Are the boom times over for the big management consultancies?

In a recent white paper by the Economist Intelligence Unit, the researchers found that large consulting firms are set to face increased competition from the more specialised consultancies in the market, as cost-weary clients up their expectations on finding the best value for money. Yuval Atsmon, a former senior partner of McKinsey & Company and now head of Advisory Services at Globality, reflects on the report’s main finding and questions if the boom times for the big management consultancies are over.

When chemist Arthur Dehon Little – the founder of the globe’s oldest management consultancy Arthur D. Little – first started conducting analytical studies at the dawning of the 20th century, he probably didn’t know that his research would be the catalyst that would spark a global management consulting industry today worth over $250 billion. 

The firm he founded now boasts a thousand employees across 35 offices, but even at this size it is dwarfed by the biggest players in the market. The Big Four – PwC, Deloitte, EY and KPMG – alone make up 40% of the global management consultancy market, while the top 10 biggest consulting firms combined make up 56% of it. 

The dominance of the big consultancy firms is underscored by Economist Intelligence Unit’s survey of business leaders at multinational companies over $1 billion in turnover. The survey [which was commissioned by Globality] revealed that only 19% of these large companies spend over a quarter of their firm’s annual external management consultancy spending on SME providers with under 500 employees. Of all the professional service lines polled, this was the lowest – by comparison 24% of business leaders working with marketing agencies spend over a quarter on SMEs, and 26% of business leaders working with law firms.

But have the big consultancy behemoths already reached the peak of their powers? Fees have remained high with a partner in a global consulting firm able to charge as much as £6,000 a day to a corporate client in the UK. As a result, almost half (45%) of business leaders we surveyed said the main challenge they face from their management consultancy firm is cost.

Is consulting ripe for disruption?

That’s one reason why the market is ripe for disruption by smaller, more agile players who are able to offer innovation and expertise and a more personalised experience at lower costs. Aided by technology and remote working, more and more people are setting out on their own to do the jobs that once took massive departments, with UK Office for National Statistics data showing almost half the growth in the number of management consultants and business analysts since 2011 has been among self-employed advisers, who now comprise 55,000 of the 175,000 UK consultants identified by the ONS at the end of 2016.

According to the ‘Annual Industry Report 2017’ of the Management Consultancies Association (MCA), while large UK firms’ consulting revenue grew by 4% in 2016, the revenue of medium-sized firms grew by 6%, and those of niche specialist firms grew by an astonishing 20%. While the big consultancies continue to reap in the rewards, they cannot afford to rest on their laurels as SME firms and independent consultants – a booming segment – look to outmanoeuvre them and take on a still small but growing share of the pie. The big firms may have a broad range of services and a solid gold brand name and reputation but specialised expertise is what businesses are calling out for – 83% of businesses we surveyed said consulting firms with specialised expertise will be more valuable to their company than providers with a broad range of offerings in five years’ time. 

As such, over three-quarters (76%) of business leaders we polled believe SME service providers with fewer than 500 employees will have an important role in their firm five years from now.

There’s certainly plenty of business to vie for. Just because companies are concerned about high invoices from the big firms doesn’t mean they’re looking to decrease spending on consulting firms overall, and the great battleground will be digital. Five years from now, over two-thirds (68%) say they plan to increase spending on cyber security and over half (52%) say they plan to increase spending on data analytics. Small and medium-sized firms offering such specialised services at lower costs than the big firms have tremendous potential to disrupt the market. 

However, changing consulting firms can be a time-consuming exercise and if we’re to see true market disruption, then businesses need easier ways to source and vet the firms they take on. 

Thankfully, new technologies such as artificial intelligence matching prove the key, allowing in-house teams to quickly and efficiently find pre-vetted firms to partner with. We’ve already seen how technology can disrupt established markets. Airbnb has allowed an ordinary citizen renting a room to compete with hotel chains, for example, while eBay has empowered millions of cottage industries. The same could happen to the consulting industry with artificial intelligence connecting multinational companies with the right providers in the right jurisdictions. Smaller firms taking up such technology en masse could be the catalyst for biggest industry shake-up since Arthur D. Little’s first analytical study.

Related: Consulting firms not fully monetising digital transformation efforts.