Michael Canning leads the sputtering engine of the least, by choice, globalized consulting firm
Headlining Canning’s Tenure
Deloitte S&O is an anomaly within an enigma that could, if it ever chooses to blossom, be a profound catalyst for change in management consulting
It is an anomaly because it has grown in capability, size and stature over a remarkable multi-decade period. While most other audit rivals sold practices, gutted efforts and flat out sang the perils of maintaining consulting alongside audit, Deloitte pretty much doubled-down each time and improved. There was no executional flip-flopping and, despite the close call with the Braxton spin-off, Deloitte’s leadership deserves credit for that consistency. Deloitte S&O, especially in the US and UK, is the consulting business every audit firm wants to have and every audit-based consulting practice wants to be.
At the end of a bad week and after too many shots at the bar, even many strategy boutique managing partners secretly envy Deloitte S&O, what with those diversified revenue streams, ample room for growth and footprint across the US.
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Deloitte S&O is an enigma because since the 1980s we have heard of a new type of management consulting bringing together the capabilities of audit, tax, corporate finance etc., to excel in strategy, operations and implementation. We were promised a formidable consulting machine driven by synergies neither BCG nor McKinsey could ever replicate. While Deloitte S&O has certainly grown and improved, it is far from excelling at any of those, let alone a single one.
What is executable strategy? Is it a strategy that is a small stretch for the client and so simple to understand, that it can be implemented in about a month with minimal effort? Or is it strategy that is complex, yet correct and a major stretch for the client to reach its potential, but possible due to Deloitte’s pinpoint precise instructions?
Is the latter not simply implementation? Is executable strategy not a euphemism for implementation? A skill at which, by the way, Deloitte S&O does not excel at in any form or manner whatsoever despite years of trying and relentless advertising.
Despite logically juxtaposed catchphrases and the survival skills of a cockroach, management consulting at Deloitte has never lived up to its potential. It is always the dark horse. This horse is so dark we cannot even see it since it absorbs all light. At times, we wonder, is it really there? A lot is expected of Deloitte S&O and it always promises that tomorrow will be better, but tomorrow never seems to come. Tomorrow is Deloitte’s convenient excuse.
If Deloitte is playing the long game then it is certainly thinking on an entirely different time scale: at this point we are seriously considering a logarithmic-scaled graph to plot management’s strategy.
Deloitte S&O is a catalyst for change due to the sheer scale of its business and the enormous capital it can bring to bear on a priority. It can afford to make mistakes and learn from them, and it seems to have done this in spades. Deloitte’s size has the potential to move markets, yet its lack of coordination has prevented this from happening. And that is part of the frustration. While Deloitte S&O spends an almost unrivalled fortune on its efforts, the quality and momentum of its material, not to mention the capabilities of its consultants, are formidably inconsistent.
Remember the Deloitte Review? That tome which was meant to be the answer to the McKinsey Quarterly, BCG Perspectives and HBR quickly fizzled after an expensive, glamorous and ambitious launch. It had incredible potential but Deloitte never made it the centerpiece to engaging clients and buried it among numerous noisy initiatives from the firm. Deloitte S&O’s initiatives seem to be choreographed like a community theater rendition of Swan Lake staffed with middle-aged fathers who learned dancing skills from Joey Tribianni; the intent is sincere but the execution is eye watering at best.
That Deloitte S&O has enormous room for improvement should not detract from the fact that on its current trajectory, Deloitte S&O could be the single greatest threat to McKinsey and BCG. Yes, despite all the criticism we have of Deloitte S&O, we continue to believe this massive enterprise stands the best chance of being a McKinsey-killer.
So great a threat in fact is Deloitte S&O, that many of the latters’ core initiatives like McKinsey Solutions, and the implementation and restructuring practices are replicating efforts started years ago by Deloitte.
So maybe Deloitte S&O is the visionary of the consulting profession, just as Microsoft and Xerox’s Palo Alto Research Center were visionaries in the technology sector? Like Deloitte S&O, both saw the future far before others. Both built prototypes of groundbreaking concepts before others. Yet, both were incredibly mediocre at bringing ideas to clients and, consequently, Microsoft now has the economics of a utility and Xerox almost went bankrupt.
