Plunkett Research^®, Ltd.

Plunkett Research shares 10 major trends that are impacting the consulting industry in its various segments (including human resources, information technology, strategy, operations management, business advisory services and more). These trends will give an overview of what’s happening now in consulting and where the industry is headed in the future. This and more is reported in Plunkett’s Consulting Industry Almanac, 2009 edition.

"The consulting industry posted significant growth from 2005 through 2007", says Jack Plunkett, CEO and Editor of Plunkett Research. "However, 2008 marked the beginning of a challenging period, in light of the global economic slowdown and shrinking corporate budgets. Government budgets have been under pressure. Corporations, large and small, have been slashing spending, employment and capital investment in an 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."

Plunkett’s 10 Trends Affecting the Consulting Industry:

1) Consulting Firms Accept Assignments with Contingency Fees - Today, more than ever, corporate clients want fast results and a high return on investment in consultants; many major consulting firms are accepting contingency payment for part of their fees. This practice, sometimes called variable or contingency pricing, recognizes the fact that client companies are taking big risks and facing large fees when hiring consultants. Results matter and contingency fees reward consultants when goals are met, but protect the client when consulting projects fail. Some consultancies now bid from 30% to 75% of their jobs with contingency pricing. Under such a plan, a base fee is typically paid regardless of results, but a considerable increase in the fee is paid when goals are met, such as cost savings, increased efficiencies or higher customer satisfaction levels. The most important thing in pricing is for consultants to make their fees understandable and justifiable. Consequently, the number of pricing plans used varies widely, depending on the nature of the client and the business practices of the consulting firm.

2) Accounting Firms Refocus/Smaller Consulting Firms Gain Clients – Upon the downfall of Enron, accounting firms and CFOs in the U.S. are saddled with the Public Company Accounting Oversight Board. In addition, the Sarbanes-Oxley Act of 2002 placed an immense financial reporting compliance burden on CFOs and CEOs of publicly held corporations that list their stock on American exchanges. Costs were staggering as clients and consultants scrambled to comply. There have been attempts to simplify compliance steps, including software programs developed by software companies such as International Business Machines Corp. (IBM), Oracle Corp. SAP AG and Microsoft that help businesses comply with the Act. However, smaller companies (defined as those with a market capitalization of less than $75 million) are exempt from audits of their financial control systems through December 2009. Those companies are burdened with compliance, however, and a 2008 report by the SEC found that costs for compliance averaged $78,474 per year, significantly less than the $91,000 previously predicted.

3) Many Industry Sectors Seek Consulting and Outsourcing Income, Competing with Pure Consultancies - While the traditional leading firms in the consulting industry were busy in the early 2000s restructuring, picking up acquisitions or distancing themselves from the accounting profession, aggressive competitors have surfaced that create significant challenges. That is, leading manufacturers and service companies of many types now believe that they can achieve significant growth by offering consulting services. These consulting services are frequently offered in conjunction with complementary business offerings. This is big business, and it’s a huge change in the consulting industry. For example, value-added services, including consulting and outsourcing, account for more than one-half of IBM’s $103.6 billion in annual (2008) revenues. The unit, called IBM Global Services, is growing at a rapid clip by targeting small and medium-sized businesses through regional resellers in addition to supplying consulting services directly to large firms. Sun Microsystems, Oracle, Dell, HP, SAP and the other major hardware and software firms all have their eyes on increased services revenues, including consulting—either through wholly-owned subsidiaries or through partnerships with consulting firms.

4) Major Corporations and Organizations Develop Internal Consultants to Cut Costs - Leading corporations such as Pfizer, UPS and USAA are building internal management consulting staffs. The goals of such moves vary, but they include maintaining better control over the consulting process, improving internal communications, enhancing the understanding between staff and consultants and creating a consulting staff that has first-hand experience and knowledge of company culture and procedures. However, the top goal on the list must inevitably include cutting consulting costs, which can run thousands of dollars per day for highly experienced management consultants provided by major outside firms. Cost cutting became a crucial necessity during the economic crisis of 2008-2009. The internal consultant trend has grown to the point that a professional association has been created, the Association of Internal Management Consultants, Inc., www.aimc.org. The group has an annual spring conference and an impressive membership roster that includes people from blue-ribbon firms.

