The answer to the first part of the question is a straight “yes”.
The recession brought on by the acute financial crisis of 2008 also ushered in one of the toughest years in the sector’s history, as clients – particularly in developed countries – reached for the scissors, to shorten consultants’ mandates, trim costs, or cut or defer contracts.
In the UK, for example, 2009 was the first year in which the consulting sector’s revenues shrank.
But 2010 marked a comeback, precisely in some of the sectors – notably banking and financial services – that had pulled in their horns in the depths of the crisis.
Most of the top 10 global consulting practices showed strong growth in revenues in 2009-10, with PwC, KPMG and McKinsey up 9 or 10 per cent, as shown by figures from Kennedy Consulting Research & Advisory, a US-based industry analysis group.
At the same time, the crisis naturally forced changes on the multinational consultancies. They are seeking more revenue from fast-growing economies in Asia, Latin America and elsewhere; refocusing their work on the private sector in countries where government work has become scarcer; and improving the services provided.
What is clear is that there is no scope for complacency and whether consultants prosper or merely tread water will depend on how successfully they answer the second part of the opening question.
As recently as June this year, some consultants were hailing a “post-crisis environment”. But as the implications of confusion in the eurozone have spread beyond European borders, it has become clear this was a premature judgment.
Meanwhile, external regulation is back on the agenda, thanks to surprisingly radical proposals from Michel Barnier, European internal market commissioner, to ban big audit firms from offering consultancy services.
The official line from many consultants is that clients are again planning for expansion.
Customers are investing and planning for growth “for the first time since 2008 ... even within the context of uncertainty created by the eurozone crisis”, comments Andrew Hooke, chief operating officer of PA Consulting.
But the type of mandate available has permanently altered. Paul Gronwall, a senior analyst at Kennedy, says that among consultants and their customers “there is a growing expectation that economic cycles are shortening: the ups and downs are going to happen much quicker, so nobody’s going to put in place a five-year plan, because they’re lucky if they can see a year or two [ahead]”.
Alan Leaman, chief executive of the UK’s Management Consultancies Association, draws a comparison between the survey of its members in June 2010, when, despite the grim period they had just endured, they were bright about the future, and the association’s most recent study of firms.
“Now,” he says, “the numbers for the first half of 2011 look better than expected, but [members] are feeling a lot more nervous about the next six months.”
The uncertainty means the upsurge in demand for advice about how best to cut costs is unlikely to recede.
According to a recent survey of UK and global buyers of consultancy services, by Sourceforconsulting.com, nearly 40 per cent expect to spend more on advice about improving their operational efficiency over the next six months.
However, the efficiency drive may be combined with an uptick in demand for strategy advice. Raju Patel of Fulcrium, a specialist consultancy, acknowledging, that, in the medium-term, pure strategy is “a shrinking market”, says that “companies that have labelled themselves as strategy organisations have renewed or remodelled themselves and taken on market sectors they would not previously have considered”.
But it is usually at economic inflection-points that corporate customers look for strategy advice, often to validate tough decisions they may have to make anyway.
The difference in this cycle, industry observers and insiders agree, is that many companies now insist wise strategic counsel must come firmly attached to practical advice about how to implement it.
Here, the bigger consultancies, which can offer multiple consulting lines, may seem to have an edge, but as client demands become more complex, some believe the one-stop-shop firms will increasingly find themselves in partnership with specialists.
One area where change is slower coming, however, is the way in which consultancies are able to bill for their services. In spite of many firms’ desire to use a value-based fee approach (where firms are paid on the basis of the value created), clients are reluctant to move from more traditional billing models.
Consultants say defining what “value” looks like is one obstacle. Even if the trend towards value-based billing accelerates, only a few firms are big enough to put “skin in the game”, in the words of one, and take the risk of failing to pick up a fee at all.
Looking ahead, consultants expect 2011-12 to see continued strength in demand from sectors that rebounded from the depths of 2008, particularly those areas, such as financial services or healthcare, where a strong or changing regulatory framework drives business.
Sander van’t Noordende, group chief executive of Accenture’s management consulting business, picks out technology and emerging markets as the two biggest drivers of demand.
Companies are now grappling with how to apply new technologies in the front office, as well as the back, he says, and asking consultants how best to do it.
In markets such as China, India or Brazil, demand is increasingly “multidirectional”, coming from local companies seeking to expand abroad, rather than just multinationals seeking a foothold in a fast-growing region.
The consultancy offering itself goes both ways. Accenture has 70,000 employees in India – its largest country – but at the same time, according to Paul Friga, professor at the University of North Carolina’s Kenan-Flagler Business School, India-based consultancy firms such as Tata, Infosys or Wipro are “making strong moves into the US, leveraging a new model of global client assistance”.
As for Mr Barnier’s commission proposals, unveiled in September, their radical nature came as a shock. If pursued, they may offer opportunities for consultants outside the big four [PwC, KPMG, Ernst & Young and Deloitte] to poach staff. But they may also liberate some of the big audit firms to hunt for customers they are currently unable to approach.
Overall, the proposals may not change the competitive shape of European consulting much. “With audit, or without audit, these [big four] would be extremely powerful and high-quality consulting firms,” comments the MCA’s Mr Leaman.
The bigger threat in Europe comes from the continuing macroeconomic crisis.
If there is doom and gloom in the industry, it is, according to insiders, nothing like the sentiment just before the Lehman Brothers collapse in 2008.
Consulting firms are clearly now on the front foot. But then, as one consultant points out, “it was four months after Lehman that things got really difficult”.
Source: http://www.ft.com/intl/cms/s/0/e5ed3afe-086c-11e1-9fe8-00144feabdc0.html#axzz1et2QkiaZ
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