Global consulting is a big industry right now, and my company is getting increasingly involved. Consulting in a global environment is a natural fit. Many countries are developing and use the U.S. as a blueprint for success and capitalism at its best.
My firm does a lot of work in India. We follow the trend. India has become big business. My firm even outsources internal functions for employees to Deloitte India employees. If we have a problem with the firm intranet and call the hotline, we will get a fellow Deloitte employee... from India. My company is also in the usual European countries and China.
My particular field is healthcare. Global healthcare has many facets that we are looking at. First, medical tourism has become a huge business. Deloitte does a lot of analysis on this practice, which will be impacted by health care reform. People are on different sides of the fence on how health reform will affect medical tourism. So, we need people on the ground to monitor daily. By reducing the restrictions created by health plans, some believe that those who would have gone overseas for care will now get this care in the U.S. However, others believe that the access constraints will force more people overseas. To take it a step further, it is possible that a number of providers will set up overseas practices instead of facing higher patient demand with lower reimbursement pay.
Another global area we are looking at is access to care and the re-emergence of global diseases. In areas of Africa, for example, patients might be hundreds of miles from the nearest clinic. Medical technology companies can help bring mobile health care to the patients. This is a big industry, but the return on investment for third world countries is low. As far as the re-emergence of formerly eradicated diseases, we use this as a research forum. For example, polio has re-emerged in some countries. The U.S. is in a position to get to the root of the problem and help patients dealing with these issues. However, the biggest reason behind our involvement is how it might impact us. Consulting firms like mine have doctors and scientists on staff who can try and proactively recognize how re-emerging diseases in other countries could eventually lead to the same issue here. Data analytics can try and predict which diseases are most likely to re-emerge here.
Sunday, May 29, 2011
Saturday, May 7, 2011
Rivalry
Deloitte is the largest management consulting firm in the world. We dabble in all areas of consulting and compete by having quality services that organizations can use from strategy through implementation. Within our industry we have a few strong competitors. The competition, however, is largely based on the sector.
The federal sector competition is Booz Allen Hamilton. They have, hands down, the largest footprint in federal consulting. In order to compete, Deloitte bought the assets of Bearing Point, a firm that went bankrupt but still had a good reputation in the federal sector. In the past few years, many other firms have developed federal consulting practices, or at least improved upon their existing practice. Despite this, the competition between Deloitte and Booz Allen Hamilton is the equivalent of the Yankees and Red Sox.
Booz pays its employees well and carries on a formal, sometimes old-school way of doing business. They focus on IT, professionalism, and a lot of staff augmentation. However, they also undercut competitors to win contracts. Later in the year, you start to see their consultants drop off of projects. This is because to win the contract and pay good salaries, they have to find a solution to contract overburn. They get a good start, then pull assets back once the hit the half way mark, knowing that they can't keep the project staffed at initial levels.
Deloitte exploits this by charging more, but giving the client peace of mind that we will be there for the long haul. We also distinguish ourselves by being more well-rounded. It is difficult for either company to set up barriers to entry for the other. Neither has any contractual preference in the federal sector. Mostly they battle in the recruiting wars. I recieved offers from both companies and without even mentioning the other's name, the recruiters and interviews all pointed out how they are superior. In reality, the two companies should be more concerned with newer rivals than each other. Booz Allen Hamilton has become a public company in the past several months and has become somewhat schizophrenic with their future goals. Deloitte has not properly integrated its Bearing Point acquisition. This leaves the door open for other rivals.
In the commercial space, the rivals are different. Deloitte has a much stronger commercial practice, since it has been their bread and butter for a long, long time. Here, the main competitors are Accenture and PWC. Both of these companies are large and offer a wide range of services. Deloitte distinguishes itself from Accenture by being more robust in all areas, where as Accenture is known primarily for IT. It also uses Accenture's publicly traded status as a negative, taking the angle that a large, private firm cares more about its people and clients (rather than shareholders). Deloitte distinguishes itself from PWC through branding. PWC is solid, but they don't take the efforts to make themselves known (in the consulting field) like Deloitte.
All of the firms mentioned are already in most industries, or are attempting to do so. Deloitte and the major competitors listed are unlikely to ever tell a client that work proposed is outside of their scope. We know who we can and who we can't compete with. For example, Deloitte must be able to offer full cycle services to differentiate itself from a McKinsey, BCG, or Bain. There is a large gap between the top three and the rest of the top ten. McKinsey, BCG, and Bain compete amongst themselves in the world of the elite. Their employees and business acumen is better. However, they do not water down their brand by offering every service imaginable.
