These are tough times for firms in the management consulting industry, who must embrace change and quickly adapt to the changing landscape in order to retain clients in a newly digitised world.
Management consulting is a client-driven industry, and as clients’ needs change, the sector – and the consulting firms within it – must adapt quickly in terms of services, structure and operations. The past few years have seen significant transition, particularly in terms of technology and legislation, and management consulting firms have had to respond rapidly, while maintaining their competitive edge and ensuring their own long-term growth.
On the surface, things are looking good for the UK management consulting industry. Figures published recently by Source Global Research, a provider of market intelligence on the sector, revealed that UK consulting grew almost four times faster than the economy in 2015, up 8.2% from £6.02 billion to £6.79 billion. The report also found that the Big Four (Deloitte, EY, KPMG and PwC) outperformed the market, growing 11.5% to £2.55 billion – a position bolstered by a busy regulatory environment, especially in financial services.
The consulting market in the US also enjoyed good growth in 2015, growing at a healthy 7.7% to reach almost $55 billion (£45 billion). Within Europe, Source Global Research identified the countries making up the DACH region (Germany, Austria and Switzerland) as being the most attractive for consulting firms. Here, the sector has grown by €1 billion to a value of €8.7 billion (£7.5 billion) over a two-year period.
Challenges to the consulting industry
However, the sector also faces challenges that cannot be ignored, not least the growing division of the market into two increasingly distinct parts: a low-cost, commoditised part, and a high-value, more classic management consulting part.
Edward Haigh, a director at Source Global Research, says: “This is forcing consulting firms to think about how they can address both markets, which is necessary if they are going to capture a share of the lucrative digital transformation market. This then leads to discussion about the consulting business model, pricing and brand architecture.”
The pace of development in digital technologies is also creating new business models at a faster speed than many current company structures are able to cope with. To deal with this challenge, consulting companies must develop a comprehensive digital strategy and rethink their business and operating models in order to deliver it. There must be cross-channel connectivity and continuous engagement with all stakeholders; but, crucially, the strategy has to be about C-level leadership, and innovation and differentiation through the business and operating models.
Learning from mistakes
“Innovation cannot be achieved purely by investing large sums,” says Marco Amitrano, UK head of consulting at PwC. “We need to adopt that ‘fail fast’, agile mentality that is seen to work so well in small businesses; we need to learn from our mistakes. As an industry we can often have low acceptance of failure, and end up valuing accuracy over creativity. It’s important to recognise this as a barrier to reinventing the way we operate, develop our people and, ultimately, provide our clients with greater value.”
Alongside this, the recruitment and retention of talent remains a perennial issue. “As this issue becomes greater, consulting firms are forced to think more about offering services and, increasingly, products that don’t rely on their ability to sell people,” says Haigh.
Nevertheless, talent is a prize asset, and many organisations seeking talent are casting their nets beyond the traditional top universities, and focusing on the skills someone has, rather than where they acquired them. At Grant Thornton, recruiting a diverse workforce will continue to be one of the most crucial priorities. People and culture leader Stephanie Hasenbos-Case says: “Three years ago, we were one of the first to identify the opportunity to be more representative of wider society, and we made some fundamental changes to the way we attract talent.
This year, Grant Thornton saw a 47% increase in applications for our school-leaver programme, with trainees joining the firm across 20 different office locations. Our recent analysis also found that employees who would not have met the previous academic hurdles are performing just as strongly as those who did.”
Another key challenge facing the management consulting industry in the next two or three years involves multi-sourcing: working with other firms when niche or complementary expertise is required. And this isn’t just about large generalists working with small specialists; consulting firms are increasingly forming partnerships with people outside the consulting industry, including digital agencies, academics and technology companies.
Andrew Moore, director at DAV Management, says: “SMEs are inherently agile and flexible and have always been good collaborators, whereas larger management consultancy firms haven’t tended to be. Smaller firms typically specialise and have strengths in specific areas (e.g. attracting talent) and naturally collaborate with other firms where there is a shared need. In such relationships there are mutual dependencies and relationships built on trust, whereby all parties are, collaboratively, focused on performing in the best interests of the client. This is more difficult for larger management consultancies, as they typically want to be in control and will protect their position, are less collaborative and often see smaller firms as a threat.”
Disruptive business models, for example digital and innovations such as crowdsourced consulting firms, are also emerging and impacting the sector, driven both by new technologies and by ever-smarter clients.
“Crowdsourcing for consulting provides the ability to source specific consulting expertise from small firms or freelancers who can react quickly and provide a particular service from anywhere in the world, with little or no overhead,” says Moore. “For analytical-type consulting services, crowdsourcing looks to be a good way forward. For longer-term professional services and programmes, small specialist firms are a real threat to the bigger players, especially around aspects such as quality, trust and price.”
A further issue for the consulting industry to face is a growing perception of consulting as a series of more commoditised, transactional interactions. Paul Heugh, CEO of strategy implementation consultancy Skarbek Associates, says: “As technical work becomes commoditised and margins fall, comprehensive expertise in consultants will be more valued. There will be an outflow of purely technical staff into other industries, as consultancies promote those with a greater knowledge of the industry, geography and the customer.”
Recent geo-political developments have led to increased uncertainty in the market; however, many organisations are already identifying and preparing for potential threats and opportunities, often with consultancy support. In order to meet this demand, Peter Richardson, managing director of Protiviti UK, advocates management consulting firms developing specialist teams that understand the intricacies of their clients’ businesses and sectors, as well as the opportunities and challenges they face.
He says: “They should also continue to move away from the traditional time-and-materials model of pricing and towards a commercial proposition based on defining and delivering outcomes, and sharing their clients’ risks and rewards.”
If they are to remain competitive in the future, management consulting firms will need to find innovative ways of retaining clients and solving their increasingly complex business problems, while diversifying their own product offerings and attracting the consultants of tomorrow.
This article was created in collaboration with Deltek, a global provider of enterprise software and information solutions for professional services firms and other project-based businesses. For more information download the Deltek Management Consulting Industry Snapshot.