Many Industry Sectors Seek Consulting and Outsourcing Income, Competing with Pure Consultancies

While the leading firms in the consulting industry were busy in past years with their own restructuring and acquisitions, aggressive competitors surfaced that created significant challenges. That is, leading manufacturers and service companies of many types determined that they might achieve significant growth by offering consulting services. These consulting services are frequently offered in conjunction with complementary business offerings. For example, manufacturers of complex machinery or components may offer consulting services to enable clients to best determine what to order and how or where to use the products. Engineering firms often provide consulting services that enable clients to determine the feasibility of proposed projects—far in advance of actual engineering services.

At the same time, a great deal of new competition emerged in the information technology (IT) consulting field. Manufacturers of computer hardware and software watched enviously as upstart IT consultancies grew at soaring rates during the boom of the 1990s. While new firms were growing and charging top rates for their services, many computer industry manufacturers saw their prices per unit sold dropping rapidly due to intense global competition among hardware and software makers. Adding consulting and/or outsourcing services to their offerings gave hardware and software firms an opportunity to build stable repeat revenue on top of their manufacturing revenue bases, and they already had a built-in base of existing customers that were potential consulting clients.

IT consulting is evolving at a fast rate. This sector is becoming more and more focused on cloud computing. Cloud-based systems are rapidly replacing traditional data processing centers. This means that enterprises have a shrinking need to own and operate giant data centers, as much of their needs are outsourced to cloud systems like Amazon Web Services and Microsoft Azure. There can be tremendous operating efficiencies in shifting from in-house data centers to the cloud. For example, there is little-to-no capital investment required and the cloud can result in a shrinking in-house data operations staff. (This fact presents an immense challenge to companies that, until recently, grew very rapidly by operating data centers for large clients on an outsourced basis.) However, making a successful shift to the cloud can require great planning, resulting in excellent opportunities for consultancies to help strategize and execute the shift.

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 the majority of IBM’s revenues. IBM Global Services grew at a rapid clip by targeting small- and medium-sized businesses through regional resellers, in addition to supplying consulting services directly to many of the world’s largest organizations. Oracle, SAP and the many other major hardware and software firms all compete for services revenues, including consulting—either through wholly-owned subsidiaries or through partnerships with consulting firms.

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