As a result, Deloitte and its few great competitors can sit atop a perch and see others coming. There has been a lot of M&A activity in consulting during the past few years. The large firms are always on the lookout to either buy, or destroy upstarts or firms looking to expand.
The federal sector competition is Booz Allen Hamilton. They have, hands down, the largest footprint in federal consulting. In order to compete, Deloitte bought the assets of Bearing Point, a firm that went bankrupt but still had a good reputation in the federal sector. In the past few years, many other firms have developed federal consulting practices, or at least improved upon their existing practice. Despite this, the competition between Deloitte and Booz Allen Hamilton is the equivalent of the Yankees and Red Sox.
Booz pays its employees well and carries on a formal, sometimes old-school way of doing business. They focus on IT, professionalism, and a lot of staff augmentation. However, they also undercut competitors to win contracts. Later in the year, you start to see their consultants drop off of projects. This is because to win the contract and pay good salaries, they have to find a solution to contract overburn. They get a good start, then pull assets back once the hit the half way mark, knowing that they can't keep the project staffed at initial levels.
Deloitte exploits this by charging more, but giving the client peace of mind that we will be there for the long haul. We also distinguish ourselves by being more well-rounded. It is difficult for either company to set up barriers to entry for the other. Neither has any contractual preference in the federal sector. Mostly they battle in the recruiting wars. I recieved offers from both companies and without even mentioning the other's name, the recruiters and interviews all pointed out how they are superior. In reality, the two companies should be more concerned with newer rivals than each other. Booz Allen Hamilton has become a public company in the past several months and has become somewhat schizophrenic with their future goals. Deloitte has not properly integrated its Bearing Point acquisition. This leaves the door open for other rivals.
In the commercial space, the rivals are different. Deloitte has a much stronger commercial practice, since it has been their bread and butter for a long, long time. Here, the main competitors are Accenture and PWC. Both of these companies are large and offer a wide range of services. Deloitte distinguishes itself from Accenture by being more robust in all areas, where as Accenture is known primarily for IT. It also uses Accenture's publicly traded status as a negative, taking the angle that a large, private firm cares more about its people and clients (rather than shareholders). Deloitte distinguishes itself from PWC through branding. PWC is solid, but they don't take the efforts to make themselves known (in the consulting field) like Deloitte.
All of the firms mentioned are already in most industries, or are attempting to do so. Deloitte and the major competitors listed are unlikely to ever tell a client that work proposed is outside of their scope. We know who we can and who we can't compete with. For example, Deloitte must be able to offer full cycle services to differentiate itself from a McKinsey, BCG, or Bain. There is a large gap between the top three and the rest of the top ten. McKinsey, BCG, and Bain compete amongst themselves in the world of the elite. Their employees and business acumen is better. However, they do not water down their brand by offering every service imaginable.
As a result, Deloitte and its few great competitors can sit atop a perch and see others coming. There has been a lot of M&A activity in consulting during the past few years. The large firms are always on the lookout to either buy, or destroy upstarts or firms looking to expand.
Saturday, April 23, 2011
Cost
Consulting is a cut-throat business where cost analysis is very important. The service industry has to be very cognizant of competitors prices, and how they're affected by inputs. This can be more difficult than costs in other industries. For example, within the computer market, there are often a few original equipment manufacturers that produce components. When the price of a component changes, it is felt throughout the industry. As far as the computer itself, it is easy to find out how much the company is charging.
In consulting, our rates are not public. When we compete for contracts, there is no way of knowing how much the competition is proposing. As a result, consulting firms can go about pricing in various way. First, however, we need to know where competitors costs come from. The major input cost for our service is human capital. At Deloitte, we are recognized as a top-tier consulting firm. In order to obtain and retain the best talent, cutting salaries and benefits isn't an option. My firm is very concerned with margins, and attempts to avoid reducing them at all costs. We use our variety of consulting services and quality staff to justify high prices.
However, there are times when the employee costs cannot be justified. In the federal sector, there was a large amount of hiring with the anticipation of more business. This didn't materialize the way my firm has planned it. Lay-offs aren't part of our business model, per se. Now, profits for the federal practice have slowed. While the federal practice wasn't fully prepared with a strategy to react to this problem, the commercial side has some lessons on this subject.
For all of our consultants, training costs are very high... and they get higher based on the consultant level. Federal consultants who were hired without a project realized that their prospects were limited the longer they went without a client. This, combined with other administrative processes within my firm, resulted in turnover. The approximate replacement cost for each lost employee is approximately half of that person's salary. One way to combat this issue is through hiring less permanent staff and more project associates.
