Big Four business models face moment of reckoning with rise of AI

In the wake of a number of scandals in which Big Four consultants have been found to lean heavily on artificial intelligence for reports and advice, some clients have started to wonder if they might be better off cutting out the middle-man. Scott Lane, founder and CEO of Speeki, explores the ways he thinks the technology will ultimately decimate the quartet’s “oligopoly”.

For as long as most can remember, the professional services industry has been dominated by a small handful of major names. They’ve scooped up market share for years – but that’s set to change. Why? Because the hourly billing model is dead, AI is holding the smoking gun, and it’s going to hurt Deloitte, PwC, EY and KPMG – the Big Four – faster than anyone else. 

The development and expansion of frontier technologies has fundamentally uprooted the traditional drivers of commercial success. Businesses that thrive use AI to do two crucial things: increase speed and quality of work, and reduce the cost of the product or service to the client.

If we were to consider the first part alone, then it might seem ludicrous to say that AI is going to harm the Big Four. It’s allowing them to produce the same work, faster, and, since recent forecasts predict that consultancies will see a further boom from AI-related projects, it’s clear it’s also bolstering their client books.

But it’s with the second part that it all starts to crumble. Because given the global conversation around how AI is saving businesses time and money, it’s also true that clients have started to ask why those lower costs are not reflected on their invoices. Here lies the biggest challenge for massive consultancy firms – one that I believe will soon break their dominance. If they are unable to transfer savings from AI to their clients, then why would they stick around?

Old bills

The trouble is that even if the biggest firms wanted to pass on savings and lower their fees, they’d be unable to. The hourly billing model they are built on is fundamentally incompatible with how AI transforms productivity. In fact, it directly rewards inefficiency, the opposite of AI’s draw.

Because they are built on a pyramid structure, with a thick base of junior staff, a smaller section of mid-level team members, and an even smaller group of senior partners and executives on top, the Big Four cannot extract maximum value from AI. They can’t reduce costs and cut bloated headcounts without harming revenue, so they can’t lower their fees.

Private equity firms have already noticed, with some selling stakes in professional services firms and citing the hourly billing model as their reason for doing so.

Neuberger Bergman’s head of European private equity warns that "few are looking to invest in certain white-collar services companies undergoing a revolution in their business model and which are more exposed to AI displacement," and who can blame her? There are serious question marks over revenue disruption when smaller firms, operating on an AI base and not charging by man hours, could present a far cheaper alternative.

This model, that is far more likely to come out on top, is more rectangular. It’ll look like smaller teams that own a solid tech stack with senior partners on top. Clients will get the same quality of work, and the same human-led expertise, but without having to pay for the bloat. And that’s what AI makes possible – it’s the ultimate leveller, breaking down the wall between a twelve-person firm and a 30,000-employee giant.

New model consultancy

You might think that, if this is where we’re headed, the Big Four would just choose to adopt that model. The blocker, though, is their size. It’s always been an indicator of stability across this sector, but now it’s a problem. Deloitte, PwC, EY, and KPMG cannot pivot the way a lean challenger can. Even if they tried to, it would take years to reduce headcounts, cut bureaucracy, and streamline workflows enough to make the rectangular model work. It’s just not feasible.

I’m not saying that they’re going to go bankrupt. They’re major, global firms with massive revenue, and they’ll definitely be able to weather the storm for a while. But I do believe that their grip on the professional services industry will weaken quickly over time.

AI is rewriting what makes a consultancy firm successful, and the Big Four sit in stark contrast to this new playbook in so many ways. So, while they may cling on for the next few years through name recognition and existing relationships, I have no doubt that they will start to shed mid-market customers who simply won’t pay for a service they could get cheaper elsewhere.

It is for all of these reasons that the Big Four’s oligopoly will soon be a thing of the past. They were not built for the AI world, and it’s almost impossible to see them clinging onto their dominance for much longer. The fact is, the hourly billing model is dead, and the firms that have built their businesses around it are next.