5) Corporate Clients Want Solid Returns on IT Investments - For more than a decade, a major source of revenue for consulting firms has been information technology projects of all types. The rapid growth of the Internet, intranets, e-commerce, advanced computer networks and private datanets encouraged corporate executives to dive into IT projects, generally at immense cost. Consultants were among the major beneficiaries of these projects. However, IT investment wound down rapidly between 2001 and 2003. Today many IT consulting projects are bid on a "fixed cap" basis, whereby a pre-agreed fee is guaranteed to see the project through to successful completion. For the mid-term, most corporate clients will be very stingy with IT consulting budgets. Non-essential projects will be delayed until economic growth resumes and corporate profits improve. When money gets tight as it has been for 2008-2009, corporate IT executives will make the best of their existing systems and look for ways to cut corners when implementing new ones.

6) Federal Government Consulting Will Be Strong, Including the Sectors of Transportation, Health Care, Energy and Cyber Security - The U.S. federal government’s spending priorities have changed at a blazing pace under the new Obama administration. At the same time, federal spending is soaring to levels never even dreamed of in the past. Economic stimulus spending enacted in early 2009, totaling $787 billion, will create immense opportunities for consultants. If you are analyzing the effects of this treasure in dollars, bear in mind that the money will be spent rapidly, despite the immense amounts involved. Consultants who can assist in devising plans to quickly deploy these funds (and hopefully deploy them in a relatively efficient or effective manner) should be racing up and down the halls of Washington, D.C. The two biggest items the U.S. stimulus package is spending on is energy, at $45.1 billion (with a focus on renewable energy research and development); and health care related information technology, at $19.6 billion. Lagging closely behind, the third biggest item receiving funds is research and development, which has been allocated $19.0 billion.

7) Consultancies Move Towards Globalization - 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. Overseas offices may be opened directly by a consulting firm, but local offices are often acquired. These acquisitions offer some advantages, including built-in client and employee bases. Many of the largest consultancies get 50% or more of their revenues from overseas. Technology consulting firms in particular are competing fiercely with companies based in lower-cost nations, such as Wipro, based in India. In China, extremely rapid growth at industrial, financial and services companies created superb opportunities for U.S. and European consulting firms. According to studies, 59% of consulting needs in China are in IT, 23% in strategy, 12% in operations and 12% in human resources.

8) Offshoring to India Drives Changes in Global Consulting - Even before the global economic crisis of 2008-2009, U.S. domestic employment figures were painting a grim picture in some industries due to “offshoring,” or the movement of jobs to other countries in order to cut costs. The savings to employers are impressive. For example, call-center employees in the U.S. typically earn $20,000 to $24,000 per year plus benefits, while their counterparts in India may make as little as $5,000. Higher-level employees such as experienced analysts with advanced degrees often make as much as $250,000 yearly in the U.S., and only $30,000 to $50,000 in India. Aggressively managed IT consultancies based in India, such as Wipro, have such low operating costs that they are able to significantly undercut the prices of U.S.-based work, and they took market share at a rapid rate. The top Indian consulting firms enjoyed booming revenue growth for 2007 compared to 2006, including Tata (44.7%), Infosys (43.5%), Wipro (45.3%), Satyam Computer Services, Ltd. (28.8%) and HCL Technologies, Ltd. (55.7%).

9) BPO and KPO: White-Collar and Professional Tasks Are Offshored to a Growing Extent - Offshoring was long thought of as the process of sending less-skilled, low-paying jobs overseas. This is no longer the case, and the prospect of white-collar jobs moving offshore is causing alarm within many professional associations. Today’s offshoring includes much more than the replacement of low-paid call center operators or textile mill workers with even lower-paid workers in China or elsewhere. In fact, Indian outsourcing companies such as Tata Consultancy Services Ltd. have scaled back their call-center services in favor of better paying, higher profit margin white-collar services. BPO, or business process outsourcing, is one of the fastest-growing segments in the offshoring sector. BPO has evolved far beyond its initial focus on call centers. Today, BPO services include human resources management, billing and purchasing, as well as many types of customer service or marketing activities, depending on the industry involved.

10) New MBAs Desire Consulting Jobs - During the tech-driven business boom of the late 1990s, vast numbers of highly qualified graduating students were snapped up by the consulting industry. Perhaps as many as 35% to 40% of newly minted MBAs went into consulting at one point (while many of the rest of their peers jumped into Internet, telecommunications and e-commerce companies). When the tech boom became a tech bust, MBAs found that consulting jobs were scarce due to economic trends and the slow job market, and few of them landed the consulting jobs they were seeking. As an alternative to consulting, some MBAs turned to employment in basic industries such as automotive and consumer goods. A large number turned to lucrative jobs in the investment and finance industry. However, that market came to a standstill starting in late 2007 and continuing into 2009.

Additional information is available in "Plunkett’s Consulting Industry Almanac 2009," as well as on our web site, www.PlunkettResearch.com.

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