Project associates are only hired for individual projects, require less training, and typically have lower salaries. By using these employees to reduce costs is a good strategy. The problem occurs when there is an improper balance between skilled consultants (who have undergone more industry training) and new project associates (lower experience=lower cost). Competitors can exploit this by challenging our expertise. Without this vital factor, we cannot justify high prices.
In consulting, our rates are not public. When we compete for contracts, there is no way of knowing how much the competition is proposing. As a result, consulting firms can go about pricing in various way. First, however, we need to know where competitors costs come from. The major input cost for our service is human capital. At Deloitte, we are recognized as a top-tier consulting firm. In order to obtain and retain the best talent, cutting salaries and benefits isn't an option. My firm is very concerned with margins, and attempts to avoid reducing them at all costs. We use our variety of consulting services and quality staff to justify high prices.
However, there are times when the employee costs cannot be justified. In the federal sector, there was a large amount of hiring with the anticipation of more business. This didn't materialize the way my firm has planned it. Lay-offs aren't part of our business model, per se. Now, profits for the federal practice have slowed. While the federal practice wasn't fully prepared with a strategy to react to this problem, the commercial side has some lessons on this subject.
For all of our consultants, training costs are very high... and they get higher based on the consultant level. Federal consultants who were hired without a project realized that their prospects were limited the longer they went without a client. This, combined with other administrative processes within my firm, resulted in turnover. The approximate replacement cost for each lost employee is approximately half of that person's salary. One way to combat this issue is through hiring less permanent staff and more project associates.
Project associates are only hired for individual projects, require less training, and typically have lower salaries. By using these employees to reduce costs is a good strategy. The problem occurs when there is an improper balance between skilled consultants (who have undergone more industry training) and new project associates (lower experience=lower cost). Competitors can exploit this by challenging our expertise. Without this vital factor, we cannot justify high prices.
Saturday, April 16, 2011
"Innovating" in consulting
My firm has its own community of practice dedicated to innovation. Since I work in a consulting firm, the term innovation can be misleading. We aren't producing anything tangible. Instead, we come up with innovative ideas. The tricky thing is that we don't actually implement any of the innovative ideas ourselves... and they really aren't innovative in the first place. I'll explain. Our innovation lab is geared at coming up with ideas that we can sell in order to win contracts and increase total billable hours.
However, we aren't really leaders, considering that the innovation we come up with is already being done. We just learn about it, become experts on whatever the trend may be, and then re-package it for potential customers. A lot of our focus lately has been on social media. Facebook and Google would have no need for our services. As a matter of fact, we learn a lot of lessons from them. Our strategy is to break down the innovation efforts that work, determine how they can be best implemented, and sell these services.
Looking at the list of once strong companies that have gone out of business, one can see where a consulting firm would come into play. These companies either don't know how to go about doing business any other way, or just refuse to do so. A firm like mine will use lessons learned from industry leaders in order to spur innovation for failing companies.
However, we aren't really leaders, considering that the innovation we come up with is already being done. We just learn about it, become experts on whatever the trend may be, and then re-package it for potential customers. A lot of our focus lately has been on social media. Facebook and Google would have no need for our services. As a matter of fact, we learn a lot of lessons from them. Our strategy is to break down the innovation efforts that work, determine how they can be best implemented, and sell these services.
Looking at the list of once strong companies that have gone out of business, one can see where a consulting firm would come into play. These companies either don't know how to go about doing business any other way, or just refuse to do so. A firm like mine will use lessons learned from industry leaders in order to spur innovation for failing companies.
Saturday, April 9, 2011
Production in Consulting
While it may not appear that management consultants produce anything, we view research as our output. Recommendations aimed at improving companies' performance come from data and information gleaned from many resources. Our production typically starts with white papers, which originate from the need for research on a particular topic. Depending on their demand, the information in the white papers may be used for proposal work to gain clients, or be posted on our vast research site.
Each project's deliverables include a painstaking amount of lessons learned and templates to be used for future work. This results in both the proprietary content only for internal use and practice methods to be used for a variety of clients. When there are great industry shifts, my firm will ramp up production, decrease production, or completely change our focus (to new industries or trends). Our production of information and research is analogous to any other company's development of a tangible product. If that product warrants any kind of demand, chances are my firm is involved in its industry. When we recognize gaps in information, we will hire more people to conduct research on the topic. It just so happens that what we produce is available online or on paper.
