International and launched its initial public offering in 2001. Accenture, formerly Andersen Consulting, ended its relationship with Andersen Worldwide after an arbiter declared it a separate company in 2000.

Deloitte Consulting's planned separation, announced in February 2002, seemed imminent at the outset of this year. The firm had even selected Braxton, the name of a consulting firm it had acquired in 1984, as its new name. No decision has been made whether Deloitte Consulting will keep its current name, Weger said.

Since the firm announced the reintegration, it has struggled to articulate what it will mean both internally and externally to its customers. As part of this process, the firm briefed analysts on the matter via teleconference in early April and, more recently, in a face-to-face meeting May 30.

Campbell said the move will provide the company with a larger geographic "footprint," strengthen existing capabilities and provide new capabilities in emerging areas of opportunity.

Stan Lepeak, vice president for professional service strategies at market research firm Meta Group, Stamford, Conn., said that while company officials have given sound reasons for remaining a single entity, the decision not to split from DTT could have been handled better.

"For a year, [Deloitte] loudly touted the virtues of the split, then literally overnight changed its position," he said. "The whole transition was not handled well, particularly the announcement teleconference. It gave the impression there was confusion and indecisiveness on management's behalf."

The less-than-perfect handling of the announcement may have some short-term fallout, but isn't likely to have a long-term negative impact on DTT's business, Lepeak said.

As part of the reintegration, DTT will add to the Deloitte Consulting division capabilities such as management solutions, business process outsourcing, risk advisory services, higher education and K-12 education, the executives said.

Moving forward, the global company should try to create compelling services bundles around core capabilities, such as tax, risk management and IT, that tap the skills and expertise of Deloitte Consulting as well as invest more heavily in offerings such as managed services and business process outsourcing, Lepeak said.

The downside of the move is that the firm will not be able to offer certain consulting services to clients under the Sarbanes-Oxley Act of 2002, which prohibits companies from providing consulting and auditing services to the same client.

This means a significant portion, between 20 percent and 25 percent, of DTT's clients that receive audit services might be off limits for some consulting services, according to Meta Group.

Also, Deloitte Consulting will not be able to team or partner in joint ventures with some companies, Campbell said.

The decision not to split may result in a slight loss in the traction the firm has been able to achieve in the public sector, Bjorklund said.

"Unless Deloitte Consulting can carry forward some brand equity from being perceived as an independent unit largely serving the public sector, Deloitte Consulting may get lost in the bigger firm," he said.

Lepeak said that while choosing Robinson to serve as Deloitte Consulting's CEO validates the importance of public-sector work to the firm, it may be only a temporary move in that, ultimately, there may be just one CEO for all of the company.

But Bjorklund said that for now, the selection likely will go a long way to protect and build upon what has worked for its public-sector practice in the past.

"[Robinson] will understand how the public sector is different and be less likely to break those things that have worked well for the public sector," he said. *

Staff writer William Welsh can be reached at wwelsh@postnewsweektech.com.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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