Doug Lattner says his first rule of business leadership is “know yourself.” The CEO of fast-growing Deloitte Consulting applied that lesson to his own firm when he assumed the reins of the New York-based unit in 2003.

At the time, Deloitte Consulting, which offered expertise in such areas as strategy, technology and human resources, was serving more than 42 types of client groups. Lattner and his team grew the overall business even as they slashed that number by more than half, serving just 19 segments. “I said, ‘We’re not going to be all things to all people,'” Lattner stated during a recent Wharton Leadership Lecture. “We’re not going to out-Accenture Accenture, we’re not going to out-IBM IBM, and we’re not going to out-McKinsey McKinsey. We’re going to be very good at what we do.”

Narrowing its focus wasn’t the only unconventional decision made during the five years that Lattner has been at the helm. The unit also scrapped a planned management buyout and spinoff at the last possible minute, necessitating a complicated re-integration with parent Deloitte & Touche. In doing so, they were taking the exact opposite approach from the parent company’s largest accounting-industry competitors, who were racing to shed their consulting units in the early 2000s, fearful of the impact of a new federal law passed in the wake of the Enron and WorldCom scandals.

These against-the-grain strategies, Lattner said, brought impressive results: The consulting firm, with 11,500 employees, has grown at a much faster pace — 25% last year alone — than its main consulting rivals as well as the other units within Deloitte & Touche. The multi-year growth spurt was one of the reasons Consulting Magazine named Lattner one of its two Consultants-of-the-Year in 2005.

Meanwhile, some of the accounting competitors that had spun off their consulting arms are paying Deloitte the ultimate compliment: They are looking to get back into the business. “They may not call it consulting — they may call it advisory services or whatever,” Lattner said, “but they are rebuilding it as we speak.”

An 11th Hour Change of Plans

The consulting field has grown and changed dramatically since 1975 when Lattner was hired right out of business school into the five-person Dallas office of what was then Touche Ross. Specializing mainly in energy consulting, Lattner, who earned an undergraduate degree in marketing from the University of Oklahoma and an MBA from the University of Dallas, has stayed with the firm his entire career, a time that included the merger of Touche Ross and Deloitte Haskins & Sells in 1989. Lattner works at the unit’s headquarters in Manhattan.

Lattner cited several reasons why most large accounting firms were looking to discard their consulting functions back in 2003. One was that most businesses tend to reduce their use of consultants during and right after a recession, like the one that had occurred in 2001. Around 2003, the industry had suffered a rare period of negative growth. But perhaps more importantly, Congress passed the Sarbanes-Oxley Act, which aimed to prohibit accounting firms from performing non-audit work for the same public companies they were auditing. Arthur Andersen,Ernst & Young and PricewaterhouseCoopers all shed or spun off their consulting arms as a result.

At Deloitte, an initial plan for a management buyout of the consulting unit was cancelled by the parent company’s partners at the 11th hour. Instead, Lattner was asked to re-integrate the consulting arm back into Deloitte and develop a strategy to seek contracts from the large pool of public companies — more than three-quarters of them — that didn’t hire Deloitte for auditing. Lattner said the firm learned quickly how to negotiate the new rules. Consequently, links between the consultants and the tax-and-audit specialists proved to be an advantage, not a hindrance.

It is now standard practice to offer tax-related consulting advice to these non-auditing clients, Lattner added, noting that one of the many areas in which Deloitte Consulting advises companies is how to comply with Sarbanes-Oxley. “They get amazed when we bring in our audit guys,” he noted, referring to some of the new clients Deloitte has successfully wooed. They are particularly impressed with the technical knowledge of the tax and audit experts and the financial savings that they can result. “We win 75% of the time when we bring other functions into an opportunity,” he said.

Deloitte Consulting has also realized that consulting works best as part of a private firm or partnership instead of as a publicly-traded company answerable to its shareholders, he added. “If you don’t take care of your shareholders in a public environment, they sell your stock …” He noted that one rival, CapGemini, has seen the value of its purchase of Ernst & Young drop by some 90%, according to Wall Street estimates.

Some of the most critical successes that Lattner and his management team were able to achieve involved making Deloitte Consulting a more attractive place to work, Lattner said, noting that one of the biggest problems he inherited as CEO was a high employee turnover rate of roughly 25%. Since then, the company has worked to improve not just the workplace environment, but also to offer new types of mid-career training, including an Imagine Program for partners and rising executives that is managed by Wharton and helps develop leadership skills. He said the steps have curbed annual turnover to about 14%. The broader Deloitte U.S. operation, including consulting, was named last year by BusinessWeek as the best place for college grads to work, while placing number 76 on the Fortune list of the 100 best companies to work for. “We don’t build cars and we don’t have retail shops — our people are our assets and they vote every day with their feet — so we need to make sure in our organization that we are [providing them] with the right amount of social activity, the right amount of work experience.”

Expansion Abroad

According to Lattner, his company is diverse enough to weather the current storms in the U.S. economy, including a new plunge in the financial markets and worries about mortgage foreclosures and rising oil prices. While banking and financial services firms have cut back on their use of consultants, he noted, other so-called contra-cyclical industries — like pharmaceuticals and the public sector — have increased their spending in this area. He also sees great prospects in his former specialty of energy consulting. “Oil and gas companies do not spend on consulting after the price of a barrel goes below $30. But it’s $70 above $30…. There’s a lot of opportunity.”

Another area for future growth will be international consulting work. The company has targeted the BRIC countries — Brazil, Russia, India and China — with the greatest emphasis now on India, where the Deloitte unit has a large pool of employees, including about 2,000 in Hyderabad and about 800 in Mumbai. He said that the move into India was in part defensive — sparked by the lower-cost India-based information-technology consultants Wipro and Tata — but that the company recently solidified its position on the subcontinent by buying out its former joint venture partner there, Mastek. “Our workers in India are U.S. employees and they work mostly in technology engagement.”

While Lattner foresees continued growth at Deloitte Consulting, he also stressed that a career as a consultant is not for everyone. “Primarily oral and written skills are very important, he said. “You have to be able to communicate well and you have to be extroverted as opposed to introverted. I don’t think you will find a consulting firm that hires closet consultants. They don’t hire consultants who sit in cubes all day. You have to be on the line or sitting with your colleagues and clients — and you deal with your client on an ongoing basis.”

One of the audience members asked Lattner how he dealt with failure over his long career. His response: Always find a way to turn failure to your advantage. He cited the example of how his wife earned more money than him the first 10 years of his career. “So I was always able to go to my boss and say my wife made more money than I did” in asking for a raise, he recalled with a laugh. “You’ve got to pull those levers where you can.”