The biggest market-changing events that influenced Consulting magazine's first decade…And what's likely to shape the profession for the next ten years.
By Jess Scheer
A Look Back
Consulting magazine's first ten years has witnessed the most dynamic decade in the modern era of the consulting profession. Consulting in the 1970s was dominated by strategy work. The 1980s brought a shift toward process-related engagements, such as Total Quality Management and Business Process Reengineering. The 1990s were all about technology, most notably: the rise of Enterprise Resource Planning, Y2K, and the birth of the Internet. But the last 10 years are not quite as easy to categorize.
In part, the last 10 years were about the demise of Andersen, which had been the profession's largest firm for the prior two decades. The first body blow occurred in 2000 when an arbitrated divorce allowed the Andersen Consulting partners (now known as Accenture) to walk away from their estranged colleagues without the significant payday most had expected.
Then, just two years later, came Enron. The implosion of what was one of the firm's largest clients, and the alleged cover-up by a handful of the firm's audit staff, led to Andersen's eventual collapse. The death of Andersen is a cautionary tale of what can go wrong inside even one of the world's strongest firms. In addition, the resulting redistribution of clients and consulting talent will continue to impact the profession for years to come.
The headlines of the last 10 years were also dominated by the divestiture plans of the other global accounting firms. The SEC argued that when an audit firm sold a significant amount of consulting work to a public audit client, the auditor's independence could be called into question.
This public debate contributed to Ernst & Young's decision to sell a large piece of its consulting business to Capgemini; KPMG Consulting's partners to spinoff what became the now-bankrupt and splintered BearingPoint; PricewaterhouseCoopers to sell a large piece of its consulting operations to IBM; and BDO Seidman and Grant Thornton to sell significant pieces of their consulting practices to Hitachi. The relative success/failure of each divestiture, and the current market positioning of Deloitte by not divesting, will continue to drive the story of the next decade.
To be sure, it was also a decade dominated by the economy. The decade was bookended by two severe downturns. The bursting of the technology bubble was exacerbated by the attacks of Sept. 11, 2001, leading frightened consultants to slash their fees in desperate attempts to retain client relationships.
And then, after a couple of years of moderate growth, virtually all discretionary consulting spending was cut as corporations tried to defend their market position while contending with the combination of high oil prices, followed by a collapse in the housing market, the erosion in consumer confidence and spending, and a complete meltdown of the financial services industry.
The last 10 years were also instrumental in the growth of IBM, which today is—by far—the world's largest consultancy. The PwC Consulting acquisition was a big external milestone. But the rise of IBM, and its growing domination within the IT consulting space, can also be attributed to a series of internal decisions and investments. The continued growth of IBM, and the attempts by other IT companies to follow its lead by expanding into the services space, will have a lasting effect on the profession.
What will the next 10 years bring? The one thing we are confident about is that it will likely be as unpredictable as the last decade.
A Look Ahead
After the most tumultuous decade in the modern history of the profession, what's next? To be sure, there's much we can't predict. But what we can anticipate with relatively high certainty are two trends that could upend the consulting market every bit as much as anything we saw in the last 10 years.
First, Consulting expects that even after the economy rebounds, the high growth years for the profession are over. The profession has grown too large, and its services have become so mature, that there are no big growth drivers on the horizon. The profession has also become so diverse that it's hard to imagine any single driver being able to rapidly expand the size of, say, the IT consulting market while, at the same time, creating a surge in HR consulting projects.
There likely will be small pockets of growth, driven by a new wave of accounting and financial services regulations (IFRS, Basel II, TARP oversight), M&A, etc. But the opportunities will be limited to a few industry areas of specific service lines. And some drivers may only result in a short-term spike in growth. In aggregate, the profession may grow by no more than mid-single digits annually for the foreseeable future.
And whatever growth in demand does emerge will continue to be kept in check by pricing pressure from an increasingly sophisticated set of buyers. During the last downturn, approximately 100,000 consultants left the consulting profession and the vast majority went into industry. Industry has continued to become a leading employment destination for consultants, raising the odds that consultants will be selling to former consultants.
The resulting slow growth will likely create two challenges. First, the marketplace will have no room for firms with poor client or staff relationships. Those firms that offer no unique value proposition for clients or their consultants may find themselves rapidly losing market share. In prior economic cycles, the market grew fast enough to help mask poor client and staff retention programs. But when the market is growing more slowly, poor business practices have nowhere to hide.
Second, the more successful firms will have to grow despite market conditions, not because of them. It will require firms to be more innovative, better able to demonstrate and quantify the ROI, and far more nimble to pursue the limited blips of consulting demand as they pop up within a single industry or region.
The other large challenge facing the consulting profession down the road will be to recruit/retain top talent despite difficult market conditions.
The Talent War Returns
Half of all consultants plan to leave their current firm within the next four years, according to a survey of nearly 10,000 consultants conducted by Consulting this summer. And when they leave, approximately three-quarters of that group do not plan to work for another consulting firm. In other words, the typical post-downturn spike in attrition will not likely lead to a redistribution of consulting talent; it is more likely to lead to an exodus of talent.
"In the economic downturn, companies have all but destroyed the employee value proposition," says Barbara Spitzer, Capgemini's VP of Global HR consulting. Her firm has tried to improve its retention efforts, in part, by increasing its training hours by 30 percent from 2008 to 2009.
Consulting reported last month that across the profession, the average consultant's training hours dropped by 15 percent in 2009, while the average number of hours worked climbed at every staff level—most notably by 7 percent at the consultant/recent MBA level and by ten percent at the entry level /analyst level.
There are big macro challenges to retention. "The economics of our industry has changed so much that the value proposition has to be changed. In the last two years, there has been big pressure on fees and pressure to maintain salaries. The good times are gone, probably for good," says Scott McMillan, Capgemini's Chief People Officer. "Many consultants have been brought up in an environment in which they expect frequent promotions and salaries to increase rapidly. That has probably stopped. And it's hard for many to get their heads around that."
As a result of these issues, McMillan says, "general industry has become an attractive employment alternative. Consulting firms will have a hard time beating industry on compensation packages. Historically, it's been the other way around." Firms will increasingly need to turn to industry to recruit experienced talent. It's a daunting challenge, but one that some firms are already overcoming.
"The basic fundamental value proposition of why someone wants to become a consultant is changing," warns David Niles, president of SSA & Co, a 75-person operations management firm, which primarily employs consultants who have years, if not decades, of industry experience. The industry-turned consulting career path is modeled from the top down: The firm's chairman, Dave Fuente, is the former chairman and CEO of Office Depot; the CEO, Scott Miller, was previously CEO of Hyatt Hotels.
"We're looking for industry veterans who know what it means to be an advisor," Nile says. No matter how much domain knowledge you have, "consultants need to work with client. You have to live by your ability to cajole and convince the client to follow your advice. As an external consultant, you have to realize that they no longer have a role in the operating structure."
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