Each project's deliverables include a painstaking amount of lessons learned and templates to be used for future work. This results in both the proprietary content only for internal use and practice methods to be used for a variety of clients. When there are great industry shifts, my firm will ramp up production, decrease production, or completely change our focus (to new industries or trends). Our production of information and research is analogous to any other company's development of a tangible product. If that product warrants any kind of demand, chances are my firm is involved in its industry. When we recognize gaps in information, we will hire more people to conduct research on the topic. It just so happens that what we produce is available online or on paper.
Sunday, March 27, 2011
Public Policy on Health Care
Over 50 million Americans are uninsured and health care has risen to approximately 17% of GDP. What should we make of this? Consumers are not positive on the state of health care in this country. They see issues with access to care, emergency rooms flooded by patients using them for primary care, and employers dropping coverage. However, when asked about government intervention, many Americans are wary. The reason for this is that there has not been a good option to solve these issues.
Health reform transformed from the idea of universal health care to a confusing array of mandates on providers, health plans, and life sciences companies. There are penalties and tax breaks. However, the average American still cannot comprehend what these changes mean for them. At first glance, some of the changes appear positive. Some of the issues that have plagued the health care consumer in the past have been coverage limits, lack of insurance options from employers, and the strong arm of big pharma dictating drugs and formularies. Now, small business will have incentives to provide insurance. More scrutiny will be placed on pharmaceutical companies. Limits on insurance coverage will be phased out.
The government views the health care issue as one that only they can fix. People are not happy. However, many will not be happier through government intervention. I agree that health care in America is fraught with issues. However, if I was given the option, I'd rather have my care performed in America than anywhere else on earth. I was able to see firsthand while in England what universal health care looks like. It is not better. Sure, there aren't the same concerns with reimbursements, but the level of care is not optimal. Have you ever seen the teeth of a Brit? Their care options are not complete.
I do not view health care as a right. It is a good or service, depending on what you're having done, that the government should not affect. The current state of health care is a function of America being a rich country. Greater emphasis is being placed on preventative care and health living. Do we need government intervention for this? How much of health care is actually life or death, and how much is pure consumerism?
The government is not financially prepared to truly overhaul the system. A model similar to TriCare within the Department of Defense would be great. However, it is not feasible to do this on a grand scale. I'll take our "broke" health care system over any other health care system, and day of the week. When the government tip toes around the issue, but is unable to actually fix the problem, most people lose. Actually, the hard-working American suffers.
I see the government as creating the very problem that they are now attempting to fix. Look at the big taglines in health reform. There is a lot of talk about the Medicare reimbursable rate. Rates, that I may add, will be cut. This will result in physicians seeing greater demand for their services, with less reimbursement. A new, potentially talented breed of providers may see this as a reason to enter another field. The demand for health care, with so many people lacking insurance, will naturally rise by providing options to these individuals. How will the supply issue be covered, though? Where will the providers come from?
While I do see a problem with so many uninsured Americans, you do have to look at why they are uninsured. Should the government give them handouts? I do not want to sound cruel, but either the government fixes the problem or they stay out of the issue completely. Let the consumer benefit from competition and enjoy the innovation and options that they have, even if the system is "broken".
Health reform transformed from the idea of universal health care to a confusing array of mandates on providers, health plans, and life sciences companies. There are penalties and tax breaks. However, the average American still cannot comprehend what these changes mean for them. At first glance, some of the changes appear positive. Some of the issues that have plagued the health care consumer in the past have been coverage limits, lack of insurance options from employers, and the strong arm of big pharma dictating drugs and formularies. Now, small business will have incentives to provide insurance. More scrutiny will be placed on pharmaceutical companies. Limits on insurance coverage will be phased out.
The government views the health care issue as one that only they can fix. People are not happy. However, many will not be happier through government intervention. I agree that health care in America is fraught with issues. However, if I was given the option, I'd rather have my care performed in America than anywhere else on earth. I was able to see firsthand while in England what universal health care looks like. It is not better. Sure, there aren't the same concerns with reimbursements, but the level of care is not optimal. Have you ever seen the teeth of a Brit? Their care options are not complete.
I do not view health care as a right. It is a good or service, depending on what you're having done, that the government should not affect. The current state of health care is a function of America being a rich country. Greater emphasis is being placed on preventative care and health living. Do we need government intervention for this? How much of health care is actually life or death, and how much is pure consumerism?
