Plunkett Research®, Ltd.

Market Research, Industry Statistics, Trends
and In-depth Analysis of Top Companies

When you want Affordable, Timely Industry Research,
Contacts & Business Development Data

Loading Search
 
 
 

$299 to 349 gives you 1-year online, plus our printed industry Almanac

Purchase Options
Print - Online - eBook

Get a Quote on a custom market research project

Plunkett Research, Ltd. publishes industry-specific market research, statistics, company profiles and executive contacts in electronic subscriptions and in printed industry almanacs. Learn More

Access our award-winning industry trends analysis, technologies analysis, forecasts, market intelligence, statistical tables, contacts databases and corporate profiles. Learn More

Watch videos about how to use our products, take a tour, or schedule a personal demo with one of our incredible support staff. Learn More

Introduction to the Consulting Industry

¹ Video Tip
For our brief video introduction to the consulting industry, see www.plunkettresearch.com/video/consulting.
 
Global consulting industry revenues (including HR, IT, strategy, operations, management and business advisory services) will be about $431 billion in 2014, according to Plunkett Research estimates. This represents reasonable growth from $415 billion during the previous year. 
In the U.S., consulting of all types, including management, scientific and technical, generated $180.0 billion during 2013, up from $162.8 billion the previous year. Accounting and related services (such as tax return preparation) generated an additional $136.5 billion in 2013, up from about $131.6 billion during 2012, according to the U.S. Bureau of the Census.
Consulting is a somewhat cyclical industry. The years 2008-09 marked a challenging period throughout the world of business, in light of the global economic slowdown and shrinking corporate budgets. 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. India’s largest outsourced business and technology consulting firms were complaining that clients were delaying or cancelling projects as 2009 began.
However, in recent years, corporate profits in general grew dramatically, meaning that executives are now more willing to authorize new consulting projects as long as they see the potential for a good return on the cost. For example, India’s leading consultancies have enjoyed substantial growth in employee count and revenues, as did most of the global consulting firms based in the U.S. and EU.
While corporate profits have been growing, government budgets in the U.S. and much of Europe have been under tremendous pressure at the national, state and local levels. At many governmental units, tax revenues were down significantly during the recent recession, although 2012-14 saw a rebound. Meanwhile, governments and their agencies have been under intense budgetary scrutiny. Spending and debt have been called in question, and in some cases curtailed. This has been particularly hard on some consulting firms, since governmental agencies are prime clients for consultancies.
 
Positive factors for the consulting industry over the mid-term:
1) Continued growth in health care expenditures and significant changes in health care coverage are creating demand for consulting projects. This includes a focus on digital health records and a dramatic need for greater efficiency and cost control.
2) Consultancies that focus on projects that clearly reduce business costs and enhance operating profits in a reasonably short period of time will find a ripe corporate market (such as consultants who focus on cash flow enhancement, supply chain efficiency and manufacturing efficiency).
3) Vast new labyrinths of government regulation in the U.S. and in the UK/EU are creating numerous opportunities for consultants who can show companies how to navigate rapidly changing relationships between government and industries, or deal with government oversight, particularly in financial services, environmental matters and health care.
4) Consultants who assist firms in lowering employee benefits costs are in high demand.
5) Consultants and advisors for corporate expansion into emerging markets, information technology and mergers and acquisitions will be in high demand.
6) Nations in the Middle East remain keen to modernize, expand key industries such as air transportation and develop new services and economic opportunities for citizens. These desires will continue to generate excellent opportunities for a wide variety of consulting companies.
Source: Plunkett Research, Ltd.
 