For a firm built on the principle of executable strategy Deloitte sure is bad at executing its ideas.
Therefore, despite Deloitte S&O’s incredible potential it remains first and foremost a complete disappointment. That is sad to say because this publication always supported the firm and the potential for building a single P&L-based management consulting practice off an audit business. We still support the idea and believe Deloitte S&O can be better but more change is needed. While Deloitte remains the closest to fulfilling the concept of a multidisciplinary audit model, versus the other audit firms, it is magnificently relentless in disappointing us.
It is the Lindsay Lohan of consulting firms: so much potential but with so little to show for it.
Deloitte S&O is strong in the US, UK and maybe one or two other regions. In other words, Deloitte S&O is a management consulting practice built, nay, we say designed by purpose, to serve old world economies run by old white male partners, mixed with one or two old white female partners and seasoned with just the minimum of Indian partners for taste.
Are we allowed to state this carefully obfuscated factual composition of the Deloitte S&O leadership teams?
Think of every major initiative announced by Deloitte S&O through it’s chest-thumping press releases and you will not find a single one of substance that does not originate from the US, UK, Australia or quite possibly, Canada.
In other words, the Deloitte S&O you will find through a simple Google search is an Anglo-Saxon alliance of consulting firms. Indeed, Deloitte S&O seems to be the worlds first management consulting practice following the strange strategy of investing in English-speaking countries. This it seems is Deloitte’s unique value proposition, versus the executable strategy line it presents to clients.
Now, Deloitte will be quick to talk about the work in the Netherlands, South Africa and maybe a few other places that have a meaningful presence, as a rebuttal. Our counterpoint is that South Africa is English-Speaking and pointing out a handful of outliers to our argument, like the Netherlands, only reinforces our argument. That is why they are called outliers. They are not part of the overwhelming trend presented by the evidence.
While the entire world pivots east towards China and South-East Asia, Deloitte S&O runs in the opposite direction and pivots towards any market which does not use English sub-titles. The facts support this.
On average, 96% of the Deloitte Review pieces are written by US research specialists and partners. The rest are co-authored primarily by US partners supported by a handful of contributions from the UK, Australia and that most Non-Asian of Asian countries, Singapore.
Though Jeff Watts also makes a steady contribution and he is the Asia Pacific leader, it depends on how you define Asia Pacific to search for a break in the Anglo-Saxon alliance. The US partnership owns certain Asian partnerships like India and Japan, and Watts has this lofty title despite managing just these two countries and possibly one or two others in all of Asia.
In other words, Watts is a partner of the US practice and the US Practice has decreed he will be called the head of Asia Pacific even though Deloitte S&O covers less than 90% of Asia. Though I suppose since Watts is the Global S&O leader he has plenty of time on his hands since it is largely a ceremonial position with no operational power.
This kind of title-embellishment is the equivalent of being called an international trendsetter because you routinely drive across the border from Toronto, Canada to Buffalo, USA for clothing shopping.
Being the Global S&O is a ceremonial position since Deloitte S&O is not a global partnership and the global leader cannot make global decisions. It is the operational equivalent of being the Secretary General of the United Nations. Both can only advise, and usually gets ignored. In an ideal world, Deloitte S&O would merge into a global partnership, but this will never occur.
So basically, the Deloitte Review is a strategy publication for Deloitte S&O US and its coalition of the willing practices. You are either with them or against them, and if you are against them, well, you do not see your name in lights in the Deloitte Review. There is next to nothing about China, Brazil, and Indonesia etc., written by partners from those Deloitte S&O practices.
To put this into painful perspective, Deloitte S&O spent millions on this initiative, their centerpiece of eminence building, and decided that their target market would be CEO’s who wanted to read business perspectives on old world issues written by partners living in old world economies. Even if they did not consciously decide this, the result cannot be denied. Once again, the firm that coined the phrase executable strategy fails to execute a relevant publishing strategy.
Is there any CEO in the world who wants to read a global business publication primarily focused on ideas originating from just the US, UK, Australia and Canada?
