News Analysis: PWC's Non-Compete Ends with IBM

PwC EMERGES FROM THE IBM NON-COMPETE
In 2002, PwC sold its consulting arm to IBM for $3.5B. That transaction began a 5 year non-compete which ends on October 1, 2007. The non-compete prevented PwC from participating in IT consulting and systems integration. However, PwC could partake in other areas of business consulting such as management issues and IT advice, but not implementation. PwC now joins its former Big 4 brethren, Deloitte and Ernst and Young in being able to vigorously attack the consulting market however they want. Key points include:

• Continued focus on trusted advisory roles in business. During the non-compete, PwC and others in this space built up significant businesses in post merger integration, valuation and corporate finance, Sarbanes-Oxley and regulatory compliance, performance improvement, etc. With IT decisions moving to the business side, PwC's long-lasting CEO and CFO relationships will transcend well into the new IT environment.
  
• Expanding in IT strategy but not implementation. Expect PwC to play a 3rd party objective role in the board room on a range of issues from business to IT. With the system integration market commoditized by global SI's such as IBM, Accenture, Wipro, Infosys, TCS, etc., this industry observer would expect the operations to remain business focused and not a full range IT services supplier. Projects will focus around vendor selection, IT strategy, and independent validation and verification. This way they can play "auditor" to their former cousins who make their money on systems integration work and delivering vendor services.
  
• Advisory and consulting work brings in higher margins than audit work. Audit work still pays the bills and holds the relationships, but margins are much higher on the advisory side. General Big 4 billing rates average in the $250 to $300/ hour rate. Working on a project with 12 to 15 people over 2 months quickly overtakes the annual audit fee at most companies.
• Many alumni seek to come back. Despite the hot hiring market for resources, PwC has an advantage. Many IBM'ers are looking to head back to PwC given their experience with IBM. Along with other Big 4 alumni scattered during the last set of M&A, there's a longing to work at a private company and not at a company that talks a big game about strategy but ends up becoming a slave to the quarter to quarter Wall Street mentality. One classic post from the IBM-PwC Consulting merger days can be found at: http://www.ibmemployee.com/Highlights040724.shtml

The bottom line
Targeting the IT consulting strategy and high-end services market will allow PwC to enter the sweet spot of the market - highest value and highest margin work. Also, it seems that given a saturated system integrator market and high failure rate, PwC would probably not enter the pure systems integration market. However, it may decide to go down the higher end of the systems integration side of the house working on projects such as BI, master data management, business process management. And even if they do, the high end services side, coupled with the relationships should put competitors such as IBM and Accenture on alert as they ramp up in the next 12 to 18 months.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved