Professional Documents
Culture Documents
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DELOITTE CONSULTING
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TBR POSITION
Deloitte Consulting is the consulting arm of worldwide accounting and auditing firm
Deloitte Touche Tohmatsu. DCs FY01 performance in the midst of a general
economic slowdown, as well as more substantial declines in the consulting and IT
services industries, speaks to the efforts to diversify its business model. DC posted
FY01 revenues of $3.49 billion, up 11.1% from $3.14 billion in FY00. While far from
the growth rates of 35% or more DC enjoyed prior to the deceleration in IT spending,
DC has managed to maintain positive revenue growth, beating the PSBQ average of
9% for the period. TBR believes this is due to the relative success of DCs efforts to
geographically diversify its business model, expand its portfolio of services and
strengthen its brand the next logical steps after establishing a global footprint.
While TBR certainly expects DC to continue its expansion into new geographies in the
future, it appears DC has curtailed its expansionist strategy in favor of diversifying its
range of services. This served to buffer DC against overexposure to the areas hardest
hit by the IT spending slump and enabled it to respond to clients demands for a
broader range of services from a single firm. DC may yet suffer a decline in revenues
as corporate IT spending is still soft and strategy consulting is weakening. However,
an even more serious threat to DC stems from the Enron debacle and its
corresponding effect on the auditing industry. TBR believes that despite DCs ardent
refusal to spin off from DTT, a disruptive separation will be inevitable.
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DC Partners with Lucent to Implement Billing System for U.K. Utility Company
11/7/01 Lucent is working with DC to implement its Arbor/BP billing platform for U.K. utility company
npower. npower will use the Arbor/BP billing platform to support the introduction of new telephony
services to its expanding customer base across the United Kingdom.
DC Assists Launch of Web Site for California Technology, Trade and Commerce Agency
11/5/01 The California Technology, Trade and Commerce Agency unveiled its new one-stop Web site,
providing dynamic access for business attraction and development, job retention, and international trade
and investment services online. DC worked with the TTCA to integrate and execute its agency-wide
Internet strategy for the site. The firms services included redesigning the look and navigation of the TTCA
Web site and building the new site using the My California portal technology.
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ORGANIZATIONAL CHANGES
DC Deploys Saba e-Learning Solution
11/12/01 California-based Saba Software Inc. has supplied its Saba Learning, Enterprise Edition
e-learning system to the professional services provider DC. DC will use Sabas system to deliver selfservice electronic learning to its consulting professionals worldwide. The Internet-based Saba solution
offers support for multilingual content and environments, as well as the ability to support business rules
that are appropriate for the local business practices at each of the consulting firms worldwide offices.
FINANCIALS
DC Reports FY01 Revenues of $3.49 Billion, Up 11% from FY00
5/31/01 FY01 revenues for DC were $3.49 billion, up 11%, or $350 million, from FY00 revenue of
$3.14 billion. (Note: DC restated revenue amounts reported in prior annual reports for FY00 to include all
revenues of DC instead of revenues only from professional fees in FY00. DC also restated FY00 revenues
in U.S. dollars using FY01 exchange rates.)
For complete press releases, see TBRs Web site.
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STRATEGIC OVERVIEW
DCs primary strategic objectives of establishing a global presence and serving the worlds leading multinational
corporations have remained intact in FY01 from FY00, though the strategy seems to be evolving to its next stage.
From DCs inaugural year in 1996 the consulting company has grown from a handful of practices to 34 worldwide
practices at the beginning of FY00. This number has not grown since that time, and TBR believes DCs corporate
strategy has shifted from an expansionist strategy to focusing on growing and strengthening its portfolio of global
strategic alliances. However, TBR believes the slowdown in the consulting industry in 2001, especially in the
United States, also had an impact on DCs efforts to expand its global footprint. FY01 revenues were $3.49 billion,
up 11.1% from $3.14 in FY00. These results are cause for some optimism for DC as its 11.1% year-to-year revenue
growth in FY01 edged out the 10% year-to-year revenue growth achieved in FY00. However, year-to-year revenue
growth for FY01 and FY00 are far from the spectacular growth rates of 35% or more during the height of the IT
infrastructure and services spending frenzy a few years back.
Deloitte's Four-Year Annual Revenues
$4,000
$3,500
$ in Millions
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$FY98
FY99
FY00
FY01
Fiscal Year
STRATEGIC OBJECTIVES
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DC partnered with BEA with to better compete with IBMs Global Services and Software groups.
Siemens and DC formed an alliance to pursue potential business opportunities in the security and CRM
marketplaces.
Asia Logistics Technologies formed a strategic alliance with DC to provide ERP and SCM services.
Lucent is working with DC to implement its Arbor/BP billing platform for U.K. utility company npower.
Nucleus Financial Network and DC have announced an agreement to work together to market software
and professional services for strategic processing environments to global financial institutions.
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Clients include General Motors, Hewlett-Packard, Cargill, Philip Morris and Microsoft.
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Owned by DTT
Privately held
Strong CRM practice
Weaknesses
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Owned by DTT
Privately held
Weak in outsourcing
Overexposure to IT implementation
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benefits from being a minor outsourcing player. DC must expand its outsourcing services if it seriously expects to
gain a meaningful share of this growing market.
Threats
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CONCLUSION
DCs FY01 performance in the midst of a general economic slowdown, as well as more substantial declines in the
consulting and IT services industries, speaks to the efforts to diversify its business model. DC posted FY01
revenues of $3.49 billion, up 11.1% from $3.14 billion in FY00. While far from the growth rates of 35% or more
DC enjoyed prior to the deceleration in IT spending, DC has managed to maintain positive revenue growth, beating
the PSBQ average of 9% for the period. TBR believes this is due to the relative success of DCs efforts to
geographically diversify its business model, expand its portfolio of services and strengthen its brand the next
logical steps after establishing a global footprint. While TBR certainly expects DC to continue its expansion into
new geographies in the future, it appears DC has curtailed its expansionist strategy in favor of diversifying its range
of services. This served to buffer DC against overexposure to the areas hardest hit by the IT spending slump and
enabled it to respond to clients demands for a broader range of services from a single firm. DC may yet suffer a
decline in revenues as corporate IT spending is still soft and strategy consulting is weakening. However, an even
more serious threat to DC stems from the Enron debacle and its corresponding effect on the auditing industry. TBR
believes that despite DCs ardent refusal to spin off from DTT, a disruptive separation will be inevitable.
This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology
Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is
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MARKET STRATEGY
It would seem DC has curtailed its efforts to expand its global footprint, as it has not increased its member or
subsidiary geographic practices since FY99. These practices numbered 34 in FY99 and that has remained
unchanged. Despite this, DCs overseas revenues have continued to grow and become a larger portion of its
worldwide revenues. In FY01, revenues from EMEA and Asia Pacific totaled $1.1 billion, up 19.4% from
$926 million in FY00. Individually, EMEA revenues were $661 million, up 7% from $619 million in FY00, while
Asia Pacific revenues were $445 million, up 45% from $307 million in FY00. Revenue from EMEA and Asia
Pacific accounted for 31.7% of total revenues in FY01, versus 29.5% in FY00. Revenue from Latin America has
grown 33.8% to $210 million in FY01 from $157 million in FY00.
To supplement the Authentic Consultant branding and marketing campaign it launched in July 2001, DC recently
published the first two in its Straight Talk series of books. The first, titled Your Secret Weapon: How to Get the
Most Out of Your Consultant, is intended to guide clients in deciding whether or not to hire a consultant. The
second book, How to Eat the CRM Elephant, explores CRM from a customer service perspective, warning against
becoming infatuated with CRM technology and losing touch with ones customers. This book series will detail the
results of DCs research into what consulting clients are demanding in the current climate of cynicism toward the
consulting industry. DC hopes this effort will further distinguish itself from its consulting rivals in the eyes of
current and potential clients. DC also hopes this will lend credence to its claim that it has remained focused on its
clients rather than on distractions such as talent wars and IPOs, distractions it claims have preoccupied many of its
rivals at the expense of their clients. TBR believes this represents an effort by DC to strengthen its brand
recognition, which it admits has been weaker than its consulting competitors.
DC continues to target large enterprises, both as clients and strategic partners (the consulting needs of midmarket or
smaller firms are primarily served outside of DC by parent company DTT). In FY01, DC established new or
expanded current relationships with Lucent, Siemens, BEA Systems and Hewlett-Packard. The recently established
marketing alliance with HP grew out of HPs relationship with DC as a client, and represents a common evolution
among DCs web of partners and clients.
TBR believes the publication of DCs How to Eat the CRM Elephant and its recent alliances with Siebel and
Siemens illustrate its faith in the CRM market. In FY01, TBR estimates CRM services accounted for 13% of DCs
total revenues, or about $454 million. DC has engaged in a number of marketing events to promote its presence in
the CRM services market, such as its sponsorship of Davos and its sponsorship of Siebel Systems User Week in
Europe. DC also sponsored Siebel Worldwide User Week 2001 in Chicago during September 2001. TBR expects
DC to continue to pursue CRM-related partnerships and clients, as well as continuing to market itself as a leader in
the development and implementation of CRM services.
In response to increasing client demand that a quantifiable ROI be established prior to the initiation of a technology
project, DC has developed software tools to be used in conjunction with the CRM applications of its partners like
Siebel Systems. Quantifying ROI has become an integral part of the selling stage of technology projects and TBR
believes DC recognized this before several of its rivals. Another crucial part of the project-selling process is the
establishment of project milestones to specify frequent ROI reviews for clients. Part of DCs CRM services
includes a series of regular deliverables to clients, sometimes every three months, to provide clients with quick
wins through frequent ROI updates. TBR believes this is part of a larger effort to broaden the range of services
included under the CRM umbrella.
GEOGRAPHIES
Asia Pacific revenue is becoming a larger portion of DCs total revenue, as illustrated in the above chart. Thanks to
a 45% increase in revenue from FY00 in DCs Asia Pacific business, revenue generated outside North America
grew to 37.7% of total revenue from 34.5% in FY00. TBR also believes DCs Latin American business is growing,
as evidenced by its increase to 6% of total revenue in FY01 from 5% in FY00. Growth in EMEA has slowed as the
slowdown in the United States has migrated across the Atlantic. In FY01, DCs EMEA business grew 7% from
FY00 versus 20% year-to-year growth achieved in FY00 from FY99 and a phenomenal 56% growth rate in FY99
from FY98. TBR is not surprised to see DCs rates of non-North American revenue growth slowing as DC shifts the
focus of its expansionist strategy from geographies to services.
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Geographic Revenues
80.0%
Total Revenue
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
FY99
North America
FY00
EMEA
Asia Pacific
FY01
Latin America
SERVICES STRATEGY
In FY01, DC claimed to have merged its industry and services practices to illustrate its stated commitment to and
focus on meeting its clients needs. The reorganization resulted in the formation of the Markets and Services
organization. While TBR believes this change to be more symbolic than an actual reorganization of its corporate
structure, it further illustrates DCs efforts to distinguish itself from its rivals. TBR does not believe this represents a
departure from the strategy of offering industry-specific expertise that DC and many other consultancies pursued in
response to increasingly specialized client demands. Instead, TBR believes DC is enhancing its vertical and
horizontal integration among its industry and services groups. Simply put, the reorganization may represent nothing
more than increased collaboration among industry groups to more quickly identify and respond to cross-industry
needs and trends.
It is important to note that DC recognized a lack of business process expertise among its services and industry
groups and attributed this to the admitted weakness of its brand image against some of its rivals. TBR believes
increasing business process expertise along each of DCs industry and services lines is, and will continue to be, a
part of its overall services strategy.
DC retains the alignment of its service areas into 14 comprehensive and complementary units as follows.
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Page 12
and SAP (also includes SAP/Commerce One); and all industry-specific solutions developed around Oracle,
PeopleSoft and SAP.
Offshore Development
Focused on providing offshore development capability with appropriate on-site development support in
engagements across DCs services; skills include Java, C, C++ development, UNIX and Microsoft platform
development, database administration, Web development, and selected software configuration skills; and leverages
SEI CMM Level 5 development expertise to support development-oriented projects.
Customer/Product/Market
Services include analysis, strategy and implementation associated with the sales, marketing and service processes;
customer-driven business strategies, including multi-channel strategies and channel conflict; marketing, branding
and pricing analysis and strategies; customer value/performance metrics; customer-centric processes, organization
and decision making; and transformation of an enterprises brand, customer service, sales and marketing
capabilities.
Operations/Supply Chain
Services include analysis, strategy and implementation related to areas such as supply chain, both within an
enterprise and across enterprises; supplier relationship management, including procurement and strategic sourcing;
collaborative commerce/business-to-business/public and private e-marketplaces; product innovation and lifecycle
management, including new product development and collaborative product commerce; logistics operations,
including inventory management, warehousing and logistics management; reconfiguration of work through the
application of lean operations principles across an enterprises entire value stream (enterprise-level lean principles);
merger and acquisition integration; operations improvement not categorized elsewhere.
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Business IT Strategy
Services include strategic use of information technology to impact basis of competition, performance, economics,
and value creation; e-business strategy; digital strategy; IT organization and processes transformation; IT value
analytics; and links to IT strategy in DCs technology competency.
Corporate Strategy
Services include industry, market, and competitive research; alternative business models; complexity, scenarios and
real options; market entry and operations strategy; links to organization strategy; and e-business.
Program Leadership
Services include the alignment of programs with corporate and operations strategies; program and project
prioritization (against strategy); portfolio and program benefits realization; portfolio and program management;
program office management for major change programs; and links to M&A and all competencies.
PRICING
DCs project revenue is directly related to the hourly rate charged to its customers. This hourly rate can differ due to
size of project, different tasks, individual negotiations and status of customer, such as private sector or government.
In addition to time, DC bills for out-of-pocket expenses such as travel, lodging, meals, report production and
specialized software/hardware products. DCs out-of-pocket expenses typically average about 20% of fees. The
company also is willing to propose fixed expenses on a project-by-project basis. The following chart details DCs
billing rates for its labor categories.
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RESOURCE MANAGEMENT
FY01 saw the virtual end of the war for talent DC and most other consultancies were fighting during the heyday of
the e-commerce and Internet frenzy. The mass exodus of consultants who left their positions with consulting firms
like DC, Accenture, McKinsey and the Boston Consulting Group to join or start new e-commerce ventures
intensified the competition for talent during the e-commerce and Internet boom. But as IT spending on new projects
dried up, so did the need for the architects and plumbers of the new technology, the strategy and IT consultants.
Rival KPMG Consulting slashed jobs three times during 2001. McKinsey scaled back its recruiting efforts, froze its
hiring, and released 210 support staff during the year. Even Accenture, despite recently concluding four straight
quarters of year-to-year revenue growth during 2001, implemented measures to match workforce size with business
trends (though in calendar 4Q01 Accenture actually hired 2,400 professionals, illustrating the momentum of its
business relative to its rivals).
DCs globalization strategy led to substantial growth in its worldwide staff and locations from the companys launch
in 1996 until FY00, but has slowed since. Its worldwide staff has grown 1.4% from 12,116 in FY00 to 12,282 in
FY01. This was following 9.4% year-to-year growth in FY00 and 34.7% year-to-year growth in FY99, which
certainly illustrates how DCs hiring trends corresponded to the decline in its business. DC reported staff in the
Americas decreased 1.6% from 6,916 in FY00 to 6,808 in FY01. DC includes Latin America in this figure, and
TBR believes headcount in Latin America actually increased as business in the region did as well. Given this, TBR
believes the bulk of the decline in staff took place in the United States. Staff in EMEA increased 1.3% from 2,832
in FY00 to 2,869 in FY01, illustrating the corresponding slowdown in DCs business in EMEA. Business in Asia
Pacific has continued to grow, as has DCs staff in the region. In FY01, Asia Pacific became the fastest-growing
region for DC both in terms of revenue and human resources DC directed to the area. Asia Pacific staff has grown
10% from 2,368 in FY00 to 2,605 in FY01.
