Firms concerned about growing competition from boutiques and independents

31 July 2018 7 min. read

Continued pressure on prices and growing competition in the market are according to partners of consulting firms the top two challenges faced in the consulting industry. The rise of well-organised networks of independent consultants and the growing popularity of boutique consultancies eating share in specific niches is playing a key role in consulting’s changing threats landscape.

The freelance consulting sector is experiencing a period of rapid expansion, as former employees turn their backs on life at firms, amid the allure of a better work-life balance, and the suggestion of better pay. A growing portion of the globe’s circa $150 billion management consulting spend now goes to independents, and looking ahead, clients are increasingly being charmed by the growing pool of high-skilled freelancers. Further boosted by digitised matchmaking processes which are maturing, the segment seems set to have a growing role in the industry’s future.

In the UK for instance, independents now account for around 10% of the £10 billion consulting market. As might be expected in what is the largest segment of the consulting scene overall, independents receive most business from the financial services sector. However, proportionally speaking, the independent market is largest in the manufacturing sector, taking more of the market share from firms there than in any other sector, by comparison.

Independent consultants account for ~10% of UK’s management consulting industry

In a new survey commissioned by Deltek, a software provider to the professional services industry, among 700 professional services firms across the globe, the researchers found that the pricing and flexibility of independents are some of the factors behind the segment’s upward incline. A breakdown into the view of leaders in management and IT consulting (350 respondents) subsequently found that they increasingly fear a multitude of challenges thanks to the surge in support for freelancers. Top of these is pricing pressure, with 55% of respondents suggesting that the lower costs of independent consultancy could drive down their own ability to bill for work executed. Tapping into this fear, 49% of leaders also said a top challenge they faced was increased competition.

Interestingly, third on the list was gaining and retaining people’s trust. 46% of respondents answered with this, suggesting a belief that the unchartered nature of consulting work could open the industry up for people who will not fulfil their services, bringing the reputation of consulting as a whole into question. Recently, this has seen the MCA – UK association for consulting firms – and the ICMCI – an international association for management consultants – both launch respective awards to offer some level of standardisation in consulting, and to offset these fears.

The top  strategic and commercial challenges for consulting firms

In terms of growing competition, Deltek’s study showed that both management consulting and IT consulting firms fear boutique providers most. 45% of management consulting firms reported already losing business to boutiques, while 35% of IT firms said the same. In the future, around half of both segments both perceive boutiques as a growing threat.

Boutique consultants are typically capable of being more entrepreneurial and agile thanks to their smaller organisational structure and lack of larger corporate chain, while being able to address key issues faced by clients. In particular, clients are becoming weary of the big firms which operate in all areas, as a growing number of investigations into conflicts of interest – particularly in the case of the Big Four – hit the sector. Meanwhile, the on average lower pricing of services from boutiques mean that clients can address heightened scrutiny on consulting expenditure, while also diversifying their suppliers. On top of this, improved access to technology has given smaller players more ammunition to compete more effectively, and much top talent is also drifting toward boutiques, as improved promises of work-life balance outweigh the prestige of larger brands.  

What are the most likely sources of competition

While independents are taking less work – 21% of management consultants and 22% of IT firms reported losing work to them – mainstream consultants fear the sector as a source of competition in the future. Again, the price can be half that of a renowned consultancy, while the flexibility and on-demand staffing of independents offer an agility which larger firms sometimes struggle to match. Again, a growing number of experienced consultants are opting to go at it alone, later in their careers, lured by higher pay and a better work-life balance, meaning more quality workers are ending up in independent consulting.

Other key sources of competition included client insourcing work and commoditised solution providers. Clients insourcing more work naturally worries IT consultants most, as improving technologies and IT infrastructures of many clients means that formerly outsourced IT work can be done in-house for greater control. Commoditised solution providers are also a major threat to consulting firms in the long term because they could be strong in automation and robotisation, which could challenge consultancies in an increasingly lucrative segment.

The top four reasons why clients pick independent consultants

When compared to other leading markets in Europe, the top reasons why independent consultants are chosen over traditional firms are proportionally the same. As is the case in Germany and Switzerland, the most common reason in the UK is flexibility, at 47%, followed by pricing at 38%. However, while higher quality was cited by just under a third of businesses in Germany, Switzerland and the Netherlands, UK clients suggested that ease and speed of contracting took precedent over this, at 26%. Higher quality – mentioned by 17% of UK clients – meanwhile takes a back seat.

While the rise of independent consulting might be seen as a major threat to firms, however, it could also be a boom, especially when relating to the agility in terms of contracting that it enables, which is so attractive to clients. Firms could tap into this by cultivating networks of independent consultants to enable the rapid staffing of a diverse range of projects at short notice, without having to invest in long term training programmes and benefit packages.