September 20, 2011

Time to Rethink Business Strategies

Red ArrowMany 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: billing rates are increasing 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, reports show that private sector growth is positive fueled primarily by the financial services industry. Overall, fee income from banking in the U.K. grew by 35 percent in 2010 as compared with an overall fee growth in the private sector of 10 percent. 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.

Off to a Good Start
Many publicly-traded consultancies are off to great starts. Accenture has had a strong start to the year with nearly 20 percent growth over last year, reporting its second highest level of consulting bookings ever in their first quarter earnings report, while the Management Consulting Group, which owns Kurt Salmon and Proudfoot, has seen an 88 percent increase in operating profits.

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 & Young for instance, picked up the private 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 and business consultancy divisions.

Campus Recruiting Heating Up
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 percent 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 raises over the last three years.

Reports predict that consultancies will have to hire 23 percent of their current headcount in order to tackle attrition and meet growth rates. 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 organization with high quality reusable skills and resources.

A Threat From Within?
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 specialized 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 organization, 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” which gives rise to the growth of large-scale programs employing scores of junior consultants, which may be more beneficial to the consultancy than to the client. 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, which 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, optimize their talent in-house and still get the independent, fresh perspective of a skilled, independent, senior consulting professional,” explains a partner at Satori Consulting.

Whatever your approach, it seems clear that with an improving, yet uncertain, economic climate and the largest financial regulatory changes in history, consulting is on the rise. How businesses decide to fold consulting services into their organization will be an important strategic decision that could well decide a firm’s competitive advantage in a changing and challenging marketplace

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