See the complete list of trends that we analyze.

1. Introduction to the Consulting Industry

Global consulting industry revenues (including HR, IT, strategy, operations management and business advisory services) will be about $345 billion in 2010, according to Plunkett Research estimates. This represents a rebound from about $310 billion in 2009 and $330 billion in 2008. In the U.S., accounting and related services (such as tax preparation), generated an additional $119.7 billion in 2009, down from $128.4 billion in 2008, according to the U.S. Bureau of the Census.

Consulting is a somewhat cyclical industry. After a decade of sizzling growth and enviable profits, the consulting business was forced to pull in its reins during 2001-2003. The stock market bust of 2000-2001, particularly in the technology and telecommunications sectors, caused this setback. Startup companies that were once lucrative consulting clients disappeared under crushing financial losses. Meanwhile, a general economic slowdown in most of the developed world further hampered the consulting industry.

Consultancies posted significant growth from 2005 through 2007. However, 2008-2009 marked a challenging period, in light of the global economic slowdown and shrinking corporate budgets. Government budgets have been under pressure as well, at the state and local level, where large deficits loom and tax revenues are down. Corporations, large and small, have been slashing spending, employment and capital investment in a sometimes desperate attempt to pay down debt while cutting costs. This has been particularly hard on some consulting sectors, since corporations and governmental agencies are prime clients for consultancies. In general, major consulting companies, including leading firms in management consulting and HR consulting, along with other advisories such as accounting firms, found themselves with substantial drops in business during 2009, in many cases 5% to 10%. Some companies cut their employee rosters and/or restrained hiring.

Consultants who focus on projects that might be nice to have but can reasonably be delayed found business to be extremely soft. For example, marketing projects, technology implementations, non-essential corporate reorganizations and such were delayed or cancelled by many potential clients. Consulting services that sound particularly non-bottom line focused, such as “change management” or “brand awareness” may not appeal to CEOs and CFOs until there is a major recovery.

India’s largest outsourced business and technology consulting firms were complaining that clients were delaying or cancelling projects as 2009 began.

However, as of late 2009 and early 2010, corporate profits in general had grown substantially, meaning that executives may be more willing to authorize new consulting projects as long as they see the potential for a good return on the cost.

Outside the U.S., the consulting industry and related sectors had been booming until the global economic crisis ensued. Until recently, global business growth from Europe throughout North America to Asia/Pacific was fueling demand for consulting of all kinds, including management consulting, HR consulting, industrial consulting and technology consulting. Rapidly-growing economies in such nations as Ireland, South Korea and Dubai had been providing a wealth of new work for consultants. Unfortunately, that was no longer true by mid 2008.

By early 2010, many European governments, from the UK to Spain to Greece, remained saddled with daunting debt loads. Higher taxes and cuts in government spending loom, and this will be hard on business in general, including consultants. In Asian nations, however, as well as Brazil, high growth in GDP and a positive business climate are creating myriad opportunities for consulting firms, both in government and private sector contracts.

In North America, the U.S. appeared to be in an economic recovery by the beginning of 2010, and Canadian companies of most types remained on firm financial footing. Consultancies should see reasonable growth in these nations.

In recent years, many types of consulting and accounting projects have been offshored to a growing extent. Initially this was due to efforts by firms in North America and Europe that wanted to take advantage of the lower hourly fees charged by professionals in emerging nations. Later, however, offshoring of such tasks is becoming necessary in order to conduct consulting projects in the nations where practices must be applied. As multinational companies headquartered in the U.S. and elsewhere continue to open offices, factories and research facilities in nations such as India, Malaysia, Indonesia and China, consultants must follow.

At the same time, China and India are investing heavily in their own upper-level education systems with the aim to turn out MBAs, scientists, researchers and engineers from their universities. Many Asian nations have already achieved excellent success in this regard, including China, South Korea, Singapore, Taiwan and Japan.

The consulting industry is a multifaceted, global business sector that is facing many challenges and evolving quickly. At the highest level of the business is “management consulting,” the segment that advises top executives and boards of directors at Fortune 1000 firms on strategy and organization. McKinsey & Company, Inc., Bain & Company, Inc., Boston Consulting Group, Inc. and a handful of other companies are the most elite. Such firms may charge their clients anywhere from $300,000 to $1 million in monthly fees, with top consultants billing as much as $5,000 daily plus expenses, and associates at $1,500 or so. These consultants’ engagements for a multinational corporation may include analysis of multiple divisions and involve travel to several continents. Their suggestions often result in sweeping organizational changes, adding (clients hope) tens of millions of dollars to the yearly bottom line. Management consultants may take assignments involving many aspects of a client’s business, including marketing, acquisitions, finance, information technology, manufacturing, distribution, human resources, divestitures, government relations, facilities, telecommunications, environmental matters and more.

The growing globalization of business and industry in general led inevitably to the globalization of the leading consulting companies. Major consultancies operate offices in the most important business centers in Europe and Asia-Pacific as well as in North and South America. Many operate worldwide and have multiethnic, multilingual employee bases. Major consulting firms have opened significant offices in Brazil, India, China and important cities throughout Asia/Pacific markets.

Annual revenues at such firms run in the billions of dollars, and top consultants may earn $200,000 to $500,000 or more yearly in return for grueling hours, high stress and many, many days spent traveling far from home. Despite these drawbacks, considering the high pay and the prestige, the best students at the best business schools frequently pine for posts in consulting.

In contrast to the size and fame of the leading management consulting companies, a large portion of the consulting industry is comprised of very small companies—in many cases these are one-person shops, perhaps operating from a spare bedroom at home. This part of the business has grown rapidly since 2000, as legions of well educated, highly qualified and thoroughly experienced executives and professionals were laid-off during corporate downsizing or took early retirement in exchange for an opportunity to work for themselves. These professionals have turned to self-employment as consultants, focusing on their specialties and combing their rolodexes for leads.

