11/18/2019 Five major challenges facing the global consulting industry

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report from Deltek suggests it still faces a myriad of challenges in
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Increasingly, this has involved helping clients stay ahead of the
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consulting industry
Consulting sector shi ing geopolitical situations. As a result, while the global
economy seems to be slowing, the consulting industry continues
to enjoy robust growth.
 Trends impacting the internal operations of
consulting firms

However, in spite of this growth, there are a growing number of

challenges that consultants are facing. According to an industry
report conducted by Deltek ‘Insight to Action – The Future of the
Professional Services Industry’, consulting practices need to
consider strategies for dealing with these challenges if they are to
remain successful. An overview of five key challenges identified
by the study.

1. Changing client behaviour

Corporate buyers of professional services have become more
demanding, pushing back against concepts such as billable
hours, and requiring fixed fees and with greater transparency on
costs. In an increasingly agile environment, intensified by rapid
digital innovation, clients now expect more value, a higher
quality of work, and a faster delivery of solutions and services.

At the same time, clients are also asking for more transparency
and accountability in work delivered. This particular shi in
behaviour stems from the financial crisis – when companies were
forced to drastically cut down on their external consulting spend
– since then, they have maintained a high level of scrutiny.
Clients are monitoring  the value provided by consultants with
greater interest than ever before.

Another factor adding to this growing scrutiny is that consulting

firms no longer enjoy a monopoly on specialised knowledge. Two

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11/18/2019 Five major challenges facing the global consulting industry

Consultancy.org Americas decadesMiddle

Europe ago, firms
East suchAfrica
as McKinsey,
Asia Boston Consulting Group,
Oceania
and the Big Four had unique knowledge and best practice advice
which made their o ering invaluable. Now, much of this
informationis readily
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▼ online to those who are willing to Join the platform
research. In addition, alumni of the tier-1 consulting firms are
now widespread.
News  Consulting Firms  Projects  Events McKinsey
 Jobs alone has more Consulting
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alumni
 Partners
working in leadership roles across private, public and social
sectors globally, meaning their expertise has been disseminated Industries Services Research
 
across the industry.

Thanks to these changes, clients are now more likely to spread

the scope between several di erent providers for di erent tasks.
By using specialist consultancies and boutique firms, clients can
dive deeper into expert matters such as regulatory change, or the
adoption of agile working.

So-called ‘purpose-driven’ consultancies have also become

increasingly popular, amid the current climate of public scrutiny
on the practices of big businesses. As a result, consultants must
also be good corporate citizens themselves, demonstrating
greater corporate responsibility, rather than just prioritising their
bottom line. In particular, consulting firms with a history of
restructuring or a focus on financial services, are o en in the
spotlight due to their role supporting job cuts or the relocation of
clients’ profits to tax havens.

According to Deltek’s study, “the issue of unethical behaviour is

now reaching a crisis point, with consumers and shareholders
now agitating for change. There is a broad recognition that firms
must do good.”

This is something some firms have played into already. Strategy

consultancy Bain & Company, for instance, has committed to a
global target of $1 billion in pro bono consulting work for worthy
causes by 2025. McKinsey meanwhile established McKinsey
Generation to emphasise its support to social impact. McKinsey
Generation is a youth employment programme that helps young
people find jobs and build careers.

2. Profitability
As clients are more willing to shop around for consulting services,
they understandably hold more sway than in the past, and are
demanding greater value and flexibility at lower prices. In
Deltek’s survey, 54% of chief operating o icers said their biggest
challenge caused by “changing client behaviour” was that of
providing more value at the same cost.

This has hit the margins of consulting firms, forcing consulting

executives to recalibrate their own business models accordingly.
Fi y-one per cent of those surveyed considered price pressure a
top business development challenge over the next 12 months,
and increasing profitability was a top priority for 54% of the firms
surveyed, followed by managing a contracting and/or
unpredictable spending environment (27%).

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11/18/2019 Five major challenges facing the global consulting industry

Consultancy.org Americas This margin

Europe Middlesqueeze
East comes
Africa at aAsia
time when overhead costs,
Oceania
particularly wages, continue to rise amid a talent crunch, which
in turn, is resulting in the consulting practices, particularly those
that struggle with e iciency
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operations, feeling the pressure.
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In another survey by Deltek, the researchers polled consulting
executives on how they believe they could ramp up firm
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profitability. Increasing scrutiny on cost control ranked first,
followed by improving working capital through better
management of incoming and outgoing flows, and limiting the
number of project budget overruns, especially in the case of fixed
price projects.

3. New competition
Buoyed by innovative new technologies enabling them to do
more with less, new players are entering the consulting market,
and alternative, digital-savvy business structures are being
deployed. In Deltek’s survey, 55% said that addressing the
increasing competition in the sector was a major business
priority, while 33% of chief operating o icers said “defining
competitive advantage” was among their top three priorities for
the next five years.

Boutiques and specialist firms are not the only form of

competition to be on the rise. The increase in independent
consultants is also proving to be a major competitive force. In the
UK, there are now over 2 million freelancers and that number will
continue to grow. The largest portion of these independent
consultants operates in the field of professional services,
consulting and project management. They are putting pressure
on prices, because they operate without the same overheads as
the larger firms, and can charge well below what the established
consultancies can. In the UK now, one one-fi h of the £10+ billion
worth of management consulting work goes to independent
consultants.