Beyond the Deloitte Review, looking at other Deloitte S&O efforts, you would not find much else about Japan, Brazil, Russia, Nigeria, and South Africa etc., in any other Deloitte S&O initiative announcements. The only notice on that website page about issues outside the US, UK, Canada and Australia is the expansion of Deloitte University to Eastern Europe and Africa.
It is insulting to the foreign practices that they only get a mention, honorable at that, when the great powers of the US, UK, Canada and Australia take the time to bring education to the apparently uneducated consultants in the emerging markets.
All this page needed was a photo of ethnic Slavic and African Deloitte S&O consultants beaming as they received salvation from the great Western Deloitte S&O Powers for it to fit right into a 1800’s missionary advert about bringing the Lord’s work to the new lands. Clients could not care less about the western practices bringing “aid” to the emerging markets practices.
Placing this message on a public website basically advertises the fact that the emerging markets offices are weak. It hurts the partner in Prague, for example, trying to impress clients and insults that partner. Africa, Eastern Europe, Latin America and the rest of the emerging markets deserve to be treated better because they are better.
This is why the foreign practices rightfully resist influence from the US, UK etc. These little signals which seem completely normal to the US and UK, are downright insulting to everyone else. If Deloitte S&O treats its own offices in the emerging markets this way, you may use your imagination to determine how they view and treat emerging markets clients.
Deloitte S&O can be better than this. It needs to showcase the work, thinking and outstanding consultants from the emerging markets.
Why this regional discrimination happens is simple. It comes down to the issue of a fragmented partnership and P&L. Yes, this is a serious issue and that is why we constantly bring it up. Just like PwC, Deloitte S&O is not a global partnership like BCG, and everything you read about them will be initiatives pursued by the largest practices who naturally do everything and anything to please their own bottom-lines.
Let’s for a second forget about relatively smaller markets like Nigeria and Indonesia etc., which, admittedly, using Deloitte’s myopic English-language growth strategy framework, should not be a priority, even though they will be giants in the near future.
Let’s consider Europe’s largest economy, Germany. They may not speak English perfectly but surely they would matter? That Deloitte S&O has not managed to have a meaningful presence in Germany begs serious questions of Deloitte S&O’s ability to serve global clients. This is Germany after all. Arguably the world’s most competitive consulting market and the home of some of management consulting’s greatest ideas and leaders.
Deloitte S&O would have us believe they are essentially a world-beating firm which can go head to head against BCG in serving multi-national clients provided the multinational client does not have issues in India, Japan, Germany, Russia, Brazil, China, France & Italy. In these countries, Deloitte is not even a minnow. They are practically non-existent.
That is not to say that Deloitte S&O has much of a presence in Turkey, South Korea, Indonesia, the Philippines, Nigeria and other fast growing economies. They have a long way to go in the regions where it matters the most.
If you are applying to the US and UK offices, you are probably thinking this problem would not apply to you. Yet, it does. Very much so.
How many major corporations today have their primary activities in just the UK, Australia, Canada and the US? We cannot think of any, besides Deloitte S&O. Great firms like Apple, Ford, Microsoft, Boeing etc. are multinational. So, imagine Deloitte S&O is working for Apple and the client wants to shift production to Indonesia or Thailand? What will happen in that situation? Deloitte S&O will be sidelined by McKinsey and BCG because Deloitte does not understand these potential new manufacturing markets from a local perspective. Ultimately the Deloitte S&O practice in the US suffers since Deloitte’s influence suffers with an important client.
In this example of structure-induced bias, it is not hard to imagine situations where the analyses for a global client conveniently ends up prioritizing regions where Deloitte S&O has a strong global presence, which is practically nowhere.
It would seem Deloitte S&O has dazzling global skills provided you define global to exclude 80% of the world’s ten largest economies, and exclude 97% of the worlds twenty largest economies. With this kind of depth and breadth is it truly a wonder the CEO’s of P&G, GE, Nestle, Unilever, Coca Cola etc., do not have a Deloitte partner on their speed dial for strategy work?