An interesting development is DCs launch of Passport, the firms Web-based alumni program established at the
beginning of FY01. In its first year, DC estimates the program already has more than 2,000 registrants on its Web
site. DC also reports receiving more than 7,000 hits in one month from alumni looking for firm news and
information. DC also has formed alliances with major placement firms to help track and place alumni. While DC
seems to be just acknowledging the value of alumni relations, it is certainly a step in the right direction. A strong
alumni network can also serve to boost DCs prestige as a consultancy, and consequently its brand strength.
McKinseys alumni network is considered perhaps the most extensive and well managed in the consulting industry
and is perhaps the most powerful sales building resource leveraged by any consultancy. DC has recognized the
value of alumni networks as a way to cut costs by curbing headhunter and search fees, estimating that each alumni
rehire can cost as much as $50,000 in such fees. DC employs one full-time global director, one full-time Web
manager, has temporarily employed some staff to build its alumni Web site and distributes a regular newsletter.
FY00
FY01
$2,861
$3,144
$3,493
$544
$503
$559
37%
10%
11%
42%
-8%
11%
19%
16%
16%
Net Income Margin
Source: DC FY01 Annual Report and TBR estimates.
Note: DC restated revenue figures for FY99 and FY00 in its FY01 annual
report from those reported in its FY00 annual report.
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Page 15
Energy
Financial Services
Public Sector
Health Care
Communications/Media
Consumer Business
Manufacturing
Assesses current operations, recommending transformation strategies, implementing initiatives and coaching staff to
become in-house change agents. Addresses issues like process reengineering, application development, technology
selection and implementation, and improving the retail environment. Serves automotive, aerospace, high-tech and
process industries, and life sciences manufacturing sectors.
Financial Services
Provides enterprise transformation, ERP, CRM, mergers/acquisition/integration, strategy/financial management and
systems integration services to financial service firms.
Health Care
Works in conjunction with the tax, auditing, and accounting services of DTT to provide services in strategic
transformation, mergers/integration, as well as service to improve clients market positions, service execution and
market strength. Also provides services through Total Health Management, an integrated set of services and
capabilities related to the management of clinical care across health care organizations.
Consumer Business
Addresses issues of consumer relations, multichannel marketing, supply-chain management and business process
management. Services focus on enterprise transformation and include strategic enterprise management, CRM,
process enhancement, supply chain integration, ERP and systems integration, e-business consulting, and mergers
and acquisitions.
Energy
Serves clients in oil, gas and utility companies. Services include CRM, energy systems integration, mergers and
acquisitions, and ERP.
Public Sector
Offers services to enhance the access to and delivery of government services to citizens, business partners and
government employees. Services include enterprise transformation, ERP, CRM and change leadership.
Communications/Media
Provides communication companies with services, including scenario planning, increasing customer focus,
operational efficiency, revenue stream architecture, e-transformation strategies and other IT services.
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Page 16
Revenues in Millions
$700
$600
$500
$400
$300
$200
$100
$0
Manufacturing Financial Services
Energy
FY00
Public Sector
Communications/
Media
Other
FY01
Five of DCs seven global market units have grown since FY99, the two exceptions being the Manufacturing and
Financial Services groups. TBR estimates revenues for these segments continued to shrink in FY01 thanks to
continued weakness in the U.S. financial services and manufacturing markets. However, TBR believes these groups
performed better in EMEA and Asia Pacific. Revenue in DCs Consumer Business segment grew in FY01, but only
slightly. TBR expects continued erosion of revenues in DCs Financial Services, Manufacturing and Consumer
Business segments. DC has enjoyed strong growth in its Energy, Public Sector and Communications segments since
FY98, trends TBR expects will likely slow with the declining economy and consulting industry, although TBR
expects DCs increased focus on the public sector will produce continued growth. DCs Health Care unit posted
impressive growth in FY01, driven mostly by strong U.S. business.
