Three years ago, consulting was in the doldrums. Suffering from a hangover from the dot.com party, clients appeared to be turning their backs on external advisers; fee rates were falling; consulting firms were making staff redundant. By Fiona Czerniawska of Management Consultancies Association.
Who would have predicted the industry would bounce back as quickly as it has? 2006 saw record levels of growth in consulting in the UK. The Management Consultancies Association, which tracks trends in the industry, reported an increase of 14% in fee income of its members for the fourth quarter of 2006 against the same quarter in the previous year.
Management consulting had grown by just under 7%, IT and outsourcing-related work by 10 and 26% respectively. So what had changed?
Part of the credit is due to the economy. Unlike audits, organisations don’t have to buy consulting services. They tend to do so only when they’re confident enough to invest. True, companies will hire consultants to help them cut costs and drive up efficiency when times are bad, but most consulting results from managers choosing to do things – to put in a new IT system, to explore a potential acquisition, or to improve customer service, and so on.
'Optimising costs never falls off the agenda,’ says David Owen, head of consulting at Deloitte, ‘but businesses are looking at more innovative ways of growing and at how they can improve the way they put their plans into action. They want to get things done quicker and better. They’re less interested in top-down theory, and more concerned to encourage people at all levels to take responsibility for change. I can’t think of any programme we’re involved in that doesn’t have a strong people-related element.’
And a buoyant economy makes for a buoyant consulting industry: Deloitte's consulting practice grew by more than 15% last year - twice the rate of the management consulting sector and a performance which is mirrored in some of the other higher performing consultancies.
Part of the credit for this renaissance also goes, ironically, to government. Successive waves of regulation and public concern about the standards of corporate governance have created a mini-boom in consulting on these issues, helping organisations to change their systems to comply with new rules or looking at how they can balance the strictures imposed with operational efficiency.
‘There’s been a whole spectrum of legislation which has an impact on processes and systems,’ says Andrew Crowley, Vice President of European Financial Services at CSC Computer Sciences. ‘Single European payments; anti-money-laundering measures; the Markets in Financial Instruments Directive. Some organisations are saying they’re already Basel II-compliant, but there are other deadlines creeping up.’
However, a lot of the credit goes to clients and consulting firms themselves. They have done much over the last five years to reinvent the industry. When consulting firms laid off staff in 2001-02, many of them went into industry and the public sector, and into positions which meant they were hiring consultants. This, combined with higher levels of management education more generally, has created a generation of managers who are much more conversant with how the consulting industry works and how to get good value for money from consulting projects.
More sophisticated buyers have been clearer about what they’re looking for. ‘Clients have become much more selective about what they buy and who they choose to buy it from,’ says Philip Geiger, chairman of Xayce, a consulting firm specialising in helping organisations improve their back-office functions. ‘Because the consulting industry is growing, clients have more choices and they’re articulating those more clearly.’
One of the ramifications to this has been a growth in ‘multi-sourcing’, where people from different consulting firms are asked to work together on a project for a client. Another is that consulting firms themselves have to be far clearer about what they can and cannot do. ‘The bar has been raised,’ continues Crowley. ‘A few years ago, taking 20% of an organisation’s costs out would have won you the work; now it just gets you to the table. Clients are demanding much more in the way of specific expertise and industry knowledge.’
That, in turn, has sent a wave of M&A activity across the consulting industry as firms try to secure the specialist skills they see clients wanting. This new generation of clients has also had an impact on fee rates. In the early years of the millennium, with excess supply washing around, the focus was on pushing prices down – the MCA estimates that they fell by as much as 20%. Now, however, the debate has moved on to value: consulting is expensive, so how can firms justify their existence?
‘Clients are much better at articulating the benefits they’re looking for,’ says Pat Sherry, Leader of Government and Public Sector Practice at PricewaterhouseCoopers. ‘That leads to a much more efficient working relationship, but it also creates a challenge for consulting firms. Not only do we have to have very specific skills or techniques, but we have to demonstrate we can add sustainable value.’
Clients agree. When British Nuclear Fuels had to start competing in the open market for contracts to decommission power stations, it asked PwC to help it adapt to the new commercial environment. ‘A lot of our people were nervous facing the restructuring of our entire industry and fundamentally changing how we go about our daily jobs,’ recalls Brian Tenner, Finance Director at BNG, the company established by British Nuclear Fuels. ‘Our programme was incredibly complex. We were dealing with seven business functions, reengineering 200 business processes, managing over 40 suppliers, changing or implementing three major computer systems, and keeping so many plates spinning and not having anything crashing to the ground was a major feat.’
Good consulting firms have always surveyed their clients’ satisfaction, but the key here has been to inject some discipline and rigour into the process of quantifying the benefits of using consultants. ‘We have to deliver – and show we are delivering – measurable and sustained value to our clients,’ says David Thomlinson, who runs Accenture in the UK.
The challenge now is how to roll out this kind of approach across an industry as diverse as consulting. In one of the biggest deals of its type anywhere in the world, Accenture has spent the last five years helping BT transform its human resource function, providing resourcing, performance, benefits, advisory services, and pensions for 87,000 employees and 180,000 pensioners within the UK.
But, at the other end of the spectrum, the firm has been working with Lottery-funded Healthy Living Centres to change a complex and diverse network of organisations into professional, successful community enterprises. ‘Having a great relationship with a client is hugely important,’ says Thomlinson, ‘but we want to be able to show that every single assignment adds value and to walk away from work we think won’t do this. Consulting is a long-term game, and we want to have a lasting impact.’
Fiona Czerniawska is the Director of the Management Consultancies Association’s Think Tank.
Contact: david[at]creatrixpr.co.uk
The articles published here in the Thinking CEO are internet updates of the latest management knowledge and practice, which have been commissioned by Sovereign Publications for their bi-annual magazine, CEO Today, and will appear later in the first 2007 issue of this publication. To contact Sovereign and CEO Today, go to:
http://www.sovereign-publications.com/ceo-art.htm
read all 70 gurus with one feed read all Read all media
