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- Introduction to the Consulting Industry
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Consulting Firms Accept Assignments with Contingency Fees.
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Accounting Firms Refocus.
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Many Industry Sectors Seek Consulting and Outsourcing Income,
Competing with Pure Consultancies.
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Corporate Clients Want Solid Returns on IT Investments.
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Government Spending on Security Consulting
Booms.
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Consultancies Move Towards Globalization.
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Major Corporations and Organizations Develop Internal Consultants
to Cut Costs.
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Offshoring Drives Changes in Consulting.
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Consulting Firms Are Once Again Recruiting MBAs, and Accounting
Employees Are in High Demand.
Introduction
to the Consulting Industry:
Consulting services generated about $120 billion in worldwide
revenues during 2004. (Outsourcing, a closely related industry,
generated another $240 billion.) 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. Tech 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.
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However, reasonable revenue growth occurred in 2004, and the
picture is fairly bright for the consulting sector in 2005-2006.
Major consulting firms are hiring again—stalking the
ivy-covered halls of America’s best business school
campuses in search of the best and brightest new MBAs.
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, Bain, Boston Consulting
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, billing top consultants at 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 may
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, human resources,
divestitures, government relations, telecommunications, facilities,
environmental matters and more.
The growing globalization of business and industry in general
has 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.
Annual revenues at such firms runs 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, it’s no wonder
that 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. These professionals have turned to self-employment
as consultants, focusing on their specialties and combing
their rolodexes for leads.
Meanwhile, the largest corporations in America and abroad
have often been retrenching—cutting costs in broad swaths
in an effort to improve profits. Unfortunately for consultancies,
these top global corporations have also historically been
the top clients. Cost cutting at corporations often means
income cutting at major consultancies, despite the fact that
a consultant’s goal is typically to assist a client
in making higher profits.
During the consulting slump of the early 2000s, many consultancies
have resorted to mergers with partners; others instituted
layoffs and otherwise slashed their expenses. Some corporate
clients built their own internal consulting staffs in an effort
to control costs. Today, however, consulting companies in
general see good growth in the near future, particularly in
projects with clients based in the U.S. and Southeast Asia,
where economies are steaming ahead.
Nonetheless, the days of unrestrained corporate spending are
long gone—a relic of the reckless booming 90s. 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 intense
competition from smaller, niche companies. In particular,
consultancies that can implement outsourcing and offshoring
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 directly
implement solutions.
By far the fastest-growing segment 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. They 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.
Successful consultancies with IT roots have evolved into full-service
companies. In many cases, they are 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. 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.
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 a system whereby 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 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, whether they are 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.
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