A couple of years ago, I was asked by the founder of GottaMentor.com to write an overview piece to highlight key information about industry mechanics and emerging trends. The resulting Management Consulting Summary can be found on the GottaMentor.com site at THIS LINK. I’m not sure if this link is viewable to folks who aren’t registered users on GottaMentor, so I’ve posted the content that I wrote below.
Before you read through the following, I must remind you that what’s written below is just my read on the industry, roles, and important issues, so don’t take it as the only “gospel truth” definition. I believe in what I put together here, but other folks who’ve worked in Consulting might interpret things differently. I just thought it might be a useful resource for someone who is interested in the industry and is starting from zero in terms of his/her understanding of it. Enjoy!
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Overview of the Industry:
According to Wikipedia, “Management consulting refers to both the industry of, and the practice of, helping organizations improve their performance, primarily through the analysis of existing business problems and development of plans for improvement. Organizations hire the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice, access to the consultants’ specialized expertise, or simply as extra temporary help during a one-time project, where the hiring of more permanent employees is not required.â€
A much simpler definition of what Management Consultants do is analyze, diagnose, and recommend solutions to business problems across a range of industries, functions, and organization types. Consulting firms vary in size from huge global organizations that cover a wide range of issues (examples include McKinsey, BCG, Bain, IBM Global Services, and Accenture) to smaller boutique shops that specialize in a particular industry or functional areas. Core skills required in the industry include structured problem solving, analytical skills, structured communication, ability to work in teams, leadership acumen, and overall professional presence.
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Macro trends:
What current news stories are dominating the industry?
The big news stories dominating the Management Consulting industry are all related to the current global economic crisis. The recession is the news story in business in decades and it has produced ripple effects across just about every industry, including Consulting. Some of the stories resulting from the recession’s effect on the Consulting industry include:
- Negative impact on client companies in several industries (including automotive, airlines, energy, and retail)
- Consolidation within the Consulting industry as a strategic response to the down economy
- HR moves at Consulting firms in an effort to “right-size†due to potential pull-back by existing and propective clients
What major trends will rive growth in the business over the next 12-24 months?
Some trends that will drive growth in the industry over the next 12-24 months are:
- Consolidation among firms: M&A activities aimed at adding competencies, leveraging shared industry/functional strengths, promoting efficiency in operations.
- Innovation in solving business problems: The current economic crisis is something that hasn’t been seen since the Great Depression. Firms that develop innovative solutions will be presented with significant growth opportunities as client work toward an economic recovery.
- Entrepreneurship: Down economies often present the best opportunities for launching one’s own business and that will likely happen in the current case. With so many talented professionals having been laid off, many people have turned to independent consulting/contracting as a means to make a living without a corporate paycheck. Chances are that many of these independent consultants will incorporate and form small boutique firms that will add to overall industry growth as the global economy recovers in the next 12-24 months.
What challenges are facing the industry?
Some of the challenges currently facing the industry are:
- The war for talent between Consulting firms and with companies in other industries (investment banking, financial services, technology, etc.)
- Opinion among some existing and prospective clients that Consulting fees are a discretionary, non-core expense that should be reduced or eliminated in the face of a down economy
- Perception issues for Consulting in the greater overall market related to the current economic downturn
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Business Fundamentals
Describe the role of each of the major administrative and operating areas of companies in this industry?
Specific titles vary from firm to firm, but the individual roles are usually as follows:
- Analyst: Entry-level consulting role with candidates usually coming in straight from undergrad; Often a two-year program with Analysts expected to venture off and get some other experience (different job, grad school, etc) before coming back as an Associate; Role involves strategic analyses, participating in team problem solving, client interaction and leadership, and communication of recommendations and analyses
- Associate/Consultant: Candidates often come in after business school or some other graduate program, but there are also cases where Analysts are promoted directly to Associate and others when candidates come in as experienced hires from other industries; Role involves the same sort of tasking as the Analyst, but there’s an expectation of greater business knowledge/insight and greater role in client leadership; People usually stay in this role for 2-4 years, depending on the firm
- Manager: At this point, the consultant start driving the problem solving effort and leverages the work of the Analysts and Associates to do so; Role involves high-level problem structuring, resource allocation, process management, direct client leadership, “managing upwardâ€, and providing quality control on final deliverables; People usually stay in this role for 2-3 years, depending on the firm
- Associate Partner: Transition role between Manager and Partner where a person begins to add value to multiple teams and/or clients concurrently; At this point, the consultant also takes a greater role in business development and selling work for the firm; By this point, the consultant should have developed an area of functional and/or industry expertise that he/she will leverage as a platform to work toward a promotion to Partner; Consultants usually stay in this role for 2-4 years, depending on the firm
- Partner: The “mountain top†of the consulting industry; Partners work to balance the tasks of maintaining the client relationship at the highest levels, working to sell work at current and prospective clients, and provide value to individual project teams (which are often geographically dispersed); Partners are relied upon for their industry and functional expertise often drive the problem solving effort of on-the-ground team based on their previous experiences in addressing similar client issues
What are the drivers of profitability for companies in this industry?