In an effort to control costs, some corporations that were formerly desirable clients have built their own internal consulting staffs.

Despite what appears to be an economic recovery in much of the corporate world, the days of unrestrained corporate spending are long gone. Going forward, consulting firms will be forced to compete fiercely for their engagements, and the engagements they receive may be relatively short-term or less profitable than assignments of the recent past. Corporate clients will be focused on a provable return on investment for their consulting dollars spent. Specific goals will be set early in the process, and consultants will be under intense pressure to meet those goals. Large, multifaceted consulting companies will face fierce competition from smaller, niche companies. In particular, consultancies that can quickly improve their clients’ profits may have the best competitive advantage over the mid-term. Corporate clients may lean toward hiring consultancies with a proven ability not only to point out a corporation’s problems and strategic deficiencies, but also to implement solutions that cut debt, restore health to balance sheets and stabilize profits.

Historically, U.S. governments at local, state and federal levels have provided lucrative consulting contracts. Government at all levels has large needs for consulting in IT, security, human resources and other areas. For example, the latest Washington Technology (www.washingtontechnology.com) list of Top 100 Federal Prime Contractors, based on contracts granted during the federal government’s 2009 fiscal year, ranks KBR ($5.4 billion), SAIC ($4.8 billion), Computer Sciences ($3.4 billion), Booz Allen Hamilton ($2.7 billion), HP (the owner of IT consultancy EDS, $2.5 billion), Dell (now the owner of tech consulting firm Perot Systems, $1.8 billion), IBM (more of an IT consulting and outsourcing firm today than a hardware manufacturer, $1.5 billion), Jacobs Engineering Group ($1.5 billion) and CACI International ($1.4 billion) among the top 20 firms in prime federal contracts for the year.

One of the fastest-growing segments of consulting has been information technology (IT). This segment includes consultants focused on e-commerce; telecommunications; intranet and Internet strategies and functionality; hardware systems design and implementation; software design, acquisition and implementation; and web site design and operation.

During the tech boom of the 90s, IT consultancies like the now defunct marchFIRST appeared out of nowhere and quickly attained annual revenues in the hundreds of millions of dollars. The 90s, through the widespread commercialization of the Internet and fiber optics, as well as the rapid spread of networked computing, brought a dizzying tidal wave of technology opportunities to light. Managers everywhere wanted to quickly ramp up new systems, from web sites to private data networks to advanced e-commerce systems. A concern over potential software problems when the new millennium turned in year 2000 (“Y2K”) also lead to massive consulting projects. Corporate clients turned to consultants, and the IT consulting companies boomed. These consultancies created marketing partnerships with leading hardware and software manufacturers so that they could quickly recommend, purchase and install technology system packages—at high profits to both the consultancies and the system manufacturers. Enterprise-level systems, which were supposed to seamlessly deliver real-time information from subsidiaries around the globe to top managers, became the standard at Global 1000 companies. In the end, corporate clients invested massive sums but didn’t always get the results they desired.

Today’s largest IT consulting firms often provide outsourced IT services of many types. In fact, successful consultancies with IT roots have evolved into full-service companies. In many cases, they are now integral departments within larger technology-based companies. The IBM Global Services unit of computer giant IBM best illustrates this trend. At such tech firms, a large portion of income is derived from outsourcing. That is, once these IT services firms have determined a client’s needs during a consulting or analysis phase, they may deliver turnkey services that include actual day-to-day operation of the client’s computer department and/or other departments. HP has also been focusing on its large consulting and services unit, which grew dramatically with its 2008 acquisition of EDS. Likewise, many companies outside of the computer hardware and software field have successfully blended consulting and outsourcing into their offerings, developing dependable additional revenue sources by offering a complete line of services to their clients.

The biggest development in IT consulting has been the extremely rapid growth of major companies that are based in India but compete globally, such as Wipro, Infosys and Tata Consultancy Services (TCS). These companies quickly grew multi-billion dollar revenue bases as major contenders in the global IT sector.

Additional hot competition for IT consulting budgets comes from software companies, such as Oracle, that have quickly built up large consulting units of their own. Even Dell, once a firm focused on the efficient manufacture and direct sales of PCs and servers, first offered a turnkey system design and installation service, and then acquired a pure IT consulting and services firm, Perot Systems.

In an interesting development, OEMs (original equipment manufacturers) of a wide range of products and components, from laptop computers to hard drives to automobile components, now consult intensely with their clients in the product development phase, and are later involved in the actual manufacturing. This has led to the evolution of some OEMs into ODMs (original design manufacturers). These ODMs consult with, design for and then manufacture for their clients.

For example, an ODM might determine the needs for an in-dash stereo/radio system of an automaker client, design the system and finally manufacture the system. The automobile industry has become an environment in which major manufacturers, such as GM, rely heavily on a handful of component and systems manufacturers, such as Delphi, to consult in the design and engineering phase of new car planning. The newest generations of aircraft at Airbus and Boeing are designed and manufactured to a large extent by ODM partners scattered around the globe.

The consumer electronics and personal computer sectors are heading in the same direction. Contract electronics manufacturers such as Flextronics consult heavily with their clients in the design of new products such as computers, stereos or telecommunications equipment.

As technology has advanced rapidly and microchips have become integral components of many everyday items, consulting regarding design and implementation has become necessary to many types of manufacturers. Likewise, many types of service providers, such as those in telecommunications, must consult to a large extent with end customers regarding their systems’ needs. Consulting in these types of situations may or may not result in additional fees, but can be vital pieces of the complete sales cycle. In many cases, the consulting functions at manufacturing and services firms have been developed into true profit centers with specific fee structures.