DC Organizational Structure
Martin Shaw
Chairman
Douglas McCracken
CEO
John M. Sullivan
Deputy CEO
Robert A. Go
Deputy CEO
Robert J. Glatz
CFO
Richard H. Murray
General Counsel
Tom Friedman
Global Director Deloitte Ventures
Brian Fugere
Chief Marketing Officer
Graham Baragwanath
Managing Director, Asia Pacific
Manoj Singh
Managing Director, Americas
Ken Clinchy
Managing Director, Europe
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Page 17
work to establish awareness and preference for their services. DC also employs telemarketing, joint marketing
relationships, seminars, direct mailings, advertising and client referrals. In addition, consultants are taking an
increasing role in sales building as part of DCs recent Authentic Consultant marketing and advertising initiative.
$4.3
900
$4.2
800
$4.1
700
$4.0
600
$3.9
500
$3.8
400
$3.7
300
$3.6
200
$3.5
100
$3.4
Partners
$3.3
FY00
FY01
Partners
DCs revenue per partner has grown as the number of partners in the firm has grown each year except FY00, when
DCs revenue growth declined sharply while its number of partners continued to grow. Revenue per partner in
FY01 rebounded to levels approaching those in FY99 as revenue growth outpaced the number of new partners
admitted.
Deloitte Revenue per Employee and Growth
$290,000
14.5%
$270,000
10.5%
$260,000
Growth
18.5%
$280,000
6.5%
$250,000
2.5%
$240,000
$230,000
-1.5%
FY99
FY00
FY01
DCs revenue per employee grew to $284,400 in FY01 from $259,492 in FY00. Year-to-year revenue per employee
growth rebounded to 9.6% in FY01 from 0.5% in FY00 as DC scaled back its hiring while revenues continued to
grow; employee ranks grew 1.4% from FY00 to FY01 while revenues grew 11.1%. This followed a 9% growth in
full-time personnel from 11,076 in FY99. TBR expects this trend to continue, though FY02 revenue growth may
not be sufficient to produce a jump in revenue per employee similar to FY01.
TECHNOLOGY BUSINESS RESEARCH, I NC.
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DELOITTE CONSULTING
Page 18
Africa
Pretoria, South Africa; and Johannesburg, South Africa.
Americas
Buenos Aires, Argentina; Sao Paulo, Brazil; Calgary, Alberta, Canada; Montreal, Quebec, Canada; Ottawa, Ontario,
Canada; Toronto, Ontario, Canada; Vancouver, British Columbia, Canada; Santiago, Chile; Mexico City, Mexico;
Monterrey, Mexico; New York, N.Y.; Boston, Mass.; Chadds Ford, Pa.; East Brunswick; N.J.; Parsippany, N.J.;
Philadelphia, Pa.; Stamford, Conn.; Atlanta, Ga.; Marietta, Ga.; Washington, D.C.; West Palm Beach, Fla.; Austin,
Texas; Irving, Texas; Houston, Texas; Chicago, Ill.; Cincinnati, Ohio; Cleveland, Ohio; Detroit, Mich.; Downers
Grove, Ill.; Kansas City, Mo.; Minneapolis, Minn.; Pittsburgh, Pa.; Bellevue, Wash.; Foster City, Calif.; Los
Angeles, Calif.; Phoenix, Ariz.; Sacramento, Calif.; San Francisco, Calif.; San Ramon, Calif.; Santa Ana, Calif.; and
Seattle, Wash.
Asia Pacific
Brisbane, Australia; Canberra, Australia; Melbourne, Australia; Perth, Australia; Sydney, Australia; Shanghai,
China; Hong Kong; Jakarta, Indonesia; Osaka, Japan; Fukuoka, Japan; Tokyo, Japan; Kuala Lumpur, Malaysia;
Auckland, New Zealand; Wellington, New Zealand; Makati City, Philippines; Singapore; Seoul, South Korea;
Taipei, Taiwan; and Bangkok, Thailand.
Europe
Vienna, Austria; Brussels, Belgium; Zaventem, Belgium; Copenhagen, Denmark; Helsinki, Finland; Paris, France;
Berlin, Germany; Dusseldorf, Germany; Frankfurt, Germany; Hamburg, Germany; Hannover, Germany; Munich,
Germany; Milan, Italy; Rome, Italy; Strassen, Luxembourg; Amsterdam, Netherlands; s Hertogenbosch,
Netherlands; Oslo, Norway; Lisbon, Portugal; Madrid, Spain; Barcelona, Spain; Stockholm, Sweden; Zurich,
Switzerland; Basel, Switzerland; Bath, England; Warwick, England; and London, England.
