Many companies are being forced to set a new direction in the post-crisis environment, and these new mandates mean a regenerated need for consultants. However, restricted budgets and the continuation of the challenging business environment mean that many corporations are reconsidering their relationships with consultancies and many feel this may lead to significant changes in the consulting industry overall.
Cautious economic recovery, sweeping regulatory reforms and the need to re-start, and in some cases re-create, key business elements are all giving firms reasons to re-think business strategies. Many companies are being forced to set a new direction in the post-crisis environment, and these new mandates mean a regenerated need for consultants. However, restricted budgets and the continuation of the challenging business environment mean that many corporations are reconsidering their relationships with consultancies and many feel this may lead to significant changes in the consulting industry overall.
With a slow return of positive global economic indicators, numbers for the consulting industry are coming back up to pre-recessionary levels: utilisation and billing rates are increasing steadily again, as they did for years before economic disaster struck in 2008, pipelines are bulging and recruiters are busy. Even with a downturn in public sector business, The Management Consultancies Association’s 2011 report shows that private sector growth is positive, fueled primarily by the financial services industry. Fee income from banking in the UK grew by 35% in 2010, as compared with an overall fee growth in the private sector of 10%.(1) Consulting demand from other service lines such as TMT, energy & utilities, pharmaceuticals & life sciences, and retail & consumer goods are all strong, with most of the demand driven by supply chain and logistics work, whereas risk, regulation and broader operational consulting is fueling the demand in financial services.
Recent weeks have seen a number of publicly-traded consultancies publish their Q1 2011 financial results and the results are largely positive and in some cases exceptional. Accenture has had a strong start to the year with a near 20% growth over last year, reporting their second highest level of consulting bookings ever, while the Management Consulting Group, which owns Kurt Salmon and Proudfoot, has seen an 88% increase in operating profits.(2)
With cash reserves high and demand rebounding for consulting services worldwide, it was inevitable that consultancies would dip back into the acquisition market in 2011. A handful of big name firms have added pieces, ranging from small regional units to large international players in the past few weeks. Ernst and Young, for instance, picked up the private American boutique ISA Consulting to strengthen its advisory division. With the acquisition of the smaller firm’s business performance management, business intelligence and data integration areas, E&Y is attempting to be better positioned to provide business insight and drive improved corporate performance. Deloitte, KPMG and Capgemini are also actively expanding their business advisory divisions.
Another indicator of growth in the consulting industry is that MBAs are enjoying record levels of recruitment attention from consultancies in 2011, and if top MBA forecasters are correct, demand will continue to increase by as much as 37% in 2011. Virtually all of the leading firms are hiring and large players like Accenture and IBM expect continued growth in this activity as client companies look to reduce costs. Experienced hires are also on the rise due in part to high attrition rates driven by consultants who have not seen pay rises in the last three years. Reports predict that consultancies will have to hire 23% of their current headcount in order to tackle attrition and meet growth rates. All this at a time when management consulting firms are scoring high in ‘Best Places to Work’ surveys, with six firms featured in the top 25 listed by The Sunday Times.
For companies faced with the difficult tasks of rebuilding key business units damaged in the crisis or in the following economic downturn, hiring consultancies to address their business concerns is an expensive undertaking. Consequently, many large multinational corporations are looking for alternatives to traditional consultancy engagements and in some cases this has given rise to the use of internal consulting units.
In-house consultancies are small departments staffed with project, change or strategy managers responsible for solving many of the same problems their employers would have hired outside consultants to accomplish. Not only does the addition of an internal consulting division save money, but it also provides an organisation with high quality reusable skills and resources. Industry experts believe that these internal consulting units pose a genuine threat to traditional consulting firms and look to Germany where this trend has gained significant traction. The downside, however, is that in-house consulting divisions will struggle to provide insight on matters that require specialised knowledge, and may also be too close to their own brand and too invested in the corporate power structure to make the hard decisions, and deliver the demonstrably objective messages regularly sought from external unbiased consultants.
Another trend growing in popularity is the "consultant-manager" or interim manager role. This role often comprises of a former senior consultant hired into the client’s organisation, with the specific experience and in-sights of the consulting industry, whose mandate is to supervise and direct the work of both independent consultants and internal teams. Obviously, this approach guards the client against costly “project creep”. The consultant-manager is responsible for making projects shorter, more intense, and less lucrative for the consultancies. The advent of these two new approaches could theoretically curb growth in consulting and leave us with a very different looking consulting industry.
A third option is seen in the growth of small, sleek consulting firms such as Satori Consulting, that have models heavily weighted towards senior consultants with experience from ‘Big Four’ firms. Satori’s business model aims at putting competent, seasoned consultants into a client’s business operations and allowing them to add project management direction and process expertise into projects delivered through the client’s internal resources. This paradigm takes the benefits of other approaches and rolls them into one. “Our business model protects the client from having to buy the large consulting teams that are typical large company sales models demand. Partners at the big firms are under enormous pressure to sell millions of dollars worth of work clients tell us that this pressure can become apparent when it comes to projects. On the other hand, Satori’s model allows the client to pay only for what they need, optimise their talent in-house and still get the independent, fresh perspective of a skilled, independent, senior consulting professional”, explains Justin Ockenden, partner at Satori Consulting.
Whatever your approach, it seems clear that with an improving economic climate and the largest financial regulatory changes in history, consulting is on the rise. How businesses decide to fold consulting services into their organisation will be an important strategic decision that could well decide a firm’s competitive advantage in a changing and challenging market place.
____________________________
(1) The Management Consultancy Association’s 2011 report
(2) Consulting Times, “Accenture Reports strong Q2 Results”, State of the Market, Q2 2011