Emerging Nations and Offshoring: In emerging and mid-tier nations, the consulting industry was enjoying booming growth until 2013. By mid-2014, the market continued to be soft in some regions.  Brazil’s economy has been disappointing in recent months. China’s economic growth has slowed to a more modest, but still robust, pace. Europe’s economic growth remains slow outside of Germany, and U.S. growth was disappointing in 2003 and early 2014. Some new projects may be delayed or proposed fees further negotiated as a result.
Elsewhere, growth in global trade has rebounded from the very low levels of the recent recession. In select cases, this has fueled demand for consulting of all kinds, including management, HR, industrial and technology. South Korea, Taiwan, Singapore and Indonesia are providing a wealth of new work for consultants. Firms with multi-cultural staffing capability and offices in strategic cities worldwide will benefit in particular. Recent growth in these nations has created myriad opportunities for consulting firms, both in government and private sector contracts, in industries ranging from transportation to energy to health care. Consultancies that do well in this still uncertain global economic environment will be those that emphasize their ability to create cost-savings, enhance efficiencies and deal effectively with government austerity programs or other dramatic changes in governmental goals. Mexico looks promising for the mid-term, particularly as that nation’s oil and gas industry begins to modernize and open up to foreign participation.
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. More recently, however, offshoring of such tasks has become necessary in order to conduct consulting projects in the growing nations where practices must be applied. As multinational companies headquartered in the U.S. and elsewhere continued to open offices, factories and research facilities in nations such as India, Malaysia, Indonesia and China, consultants had to follow.
At the same time, China and India are investing heavily in their own upper-level education systems, and they are now graduating large numbers of MBAs, scientists, researchers and engineers from their own universities. Many Asian nations have already achieved excellent success in this regard, including China, South Korea, Singapore, Taiwan and Japan. This means that a growing global cadre of young people with graduate degrees and high ambitions are seeking entry-level work in consulting of all types.
Management Consulting: 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, with the hoped-for result of creating significant efficiencies and adding tens of millions of dollars to the client’s yearly operating profit. Management consultants may take assignments involving many aspects of a client’s business, including marketing, acquisitions, finance, taxation, 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. Africa is the next consulting frontier, as rapid economic growth is being enjoyed by a handful of African nations. Many consultancies operate worldwide and have multiethnic, multilingual employee bases. In particular, major consulting firms have opened large numbers of offices in Brazil, India and China in recent years.
Annual revenues at top, global consulting firms run in the billions of dollars, and top consultants may each 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. (An interesting exception to the grinding work and travel required of employees at many consultancies is found at Atlanta-based North Highland, www.northhighland.com). At this innovative mid-sized firm, consultants find that, per company policy, their assignments are largely in the cities where they live, negating the need for extensive travel, and work/life balance is encouraged by the firm’s business practices.)
In contrast to the size and infrastructure of the leading management consulting companies, a large portion of the 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, as legions of well educated, highly qualified and thoroughly experienced executives and professionals have been 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 contacts for leads.
Also in recent years, consultancies, large and small, have become more virtual, cutting back on the need for personal time spent in the office and/or on the road. High speed Internet connections combined with online collaboration tools and video conferencing are making it easier for consultants to work effectively no matter where they may be. This trend was fostered by globalization, as the need to collaborate with team members in the global offices of a consultancy, as well as communicate with the global offices of clients, has created high demand for the latest in online tools.
Despite recent superb levels of profitability throughout many corporate sectors, the days of unrestrained corporate spending are long gone. Corporate clients are now much more demanding when negotiating consulting contracts. Their demands are likely to include specific caps on overall cost, tight controls on travel and other expenses related to a consulting project, a demand for lower hourly rates and sometimes a penalty if desired goals are not met.
In an effort to control costs, some corporations that were formerly desirable clients have built their own internal consulting staffs. One interesting offshoot of this trend is that the internal consulting units at a few companies have begun offering consulting services to outside clients. This is increasingly found in industries such as hospitality that are focused on high levels of customer service. At the Walt Disney Company, long famous for customer satisfaction and innovative employment practices, a consulting unit called The Disney Institute is now teaching other firms how to better engage their customers. Likewise, The Ritz-Carlton Leadership Center, a unit of Ritz-Carlton Hotels (itself a luxury property subsidiary of hotel giant Marriott), is teaching client firms how to provide high levels of service to picky customers.
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 past. Corporate clients will be focused on a provable return on investment for 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.
Consulting to Governments: 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 2013 fiscal year, ranks Lockheed Martin ($14.9 billion, down from 2012’s $17.4 billion), Northrop Grumman ($8.6 billion, down from 2012’s $9.1 billion), Boeing ($7.1 billion, down from $7.4 billion) and Raytheon ($6.1 billion—up from $5.7 billion) as the top contractors.
These contracts are for consulting and services in information technology, defense, telecommunications, professional services and engineering. Note that the largest awards went to firms that are predominantly defense or aerospace contractors. The winding down of U.S. involvement in Afghanistan and Iraq is having a deep, negative impact on these defense-related contracts. Further deep cuts in U.S. government defense spending are likely over the mid-term.
IT Consulting: 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 1990s through early 2001, IT consultancies like the now defunct marchFIRST appeared out of nowhere and quickly attained annual revenues in the hundreds of millions of dollars. That era, through the widespread commercialization of the Internet and fiber optics, as well as the rapid spread of networked computing, brought a 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. Now, corporations have new IT needs thanks to the rapidly expanding fields of social networking, mobile computing, online employee collaboration and cloud computing and data storage. An increased need for consulting relating to the security of networks and data is likewise creating vast consulting opportunities.
Today’s largest IT consulting firms often provide outsourced IT services of many types. In fact, successful consultancies with IT hardware roots have evolved into full-service companies. In many cases, they are now integral departments within larger technology-based firms. The IBM Global Services unit of computer giant IBM best illustrates this trend, as services now bring in more revenues for IBM than computer hardware and software. 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. Not all of IBM’s competitors have been as successful as IBM in this regard. HP has also been focusing on its large consulting and services unit, which grew dramatically with its 2008 acquisition of EDS. While services now bring in a substantial portion of HP’s revenues, the firm has not been meeting its goals in this field, and in 2012 it wrote down $8 billion of the cost of its EDS acquisition. Dell acquired consultancy Perot Systems, marking a new strategic direction for the computer manufacturer.   Nonetheless, Dell has been struggling to maintain momentum and has been taken private via a buyout by investors. Meanwhile, 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.
A major development in IT consulting has been the extremely rapid growth of large 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.
 
For the mid-term, the biggest opportunities for IT consulting growth will lie in these areas:
1)        Big data, data mining and predictive analytics
2)        Cloud-based IT infrastructure
3)        Mobile apps and data services
Source: Plunkett Research, Ltd.
 
ODM, Original Design Manufacturers: In an interesting development, OEMs (original equipment manufacturers) of a wide range of products and components, from 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 on 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 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.