Talent, profitability and project complexity main challenges for consultants

05 November 2018 Authored by Consultancy.uk

Growing competition eating into profitability, the increasing complexity of project environments and talent shortages are the main factors keeping partners of consulting firms awake at night.

An analysis conducted by Deltek, a company that provides solutions to professional services firms, has seen around 350 leaders of consulting firms asked to identify the main challenges they face in a changing market. Respondents, who came from both small consultancies (20 FTEs and up) and large, global firms (10,000+ employees), were asked to highlight their challenges across a wide range of topics, including strategy, commercials, project management, talent, finance and technology.

Talent management and profitability

What stands out from the data is the high number of executives/partners that pinpoint talent management topics, in particular recruitment of new talent, as an issue. Getting new people on board is now a much larger issue than it used to be on the back of flourishing demand for management consultants.

Unemployment is low, while an ageing population and increasing restrictions to cross-border labour movement mean that demand for talent is high. On top of this, consultants that previously remained at their firm during harder economic times are now transitioning and moving around more freely, leading in part to consulting getting more competition for talent from large tech firms and start-ups, as some consultants may prefer to work in a smaller and more entrepreneurial environment.

The top  talent management challenges for consulting firms

Another common challenge pointed at by partners in UK's £10 billion consulting industry is profitability, which is being eroded by two main factors. On the supply side, there are more market players, as international consultancies are entering new markets and the number of independent consultants / project managers grows rapidly. Competition from boutiques is also intensifying, while on the demand side, client behavior is changing, putting more scrutiny on pricing and the value added by consultancies, which suits independent and more agile players.

Against this backdrop, many leaders of consulting firms surveyed by Deltek have made increasing profitability the top financial priority for the coming twelve months. In management consulting, 55% said this, while in IT consulting, 60% agreed. Asked how they believe they can bolster profitability, reducing expenses was at the forefront of both segments, at 74% of management consultancies and 80% of IT firms.

How can consulting firms boost their profitability?

The two disagreed on the next most important method, however, with 74% of management consulting firms believing that an increasing control of costs is key, compared to 76% of IT consultants who argue following up on vendor invoices will help more. Neither group especially sees the importance of registering hours accurately, though, at 30% and 42% respectively, or invoicing earlier, at 37% and 40%.

Complexity of projects

The third apparent challenge pinpointed is the growing complexity of projects. Project management is at the heart of consulting – to deliver work to clients, consulting firms organise project teams and they are supported by all kinds of project management processes. The majority of executives surveyed by Deltek said that complexity was an issue, to the tune of 59% in management consulting, and 69% in IT consulting.

This is partly because projects are coming under growing pressure to keep cost and value added transparent, ramping up the complexity of consultants’ workloads, as they must constantly demonstrate and justify their performance. Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. Clients are getting tighter on the potential gains of ROI, and are putting key performance indicators in place in projects to ensure success, further adding to complexity.

On top of this, as IT is becoming central to operational performance, and is rapidly evolving with a changing technological scene, IT has become highly complex – particularly as clients often end up battling their own legacy IT in the process of a transformation. This would also seemingly explain why IT consulting leaders view complexity as more of a challenge than their less specialised management consulting peers.

Project management challenges and goals of consulting firms

So what solutions are consultancies contemplating? According to Deltek’s data, both IT and management consulting entities broadly agree on four main solutions. By having a clearer view on profitability, and an integrated process of financials, firms can better see where they are in need of revitalisation and change.

Meanwhile, a well-defined scope was cited by roughly four in ten of both segments as a goal to work towards, suggesting that in a complex environment, knowing precisely what staff need to focus on is key. More than a third of respondents also said that clear document version control is important, in order to have an accurate frame of reference at all points in time, as well as improved compliance /regulation processes. While this might seem to be more about being compliant with rapidly shifting rules, should firms fail to keep on top of this they could end up wasting copious amounts of time addressing complex issues elsewhere.

Related: Trends and challenges in the management consulting industry.

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