This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology
Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is
copyright protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.
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DELOITTE CONSULTING
Page 19
FINANCIAL METRICS
DC sustained top-line growth during the recent slowdown in the consulting and IT services industries. Revenues for
FY01 grew 11.1% to $3.49 billion from $3.14 billion in FY00. Revenue growth, while still positive, has flattened
since FY99, corresponding to the decline in IT spending. FY99 revenue growth was an impressive 37% from FY98,
but the aforementioned slowdown has pushed revenue growth rates down in the two years since. FY00 revenue
grew 9.9% from FY99 revenue of $2.9 billion, with slightly better growth achieved in FY01.
DC does not report net income figures, but TBR estimates DC earned $559 million in FY01, up 11.1% from FY00
net income of $503 million. DCs net income growth rate kept pace with its revenue growth rate, illustrating TBRs
belief that it has succeeded in controlling operating and other expenses in the face of the slowdown in its business.
DCs net margin of 16% in both FY01 and FY00 declined from the 19% net margin of FY99. The stabilization of
DCs net margin in FY01 corresponds to DCs efforts to curtail recruiting and hiring, among other expenses. TBR
believes the slowdown in FY00caught DC somewhat by surprise, evidenced by the sharp decline in net margin from
FY99 to FY00, but may have responded quickly enough to preserve its net margin and net income for FY01.
Deloitte Growth and Profitability
$3,600
40%
$3,000
$2,400
30%
$1,800
20%
$1,200
10%
$600
50%
$4,200
0%
$FY99
Net Income
FY00
Revenue
FY01
Year-to-Year Revenue Grow th
The above graph illustrates the decline of DCs revenue growth in FY00 and the stabilization of revenue growth in
FY01. While the systems integration and implementation segments of DCs business have slowed, TBR believes
DCs diversified services portfolio has helped preserve revenue growth. TBR wonders if DC will repeat this in
FY02, as the impact of the slowdown on systems integrators has been more acute in the second half of 2001, the first
half of DCs next fiscal year.
The recent performance of rival KPMG Consulting illustrates this. KPMG posted 21% year-to-year growth for its
FY01, which generally corresponds to DCs fiscal year (DCs fiscal year ends May 31, KPMGs ends June 30). But
KPMGs pipeline of new IT services contracts began drying up during FY01, and consequently in 1Q02 revenues
dropped dramatically; down 10.4% year-to-year from 1Q01. This was the first year-to-year decline in KPMGs
quarterly revenues in the last 14 quarters it has reported revenue figures. These 14 quarters of consistent year-toyear growth represent the boom years in IT services, especially for firms with strong systems integration capabilities
like KPMG and DC. Although systems integration and implementation is also a substantial part of DCs business,
TBR believes the aforementioned diversification of DCs services portfolio beyond these areas served to mitigate
the impact of the slowdown. DC did not enjoy the annual revenue growth rates of 15% to 20% KPMG did during
FY00 and FY01, but it may also avoid suffering the substantial decline in revenue that KPMG did in its most recent
fiscal quarter as it offers a more diverse portfolio of services than KPMG. However, though DC offers outsourcing
services, for example, it is not a major outsourcer and does not possess the outsourcing capabilities of companies
like ACS, EDS or IGS. Furthermore, while DC is attempting to build its strategy consulting practice, the strategy
consulting industry is going sour with the current economic recession and the growing skepticism toward the
consulting industry in general. Strategy consulting is becoming a more necessary element in DCs portfolio of
TECHNOLOGY BUSINESS RESEARCH, I NC.
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DELOITTE CONSULTING
Page 20
services, but the slowdown in the industry may not result in DCs strategy consulting practice making a substantial
contribution to revenues.
Revenue Growth Year-to-Year
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
FY99
FY00
Deloitte
FY01
The above graph illustrates the deceleration in DCs revenue growth in FY00, and the stabilization of revenue
growth in FY01. TBR believes this coincides with the deceleration of DCs worldwide expansion efforts, though
TBR also expects DC to revive its efforts to expand internationally. In addition, the recent economic slowdown and
the decline in the IT services market have contributed to this decline.
