Financial services firms see a light at the end of the tunnel
The financial services market appears to be recovering from the most challenging period in recent memory. From mid-2008 through mid-2009, consulting spend by companies in this industry contracted by double-digits due to three primary factors:
- The high level of cash reserves at large financial institutions reduced the amount of money available to spend on consulting.
- What consulting spend was allocated was doled out very selectively. Many consulting firms reported intense pricing pressure
- And, the rapid consolidation and implosion among the sector's largest companies (Lehman Brothers, Wachovia, etc.) reduced the number of big buyers of consulting services.
But it now appears that the worst may be behind us as some consulting firms report signs of improvement.
"We saw a significant decline last fall when the market was crashing. But since then, every month we've seen a creeping up in demand. We're nearly running at the same level of revenues as we were prior to the downturn," says John Kocjan, Deloitte's financial services practice leader. "We now have a more robust pipeline and sales volume than we've seen in a long time."
He says that he's seeing increased demand for several types of projects, most notably:
- Regulatory transformation. "To meet the new wave of regulations, large institutions are going to have to make material upgrades to their compliance and accounting systems. They have to get this stuff done. It's non-discretionary," Kocjan says. "No one knows what the regulations will require, but what's clear is that there will be pervasive and intensive regulatory scrutiny for the foreseeable future."
- Cost restructuring. In recent years, many banks rapidly increased the number of branches and ratcheted up marketing spending. In order to have the money needed to deal with the coming regulations, banks are going to have to reduce their distribution expenses, he says.
"They have a lot of fixed costs because of branch expansion. We're seeing a lot of cost reduction, process redesign, and more outsourcing and offshoring opportunities," Kocjan says.
He says he doesn't expect the regulatory and cost restructuring to be short-term demand blips. "They will be more transformative than SOX. We're talking about changing the heart and soul of how these institutions will be run. The challenge will be to manage the increased regulatory demand placed upon them, while, at the same time, running a cost-effective organization," he says. "Reconciling those two needs will require new technology, organization and process redesign. We are just at the beginning of helping clients change the way our clients are going to have to do business for at least the next five years, if not forever."
Deloitte is investing in these opportunities. Kocjan anticipates a very active campus hiring effort this fall. "We've not ratcheted back on hiring. We need resources."
Not all firms are as confident they are seeing the rebound just yet. Jitendra Sharma, partner-in-charge of KPMG's financial risk management advisory practice says he's taking a wait-and-see approach.
"The market is changing, but pricing pressure isn't going away," he says. The big ticket, $10 million to $20 million enterprise-wide engagements have essentially disappeared and it is taking longer and longer to close the smaller projects, he says.
"It's very hard to get visibility right now. I don't know how we'd predict where we'll be by the end of this year because clients don't have visibility into their own business," he says. "We're taking it month by month, quarter by quarter."
—Jess Scheer
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.