The rapid rise of independent consultants is accelerated by

freelancer portals such as Upwork, PeoplePerHour, Talmix and
Comatch. These portals are connecting millions of professionals
globally – for example, freelancers in Southern Asia with clients
in Europe. This is eliminating the need for professional services
companies to act as  intermediaries, which for many
consultancies was a lucrative part of their incumbent business.

Elsewhere, at the top of the market, the larger players are only
getting larger. The ten largest consulting firms across the globe
now hold a 56% share of the industry, while the top 200 hold
around 80%. Both percentages have been on the rise since the
turn of the century, driven by the Big Four and the growing
number of deals in the industry as a means for growth. Thanks to
this, the professional services industry is seeing an increasingly
‘squeezed middle’, with firms too large to be seen as specialists
and too small to compete at the top table su ering significant
pressures.

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11/18/2019 Five major challenges facing the global consulting industry

Consultancy.org Americas At the same

Europe time,
Middle Eastthe rise of automation
Africa Asia allows corporate buyers
Oceania
to handle more of their complex problems in-house. This further
challenges the professional services sector, as it reduces the
need to outsource.
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▼ are able to gain a much greater level Join the platform
of insight into how their profession works, either for free or at
much lower prices, and
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Automation is also taking on more of the lower-end tasks once
handled manually by professional services firms – a trend likely Industries Services Research
 
to continue all the way up the ecosystem.

With the rise of artificial intelligence, automation of consultancy

work could become even more of a reality. Tasks performed by
teams of smart junior analysts can today be carried out by a
machine in the space of minutes. Celonis for instance, a German
so ware firm specialised in process mining, is disrupting the
consulting segment for process management. The firm’s so ware
automates the identification of ine iciencies in supply chains or
manufacturing processes, a job traditionally carried out by
management consultants.

4. Project complexity
Consulting firms are facing an increasingly complex macro
macro-environment in which they must continue to provide the
best advice. The global nature of the industry adds to the
problem, as firms deliver more projects overseas, in many cases
also working with subcontractors, partner companies and/or
independents. Delivering a project itself is not the issue – the
challenge is doing so faster, more e iciently and to tighter
budgets, while continuing to satisfy customer needs.

Complexity is also rising because clients are gaining better

insight into their projects and demanding more control. The
evolution of mobile technology has, for instance, caused a
seismic shi in the sector, enabling stakeholders to gain instant
access to project information on the go. It presents project
managers with the challenge of staying on top of their projects
within a more dynamic data environment.

Project complexity comes with a cost, too. It makes it harder for

project managers to plan in advance, meaning that their
resourcing volatility has gone up. It can also put a business’
bottom line at risk, with unplanned changes o en required late
in a project. Seventy-one per cent of respondents admitted to
Deltek that they do not get paid for all change requests they
have, either because the client refuses or because they decided
to strategically not pass them on.

Looking ahead, over half of the consultants surveyed (52%) think

the increasing complexity of projects will be the number-one
challenge for project management over the next five years.
Higher up in the company, 63% of executives said that project
complexity is the number one top operational challenges
expected in the next five years. To tackle complexity, clients need
a good understanding of their projects in terms of expected
costs, schedules, risk, required resources, and revenues. This

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11/18/2019 Five major challenges facing the global consulting industry

Consultancy.org Americas allows Middle

Europe teams East
to focus their resources
Africa Asia appropriately and
Oceania
maximise e iciency.

5. Cybersecurity
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Consulting firms handle an enormous volume of confidential
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client information. Career
 from
ranges  Consulting
strategic Industry
information (used  Partners
for strategic engagements, or mergers & acquisitions) to
commercial (sales & marketing information for pricing Industries  Services  Research
engagements) and personal data (employee data as part of
reorganisation and cost-cutting exercises). Such high-value
information can be very damaging if it falls into the wrong hands.
That makes professional service firms obvious targets for
hackers, and data breaches, therefore, pose a particularly serious
threat to consultancies.

In Europe, the introduction of the General Data Protection

Regulation (GDPR) – which came into force last year – put extra
weight on the importance of getting cybersecurity right. In
addition to incurring serious financial penalties, the negative
publicity would be damaging to the businesses’ reputation and
could a ect their ability to win work in the future. Numerous
consultancies have already su ered the consequences for failing
to comply with GDPR. The result has been hundreds of
thousands of pounds in fines and the loss of both current and
future contracts.

Focus on key ingredients

Commenting on the five major challenges, Fergus Gilmore, Vice
President Sales and Managing Director UK and Central Europe at
Deltek, said, “The results of our survey reflect some concerns
about the future of the consulting industry. Many feel their firms
are ill-equipped to tackle current challenges and future risks,
expressing a desire to strengthen core business models, as well
as internal systems and processes.”

He added, “In this climate, consulting firms must focus on three

key ingredients in order to gain a clear view of the risks and
opportunities ahead: pipeline, projects, and people. That means
knowing what kind of projects they are going to bring into the
business, and when; how much it will cost to deliver those
projects; and whether they have the right skills for the job. The
role of technology is vital to for consultancies to get a handle on
this information, and more importantly, be able to use it to
inform their decision-making.”

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