80%
$550
65%
$530
50%
$510
35%
$490
20%
$470
5%
$450
Year-to-Year Growth
-10%
FY99
FY00
Net Income
FY01
Net Income Grow th
DC has struggled to repeat the 50% net income growth it achieved in FY99 during the past two years. In FY00,
TBR estimates DCs net income declined 7.5% to $503 million from $544 million in FY99. In FY01 DCs net
income growth of 11% emulated the 11% growth achieved to the top line. Net income in FY01 grew to $559
million from FY00. TBR believes this indicates DC responded to the slowdown in its business by aggressively
implementing expense controls, which ultimately resulted in the FY01 rebound in net income growth. Staff
reduction was a part of these control measures, but TBR believes DC opted to cut support staff instead of
consultants in the hope that it will be better prepared when its business rebounds. DCs revenue and net income
figures indicate this rebound may already be underway.
This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology
Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is
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DELOITTE CONSULTING
Page 21
FUTURE OUTLOOK
12-MONTH OUTLOOK
TBR believes FY02 will reveal much about the wisdom and momentum of DCs business model. The outlook for
DCs outsourcing services is optimistic as IT outsourcing is a growing industry. Large technology outsourcers like
IGS and EDS reported impressive results in 2001, and this is expected to continue in 2002 as outsourcing continues
to be a major driver of revenue growth. TBR does not expect DC to pose a threat to these outsourcing giants, but DC
is still in the right place at the right time. DC should also pay close attention to Accenture, which is quickly
emerging as an industry leader not only for its outsourcing services, but its other IT and consulting services as well.
Accenture has also been able to successfully split from its former auditing parent and rebrand, something DC may
soon be compelled to do. The ability to bundle strategy and management consulting services with IT
implementation and integration services will help win new business from clients increasingly seeking a full range of
services. The decline in IT spending and its corresponding impact on systems integration and implementation may
hurt DCs FY02 performance, though TBR believes there are indications that the market for these services may be
rebounding. Given this, the second half of FY02 may be better than the first half, though the timing of this rebound
is still unclear.
The impact of the Enron collapse may substantially alter the services portfolios of many accounting and auditing
firms if the SEC tightens the regulations regarding their ability to provide business-consulting services in addition to
assurance services. However, the SEC and other federal regulators may simply throw down the gauntlet and
demand the separation of consulting from auditing. TBR believes a separation of DC from DTT would be a severe
disruption of DCs business. DC may have to make the transition to an independent firm on short notice and
without a plausible or coherent strategy going forward. It is unclear if DC could make a smooth cultural transition
from a partnership to a public company should the split involve an IPO. Accenture was able to while so far KPMG
Consulting has been unable to. TBR believes DTT and DC will eventually be forced to retreat from their vigorous
opposition to separating consulting from auditing. For example, DC may be forced to reverse itself from the spirit
and language of its bold announcement in July 2001 the advertisement it ran entitled Deloitte Consulting Is
Pleased Not To Announce An IPO. Ultimately, they may have to concede, and go their separate ways. Although
DTT vigorously opposes separation and has argued passionately that providing auditing services with consulting
services does not pose an independence problem, a separation may be inevitable as the outrage grows from the
Enron debacle. TBR does not expect the auditing industry to fully realize the impact of these events during 2002,
but the year may mark the beginning of the end for the bundling of business-consulting services with auditing
services.
This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology
Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is
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DELOITTE CONSULTING
Page 22
Deloitte Consulting
Annual Statement of Income
(in Millions)
1999
Fiscal Year
2000
2001
Revenue
2,861
3,144
3,493
Expenses
2,317
2,641
2,934
Net Income
544
503
559
As a Percentage of Revenue
Revenue
100%
100%
Expenses
81%
84%
100%
84%
Net Income
19%
16%
16%
Revenue
63%
10%
11%
Expenses
60%
14%
11%
Net Income
75%
-8%
11%
Year-to-Year Change
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Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is
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DELOITTE CONSULTING
Page 23
PSBQ
Score:
10
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