The government is not financially prepared to truly overhaul the system. A model similar to TriCare within the Department of Defense would be great. However, it is not feasible to do this on a grand scale. I'll take our "broke" health care system over any other health care system, and day of the week. When the government tip toes around the issue, but is unable to actually fix the problem, most people lose. Actually, the hard-working American suffers.
I see the government as creating the very problem that they are now attempting to fix. Look at the big taglines in health reform. There is a lot of talk about the Medicare reimbursable rate. Rates, that I may add, will be cut. This will result in physicians seeing greater demand for their services, with less reimbursement. A new, potentially talented breed of providers may see this as a reason to enter another field. The demand for health care, with so many people lacking insurance, will naturally rise by providing options to these individuals. How will the supply issue be covered, though? Where will the providers come from?
While I do see a problem with so many uninsured Americans, you do have to look at why they are uninsured. Should the government give them handouts? I do not want to sound cruel, but either the government fixes the problem or they stay out of the issue completely. Let the consumer benefit from competition and enjoy the innovation and options that they have, even if the system is "broken".
Thursday, March 17, 2011
Demand
In the past couple of years, consulting firms involved in the federal health care markets were sitting on a gold mine. There were several factors that contributed to this. Health reform became a huge issue (and still is). HHS and the CDC realized that they weren't adequately equipped with the personnel or skills to effectively react. DoD had a war on two fronts with an increased focus on the invisible wounds of war (psychological health). They, along with the VA and several other organizations, pushed this issue. As a result, many other patients were weeded out from past wars, creating access to care concerns.
Unable to keep up with the rising demand for health care services, and more specifically, knowledge about industry changes; consulting firms were able to effectively win government contracts. The demand, due to the reasons that I outlined, along with the propensity for the government to spend far more than they should for a given product or service, was fairly inelastic. Furthermore, government contracting regulations dictate that there is a hierarchy of organizations that must be considered before granting a contract to a large firm. This is easier to accomplish when the firms produce ideas and strategy instead of products. However, the smaller firms that previously served the federal health arena were simply incapable of meeting the requirements. Large, expensive firms were able to gain a greater foothold in this market.
Additionally, due to the structure of the contracts, consulting firms were able to lengthen their projected completion times and continue to be granted option years. Indefinite delivery - indefinite quantity contracts placed the risk in the government's hands. This still continues, to a certain degree, as none of the issues related to the increased demand have really changed. However, the government remembered its initiative to cut costs (and force the DoD to produce a clean balance sheet).
Now, agencies such as the DoD have decided that the costs have gotten out of hand. They have floated around the idea of cutting 10%. Contracts, as a general rule in government comptrollership, are the first to be cut. As a result, consulting firms are looking for the next big thing. At the moment, it appears to be emerging markets.
At the outset, demand is high and the first firms on the scene are price makers. Eventually, other firms will catch on and join in, increasing competition and decreasing prices. In this manner, consulting firms are similar to technology products. The trendy areas of consulting tend to go in this direction, while more "boring" areas (like retail) are easier to predict. Large firms balance the two areas, straddling both traditional and innovating, new markets.
Unable to keep up with the rising demand for health care services, and more specifically, knowledge about industry changes; consulting firms were able to effectively win government contracts. The demand, due to the reasons that I outlined, along with the propensity for the government to spend far more than they should for a given product or service, was fairly inelastic. Furthermore, government contracting regulations dictate that there is a hierarchy of organizations that must be considered before granting a contract to a large firm. This is easier to accomplish when the firms produce ideas and strategy instead of products. However, the smaller firms that previously served the federal health arena were simply incapable of meeting the requirements. Large, expensive firms were able to gain a greater foothold in this market.
Additionally, due to the structure of the contracts, consulting firms were able to lengthen their projected completion times and continue to be granted option years. Indefinite delivery - indefinite quantity contracts placed the risk in the government's hands. This still continues, to a certain degree, as none of the issues related to the increased demand have really changed. However, the government remembered its initiative to cut costs (and force the DoD to produce a clean balance sheet).
Now, agencies such as the DoD have decided that the costs have gotten out of hand. They have floated around the idea of cutting 10%. Contracts, as a general rule in government comptrollership, are the first to be cut. As a result, consulting firms are looking for the next big thing. At the moment, it appears to be emerging markets.
At the outset, demand is high and the first firms on the scene are price makers. Eventually, other firms will catch on and join in, increasing competition and decreasing prices. In this manner, consulting firms are similar to technology products. The trendy areas of consulting tend to go in this direction, while more "boring" areas (like retail) are easier to predict. Large firms balance the two areas, straddling both traditional and innovating, new markets.
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