And, just so we are clear, like the PwC acquisition of Booz & Co. the Deloitte S&O acquisition actually hurt Deloitte more than it helped it, because Deloitte made the very same mistakes PwC is now making. Implementation issues aside, a future editorial will examine the fatal strategy flaw in both the Booz and Monitor acquisitions.
Michael Canning inherits this far from finished Rubiks cube, which does not come with any manual and may not even have a solution as far as we can tell. As the head of the US practice, the largest and wealthiest practice, what he does determines the type of consulting firm Deloitte S&O will be in the future.
When one reads about Deloitte S&O, one usually is reading about the US practice, which is a separate legal entity from other S&O practices. In other words, the London or Tokyo offices for example, are not just in another region but also in a separate legal entity with a different profit and loss statement. They are separate companies sharing a brand. Just like a McDonald’s franchise, except there is more consistency at McDonald’s.
Canning has about as much control of the Deloitte S&O Luanda office as he does of the BCG Tokyo office. He can merely offer suggestions and hope they will be adopted. If they are ignored, as they usually are, he just needs to accept it.
And that is why Deloitte S&O will never catch McKinsey or BCG. Deloitte S&O possesses the structural flaw of a fragmented partnership that does not allow it to make the tough choices required to improve.
Canning’s first task is to forge a better working relationship across the global S&O practices. That must be his single laser-like priority. Unless he can do this, Deloitte S&O will never be able to serve the global needs of a client, since its global footprint is merely a loose federation of frequently uncooperative offices.
The rivalry and animosity between some of these offices would make Brutus blush at times.
Each Deloitte S&O office largely operates through a mechanism similar to a mobile phone roaming agreement, and you know how unpopular those are. For example, you can use an AT&T phone in Australia, Belgium and Russia, but it is cumbersome, expensive, annoying and not at all as smooth as what the locals experience with their unified regional providers. Unplanned charges always appear and it is virtually impossible to reconcile one’s use with the bill.
Deloitte S&O has a variety of billing rate cards and sharing agreements between offices and they work like mobile phone agreements. Therefore, no one wants to use them to field international teams for studies since it is inefficient and requires a lot of negotiations. Beyond the difficult mechanics of finding, checking and fielding international teams, culture and lack incentive due to a fragmented P&L play a major obstacle.
For example, how does the Santiago office know that the Singapore office is sending its best people on a study staffed from both these offices? Singapore may very well be sending its worst people who have low billability, and they probably are sending their worst people. Why would the Vietnam office invite any Thai consultants onto a study given that Thai’s traditionally belittle the Vietnamese? As separate profit centers, there is zero incentive to collaborate. Moreover, there are no uniform standards for performance reviews and the partners are unaware of the quality across offices.
This is what client’s currently experience: a horribly fragmented process which works within a country most of the time, but rarely across countries all of the time. The only solution is merging the partnership, which is not going to happen anytime soon, if ever, for the reasons mentioned above.
A good start to reducing friction between international practices would be to not repeat the theme from the Deloitte US S&O 2007/2008 Arizona partners meeting. That theme centered on the lessons of famous US Presidents. How is it respectful to Japanese partners having an actor strutting around as Harry Truman discussing the lessons when choosing to drop an atom bomb on Nagasaki and Hiroshima?
More troubling is the general lack of respect the Deloitte S&O practice has towards foreign practices. This is a another true client story.
The fastest promoted senior consultant from a major and well-regarded Deloitte S&O emerging markets practice went on to do his MBA at a highly regarded program in the USA. This senior consultant graduated with highest distinction, served as president of several clubs and obtained offers with both Bain and BCG. In his interview with the Deloitte S&O practice, he was declined for the sole reason that the US office “does not think much of the Chinese practice”.
There may be other reasons involved, but imagine the animosity created since that was the only reason given for the decline? Why did the US practice feel the need to belittle the other practice?
There are also economic reasons for improving the integration and sharing between offices.
The US Deloitte S&O practice pretty much focused on its own market for a very long time. That worked very well when the US drove the bulk of consulting work, but this is quickly changing. Would it not be more useful to find a way to better serve existing US clients across their global operations? How many important clients only do work in the US? As the world shifts to the emerging markets, should the US firm not be figuring out ways to handle client needs in Brazil, Russia, India, China and South Africa?
