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Management consulting’s success tends to be measured by the ebb and flow of demand for strategy consulting services, and the tide has definitely been coming in over the past year or so.
Demand for strategy consulting, which advises top managers on the major long-term decisions they make, seems to be on the rise. A paradoxical combination of confidence and fear has driven big companies back to the strategy practices of the consulting firms — the high-end, high-margin part of the traditional business.
Confidence comes from improving economic conditions and a sense, at the strongest companies, of being in a position to act on new visions of the future after weathering the financial crisis.
Fear comes from the threat, chiefly, of disruption at the hands of new competitors, both from the digital domain and from growth markets such as China.
As Bob Bechek, worldwide managing director of Bain, the consultancy, puts it: “The search for profitable growth in a world awash with capital drives a powerful desire for strategy advice.”
Fee income from “strategy” consulting grew by 16 per cent in 2014, more than in recent years, according to Source Information Services, the industry research group. In some individual markets, growth in strategy consulting was even higher.
The UK Management Consultancies Association — whose members do not include traditional “strategy houses” such as McKinsey, Boston Consulting Group and Bain — clocked the growth in strategy consulting at 44 per cent in 2014, an indication of how other consultants are now moving into this area.
Yet as the borders are blurring between management consultants and other advisory groups (just as communications, advertising, headhunting and legal firms edge into adjacent areas), so the boundaries of strategy consulting are becoming harder to define.
“Strategy has morphed into work around the growth agenda for corporations,” says Fiona Czerniawska, co-founder of Source. “Other consulting firms see that as an opportunity.” She suggests that the likes of McKinsey, BCG and Bain are “in a castle of their own making with a wall around it — and that wall is of clients’ own perceptions [of the firms]”. Pretenders to the strategy crown, which include the Big Four professional services firms, plus Accenture, are bent on winning more lucrative, high-end advisory work. They are also throwing large numbers of staff at implementation and operational improvement tasks.
In one sense, there is little new in the way in which different consulting practices are overlapping — mingling strategy with execution. When he founded his firm in 1926, James O. McKinsey, described it as a group of “accountants and management engineers” even though he employed no actual engineers.
Fee income growth in 2014 for strategy consulting work
As Christopher Wright and Matthias Kipping observed in The Oxford Handbook of Management Consulting, it is a “myth” that management consulting is “solely the province of boardroom advisers”.
Even in the “gilded age” of strategy consultants in the 1960s, the largest companies were in fact operational improvement firms such as HB Maynard (later bought by Accenture).
What has now emerged, though, is a breed of hybrid consultants, who claim — like half-man, half-horse centaurs — to offer all the advantages of strategic vision and more detailed digital knowledge or big data expertise.
Now, like most of its peers, McKinsey employs plenty of engineers — and integrates their work with that of the strategy practice.
“[Clients] need to make good decisions that lead to appropriate resource allocation towards the right things for execution and implementation,” says Sven Smit, a McKinsey director.
Rich Lesser, the head of Boston Consulting Group — whose founder Bruce Henderson claims to have “defined” strategy consulting — points to his firm’s ability to develop software tools that allow clients to analyse their research pipeline, for instance.
Maintaining that “we have no desire to be a software company”, he sees strength however in “blending” teams across practices.
Accenture Strategy, while not claiming to compete with the traditional strategy groups, describes its 8,000 consultants as a combination of technology strategists and business strategists.
Returning to consulting in a big way since a retreat in the wake of the Enron scandal, the Big Four accountants — PwC, Deloitte, KPMG, and EY — continue to push their one-stop-shop approach.
One of the keys to McKinsey’s early growth, as Duff McDonald writes in his 2013 history, The Firm, was “to persuade people that [its] ability to solve problems was just as inspired as the solutions themselves”.
Fee income growth in 2014 for strategy consultants
For all consultancies, this has become more difficult as the clients themselves have developed their own strategic knowledge, with the help of former consultants or staff trained in the same disciplines as their advisers.
“If a company already has sufficient resources inside itself to tackle the problems it faces, they are going to reach for external consultants less. So external consultants have had to change what they offer,” points out Chris Osborne, co-chairman for Europe, Middle East and Africa at FTI Consulting, which often works alongside other consultants offering specific expertise to customers in areas such as regulation.
But Ms Czerniawska says that while clients “are much better able to do the kind of things consultants did in the past, it doesn’t mean they have the capacity”.
Provided consultancies can continue to offer sufficiently expert advice, combined with ever more powerful analytical tools that companies have neither the time nor skills to develop in-house, they are likely to be able to command a premium for their services.
Even so, it is clear that just as digital disruption is driving business to the consultancies, and greater availability of data is allowing more profound analysis of what is going on in clients’ businesses, consultancies face growing pressures to offer ever more compelling combinations of strategic advice.
Strategy houses used to apply a stable strategic framework to examine where a company should compete, how, and when. They would then proceed to a plan to execute the strategy.
Now they are obliged to adapt those strategic answers to fast-changing global realities, and to back them with empirical evidence, gleaned on the hoof from analysis of the dynamic data provided by the client.
“The profession called consulting has had to innovate more in the last five years than in the previous 20,” says Vivian Hunt, McKinsey director.