Consulting is a “people business†and, as such, the majority of each firms cost structure goes toward salaries and benefits for staff. So, on the cost side, the primary drivers of profitability are compensation/benefits expenditures and utilization of consulting staff. Compensation can vary from person to person, but usually stays within a certain range for staff in a given role. The utilization point is a key one because the goal should be to have consultants staffed on projects more often than not so they can generate revenues to account for their individual people costs. That said, consulting firms usually keep a close watch to make sure consultants don’t end up with utilizations that are too high, which brings about the risk of burnout.
On the revenue side, companies focus on the number and duration of projects and the pricing of each of those projects. The goal of the Partners (and often the Associate Partners) is to strike a balance between these factors to maximize revenue to be booked while concurrently building a backlog of work that will generate more revenues in the future. Also, an important issue on the revenue side is the length of relationships with clients, which reduces the effort to sell new project work and allows teams to leverage institutional knowledge built up over time.
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Competition:
Who are the major industry participants and what are their strengths & weaknesses?
According to Wikipedia, “Currently, there are four main types of consulting firms:
- Large, diversified organizations that offer a range of services, including information technology consulting, in addition to a strategy consulting practice (e.g. Accenture, Capgemini, Deloitte, IBM). Some very large IT service providers have moved into consultancy as well and are also developing strategy practices (e.g. Wipro, Tata, Infosys)
- Medium-sized information technology consultancies, that blend boutique style with some of the same services and technologies bigger players offer their clients (e.g. IDS Scheer, arinso).
- Large management and strategic consulting specialists that offer primarily strategy consulting but are not specialized in any specific industry (e.g. Bain & Company, Booz & Company,McKinsey & Company, The Boston Consulting Group, Oliver Wyman, A.T. Kearney).
- Boutique firms, often quite small, which have focused areas of consulting expertise in specific industries, functional areas or technologies (e.g. Heidrick & Struggles, Towers Perrin, the Avascent Group, Newton Industrial Consultants, Kaiser Associates) . Most of the boutiques were founded by famous business theorists. Small firms with less than 50 employees are often referred to as niche consultancies (e.g. Agility Works, iProCon HCM). If they have a unique concept and market it successfully, they often grow out of this segment very fast or are bought by larger players interested in their knowhow.â€
It’s difficult to provide strengths and weaknesses of all of the players in the industry because I’ve only worked at two of the large consulting firms. Also, the determination of strengths and weaknesses for specific firms are rather subjective. When evaluating a firm, a prospective hire should look at several factors that could be indicators of job satisfaction and interest in the role, including company culture, specific area(s) of focus, growth potential and advancement opportunities within the firm, brand in the overall marketplace, and methods used in completing projects.
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Research:
What are the best ways to get smart about this industry (i.e. websites, books, people, exercises)?
Some good ways to get smart about this industry are as follows:
- Review the Management Consulting sections of general business sites, like Vault.com
- Visit sites or read periodicals devoted to the Consulting industry to learn about industry, such as ConsultingMagazine.com and its companion periodical
- Read case interview prep guide books to get an idea of the type of problem solving and issue analysis used at Management Consulting firms (examples include “Case in Point†and “Ace the Caseâ€)
- Review corporate websites of a range of consulting firms across specializations and company sizes
- Read books focused on the type of work done in Consulting firms (examples include “The McKinsey Way†and “Perspectives on Strategy From the Boston Consulting Groupâ€)
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