In the management consulting field, the environment is competitive, yet is large enough for various players to enter and compete. However, the ability to do this effectively depends on many factors. Large firms often take the approach of offering specialty services on a large scale. For example, McKinsey is recognized as a best in field strategy firm. Accenture, however, places heavy emphasis on technology. My firm, Deloitte, serves as a generalist who can deliver strategy through implementation services on a high level. On the other hand, boutique firms may utilize pricing power or a more personal approach to generate profits.
While the consulting marketplace is well-established, it is far from recognizing market saturation. Fragmentation still exists, as the demand of consulting needs far outpaces the ability of even the largest firms to dominate. However, the basis for rivalry is similar across the board. The cost of services is fairly range bound, with firms holding great eminence in their field holding a marked advantage in terms of retaining and building clientele. Rivals looking to increase market share are often forced to take on competitors at their own game, rather than differentiating themselves with unique knowledge. Deloitte, for example, attempts to recognize changes in the marketplace first; gaining a foothold before other large competitors can do so. Laggards are forced to distinguish themselves by offering a lower price point, better talent, or a better strategy geared towards the individual customer. Deloitte was able to create differentiation by being a one-stop shop for all consulting needs. In areas where they did not have good market penetration, they acquired firms in order to better compete. Finally, firms such as Deloitte have achieved economies of scale as evidenced by high margins and low overhead; reducing unit cost. Innovative structures, such as office “hoteling” has led this effort.
Novel ideas, such as those described above, are important in an industry where there are few barriers to entry, but several barriers to success. The biggest barriers tend to be the ability to compete with top-tier firms (such as McKinsey, Bain, and Boston Consulting Group). These firms, while charging higher prices, set up barriers through knowledge and client relationships that new entrants are unlikely able to duplicate. While costs need not be high to enter the consulting field, industry knowledge is the biggest commodity. Even the most seasoned consultants, creating their own firm, will lack the resources and proprietary information that large firms have built up over many years with a diverse clientele. As a result, new entrants are forced to grow by taking on smaller customers. Conversely, firms such as Deloitte are often able to increase revenues not through how they can impact a specific client, but rather their breadth of past clients. Reputation, in this field, is of the utmost importance.
One of the biggest downsides to being able to continually compete is the loss of talent. The very reputation of the firm that builds clientele trickles down to the consultants. These consultants often gain a reputation closely linked with their firm. As a result, companies will hire consultants. This is a substitute that saves them costs, as they can garner similar expertise without the price mark-up. This forces consulting firms to continually hire and develop new talent to offset this trend. A challenge to retaining talent is the long hours and travel often required of consultants. It is difficult to retain these individuals for the life of their career. Deloitte has continually attempted to balance the work-life ratio in order to keep employees from moving on. At Deloitte, it is rare that a practitioner will move to a different firm. It is far more likely that they leave to take a position with a former client. Deloitte, and its competitors, must compete not only within themselves for hiring new talent (such as MBAs), but with various companies, as well.
Due to these attempts to obtain their own talent to improve company strategy, buyer bargaining power remains relatively high. A large aspect to the extent whether consulting firms can continue to produce profits is based on a couple of factors. First, the size of the client is vital. Accenture, for example, was able to fend off the negative effects of the recession (at least compared to many other publicly traded companies) by serving large corporations. While these corporations had suffering earnings, it was at this time that they needed consultants the most. Boutique firms dedicated to smaller companies often did not have this luxury. The second aspect to staving off buyer bargaining power is the entrance to new industries. During the downturn, the federal government continued to spend large amounts of money on consulting. Deloitte’s buyout of Bearing Point during this time proved that growth was possible, even in poor economic environments. This external factor, the requirement for government to be more efficient and produce clean balance sheets, was a boon to my firm.
While buyer bargaining power is complicated, supplier bargaining power in this industry is easier to understand. The major suppliers are the consultants. Firms with good reputations have robust recruiting practices, enabling them to obtain the best talent. Supply for new talent is rarely short for these firms. However, as discussed earlier, retaining this talent can be an uphill battle. Firms such as Deloitte place a large emphasis on training. Deloitte University is set to open in 2011 and act as the hub for all consultancy training. In addition, continuing education hours are required, as are networking events and firm development. The goal is to not only create a better consultant, but to gain buy-in in order to retain top individuals.
