RECENT REPORTS suggesting that the Big Four are eyeing the strategy firm Roland Berger for potential acquisition highlights the potential for consolidation in the consulting industry.
2012 wasn’t a vintage year for consultants: although there was growth in some of key global markets – North America and Germany – others (the UK, France) were hit by poor performance at the macro-economic level. Emerging markets – the Gulf, Russia, Brazil and the newest kid on the emerging markets bloc, Africa, grew much more strongly but the size of the markets here are still small compared to mature ones and they remain, by common consensus, volatile environments for consultants.
Consulting firms could therefore be forgiven for starting the year on a downbeat note. But there’s a risk that, in always looking out to the next crisis, the industry misses the opportunities that do exist for growth.
Surveying organisations that use consulting services reveals a slightly more positive picture. Most are focused on the same top three priorities: keeping their costs down, growing their business (or, in the case of public sector institutions, securing alternative sources of funding) and exploiting the opportunities new technology brings to do both of the above more effectively and more efficiently.
Some sectors will have more to spend on such areas than others: the energy and natural resources sector looks as though it will continue to be a very strong market in 2013, but financial services, faced with something of a pause between different regulatory deadlines, doesn’t have quite the sense of urgency it’s had in recent years.
But it’s clear from our research that there’s been a significant shift in the last year as client companies, short of in-house resources and keen to deliver results to increasingly impatient shareholders, turn to consultants to help carry out work.
Hardened consultants will say that’s been a growing trend for some years, but there has been a marked increase in the importance clients appear to be attaching to implementation this year. Another word which we’re hearing much more is ‘transformation’.
It’s a term consultants have been bandying around for some time, to the point where clients could have become quite cynical. But many clients, apparently frustrated by the slow pace of incremental improvements, are keen to do something more radical, changing the way their business works as a whole, rather than picking off specific issues.
Globalisation is another issue which is pushing up demand for consultants: even some of the biggest multinationals are still grappling with what it means to work efficiently across borders; international management experience is still a scarce commodity, so it’s not surprising that companies are turning to consultants to help plug this crucial knowledge gap.
Implementation, transformation and globalisation all work in favour of the big consulting firms; they require more people, from more different disciplines and geographies than a small firm could hope to provide. As one small consultancy said: “It’s a bit as though we’re a small football club which is being forced to play in the Premier League. That’s where the work is, but we’re unlikely to win any of the matches.”
But the losers won’t be confined to small and mid-sized consulting firms. It’s quite clear that the performance within specific segments of the consulting industry varies, sometimes wildly.
While the market for consulting as a whole may be growing, it’s not growing fast enough to satisfy the ambitions of some firms. After all, growth isn’t just about success, it’s about survival too: without sufficient growth it becomes difficult for a consulting firm to promote people and increasingly hard to attract or retain them.
If we wanted proof of all this, we’d need to look no further than the German consulting market. PwC’s acquisition of PRTM (a global firm but with a strong presence in the German market) in 2011 has been followed by a swathe of other acquisitions. BrainNet, a procurement consultancy was bought by KPMG; Ernst & Young has just announced the purchase of J&M Management Consulting; Booz & Company is buying Management Engineers. Slow growth is translating into a shakeout of the consulting industry.
So the story of consulting over the next couple of years won’t be about growth. Opportunities exist and clients are more confident and willing to consider discretionary expenditure than they were this time last year. But the real story will be around the reshaping of the industry. It’ll be consulting, Jim, but not as we know it.
Fiona Czerniawska is joint managing director of Source Information Services
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