This is a more sustainable effort with profoundly devastating implications for competitors.
It allows Deloitte to take its consulting practice to a level of competency that PwC cannot match it. While PwC is focused on merely building out it’s strategy and operations capability, Deloitte should focus on optimizing the consulting practice it has already spent decades building.
Deloitte S&O should focus on drills, live-fire exercises and consulting engagements composed of international teams. Crucially, these studies should not be fielded with the best consultants from the office who was awarded the study, but from the best consultants within the Deloitte global partnership. Intellectual property needs to be liberally shared and hoarding of ideas heavily discouraged. A consultants laptop is not an appropriate storage device. Deloitte should decree 28 January “Upload Day” and force all consultants to load all documents into the global servers, and then share the material across all offices.
The Deloitte S&O US office has the resources, incentive and scale to pilot these types of studies and change the behavior of the global firm. They should.
Canning’s second priority must be generating a better return on S&O’s enormous budget. Unlike its smaller competitors, Deloitte has the financial resources to make an impact but does not spend the budget wisely. The US firm should be investing in research by local partners in local offices around the world.
This ridiculous notion that a US partner sitting in the US and visiting China maybe twelve-times in his life should be the authority on Chinese market issues is embarrassing in the naivete it assumes of clients. We choose China as an example but the crown-jewel Deloitte eminence pieces are always written by the Anglo-Saxon alliance partners when discussing any global issue.
Nonetheless, the partner living in Brazil, dealing with Brazilian issues and working with Brazilian clients is whom we want to hear from. We need to see Deloitte thinking from outside the US or UK, or pretty soon we will assume there is no Deloitte thinking outside the US and UK.
Training needs to be radically overhauled. It is painful to see so much money wasted on mediocre feel-good programs, which do not provide strategy, and operations consultants any of the skills needed to solve problems from first principles. That Deloitte S&O consultants comprise >70% of our strategy training client base speaks to the fundamental weaknesses of Deloitte University. Yet, it also indicates that the Deloitte consultants want to learn. They just need the right material.
This is just another example of a great idea with weak execution.
Deloitte has invested substantially in analytics and has a sufficiently large arsenal of methodologies. While it can always build or buy better analytics, as it should, it can generate a better return for clients by better training consultants to use the tools it does already possess. In other words, it needs to focus on the core strategy, operations and implementation approach with as much fervor as it focuses on the paralytic analytic arms race.
Deloitte S&O consultants are extremely weak in understanding the core approaches. If you ask many how to use objective functions, decision trees, prioritized branches, hypotheses, analyses for hypotheses and data for analyses to structure a storyboard, you may get blank stares. Deloitte S&O consultants speak the correct lingo but they lack an understanding of how to structure analyses from first principles. Deloitte S&O needs to invest in the basics.
Despite all its opportunities for substantial improvement, we still believe Deloitte S&O remains the largest threat to McKinsey et al in the long term. The structural issues must be fixed around practice ownership, but even before this is done, Deloitte S&O can probably improve by up to 50% through better leadership, and more efficient and effective use of its formidable resources
Punit Renjen set Deloitte S&O alight a few years back with much needed attention, investment and vigor. He was brilliant and the right man at the right time. Thereafter, things have just failed to move forward.
The Deloitte S&O consultants are good enough and their skills are sufficient to grow as a major practice. They are being misled by mediocre leadership whom are sending them to the slaughterhouse with poorly conceived studies, training and support. Think of Deloitte S&O as a formidable aircraft carrier. It does not matter how many fighters it can carry, how many missiles it can deploy and how many cities it can flatten. If the admirals send it to the wrong destination, equipped for the wrong mission and with poorly designed mission plans, it will surely fail. How can it not?
Leadership is about knowing where and how to deploy such an awesome weapon.
Deloitte S&O is still under the false impression it must structure itself to better engage clients in primarily the US and the UK. The world has moved on and it needs to be reconfigured for missions across the world as its clients span the world.
We think Deloitte S&O has enormous potential and deserves better than its current leadership. We, with great regret and all due respect, withhold our endorsement of the current leadership.