Established consulting firms have a unique place in the market. During economic downturns, they tend to fare better than other corporations, as their expertise is needed more than ever (a low-overhead structure employed by firms such as Deloitte is helpful, as well). As economies recover, corporations are willing to spend more on these services in order to gain an edge. The goal of consulting firms is to always stay at least one step ahead of industry. Despite the ebbs and flows, there are always means by which an established firm can continue to improve its place within the market.
Sunday, February 20, 2011
Strategic Positioning
My organization is a large management consulting firm. Currently, I work within Federal Government Health care Services, where growth has been high. My firm entered this market and gained a foothold primarily through the acquisition of another large management consulting firm. This company’s bankruptcy enabled my firm to buy its greatest asset – a large federal practice. We have since leveraged the existing relationships to become one of the most distinguished firms in this sector.
While the acquisition was key to entering the federal market, my firm has since relied on organic growth; utilizing its name and reputation gained in the commercial markets to the federal government. This is evidenced by double-digit growth, year over year. The current state of the federal government has yielded many opportunities to obtain business. Furthermore, the typical contract mechanism utilized by the government, specifically the Department of Defense, is beneficial in ensuring business relationships for several years (through contract options).
One of biggest boons to the business has been health care. This is seen both via health care reform due to shifting demographics and increased costs; as well as the increasing need for improvements to care for Service Members and Veterans. My firm positions itself by hiring an array of individuals; from administrators to clinicians to security-cleared personnel to IT specialists, etc. This enables us to migrate within the entire federal health care marketplace seamlessly.
The firm also has a unique strategy that differentiates it from competitors. Within the federal arena, many consulting firms offer staff augmentation at a discounted rate. Given certain contracting requirements, there are few firms that can offer high-end services. Many smaller firms are not designed to run a full-service strategic platform, where as my firm runs the gamut from strategy through implementation. As a result, there is limited competition to be awarded as the prime on big contracts (there are only a handful of large firms offering similar services). However, we are able to fulfill contracting requirement by subcontracting work to smaller firms. Due to my firm’s eminence, we have the ability to charge higher fees. The client understands that while the price point may be higher, we are a one-stop shop with vast resources.
Our market penetration makes us more attractive than competitors. As opposed to top boutique firms, who have a niche area in which they are very competent, my firm attempts to be well-rounded in all areas. Even if unfamiliar with our services, clients know the name. The other side of our business is as the largest of the Big Four audit firms. While the audit and consulting sides are kept separate, the name goes far. While this may only appear important for the commercial business, this is actually far from the truth. Often, government personnel are not familiar with large consulting firms. However, almost everyone knows my firm (many know someone who work for my firm). All things considered equal, this give us an advantage when the contract award takes place.
In addition, my firm is well aware of trends going on domestically and internationally. With international business becoming increasingly important, our footprint has grown in various countries. When issues such as health care or banking become prominent, we are first to get in the game. While this is made capable due to our breadth and depth in the industry, it is also how we remain a leader.
Despite these positives, in order to maintain this positioning, my firm needs to better integrate its federal and commercial practices; standardizing internal processes. As a fairly new entrant into this market, there are growing pains. The internal strategy has not been adequately designed. As long as this remains an issue, competing firms can enter and gain market share by developing a federal program slowly, building it over time.
While the acquisition was key to entering the federal market, my firm has since relied on organic growth; utilizing its name and reputation gained in the commercial markets to the federal government. This is evidenced by double-digit growth, year over year. The current state of the federal government has yielded many opportunities to obtain business. Furthermore, the typical contract mechanism utilized by the government, specifically the Department of Defense, is beneficial in ensuring business relationships for several years (through contract options).
One of biggest boons to the business has been health care. This is seen both via health care reform due to shifting demographics and increased costs; as well as the increasing need for improvements to care for Service Members and Veterans. My firm positions itself by hiring an array of individuals; from administrators to clinicians to security-cleared personnel to IT specialists, etc. This enables us to migrate within the entire federal health care marketplace seamlessly.
The firm also has a unique strategy that differentiates it from competitors. Within the federal arena, many consulting firms offer staff augmentation at a discounted rate. Given certain contracting requirements, there are few firms that can offer high-end services. Many smaller firms are not designed to run a full-service strategic platform, where as my firm runs the gamut from strategy through implementation. As a result, there is limited competition to be awarded as the prime on big contracts (there are only a handful of large firms offering similar services). However, we are able to fulfill contracting requirement by subcontracting work to smaller firms. Due to my firm’s eminence, we have the ability to charge higher fees. The client understands that while the price point may be higher, we are a one-stop shop with vast resources.
Our market penetration makes us more attractive than competitors. As opposed to top boutique firms, who have a niche area in which they are very competent, my firm attempts to be well-rounded in all areas. Even if unfamiliar with our services, clients know the name. The other side of our business is as the largest of the Big Four audit firms. While the audit and consulting sides are kept separate, the name goes far. While this may only appear important for the commercial business, this is actually far from the truth. Often, government personnel are not familiar with large consulting firms. However, almost everyone knows my firm (many know someone who work for my firm). All things considered equal, this give us an advantage when the contract award takes place.
In addition, my firm is well aware of trends going on domestically and internationally. With international business becoming increasingly important, our footprint has grown in various countries. When issues such as health care or banking become prominent, we are first to get in the game. While this is made capable due to our breadth and depth in the industry, it is also how we remain a leader.
Despite these positives, in order to maintain this positioning, my firm needs to better integrate its federal and commercial practices; standardizing internal processes. As a fairly new entrant into this market, there are growing pains. The internal strategy has not been adequately designed. As long as this remains an issue, competing firms can enter and gain market share by developing a federal program slowly, building it over time.
Operational Effectiveness
Within my firm, there are a couple of answers to this question. As I mentioned in the Strategic Positioning discussion, I work for a large management consulting firm; specifically within the federal government sector. The Operational Effectiveness within my sector is lagging its commercial counterpart.
As a whole, my firm has many functions that add to its Operational Effectiveness. Included among these are a wide depth/breadth of knowledge and industries served, vast technological assets, a robust recruiting and talent retention program, and individualized career paths. However, the federal sector practice has not integrated well with a strategic plan that was built for the commercial sector.
While there is an abundance of information to be found on the firm’s intranet, it is often not useful to the federal sector. Furthermore, employee performance is often measured by utilization rate. While this might be adequate for consultants who can bill clients for all hours worked, this is often not the case with government contracts. The contract might limit each practitioner to 40 billable hours per week. As a result, any unbillable time affects an individual’s utilization rate. Ironically, one can be considered underutilized merely by attending mandatory firm training and functions.
Additionally, service lines might fall between two sectors. For example, while I work in the federal government sector, my service line is health care. Health care, however, is a general service line that functions for both sectors. No clear distinction has been made, as it is obvious that there was failure to integrate these areas when the buyout of a large federal consulting practice was completed a couple of years ago; leading to the firm’s large federal footprint.
Prior to the acquisition, my firm merely dabbled in the federal markets. However, it did not build an infrastructure specific to this sector, as it was not large enough at the time. The acquisition not only grew the practice, but caused an influx of over 90% of the other entity's personnel. At present time, there is a struggle between the two cultures. Those brought over from the acquired firm still compare company policies to the way that they used to do business. The new hires to the firm have embraced the culture of the acquiring entity.
As a whole, my firm has many functions that add to its Operational Effectiveness. Included among these are a wide depth/breadth of knowledge and industries served, vast technological assets, a robust recruiting and talent retention program, and individualized career paths. However, the federal sector practice has not integrated well with a strategic plan that was built for the commercial sector.
While there is an abundance of information to be found on the firm’s intranet, it is often not useful to the federal sector. Furthermore, employee performance is often measured by utilization rate. While this might be adequate for consultants who can bill clients for all hours worked, this is often not the case with government contracts. The contract might limit each practitioner to 40 billable hours per week. As a result, any unbillable time affects an individual’s utilization rate. Ironically, one can be considered underutilized merely by attending mandatory firm training and functions.
Additionally, service lines might fall between two sectors. For example, while I work in the federal government sector, my service line is health care. Health care, however, is a general service line that functions for both sectors. No clear distinction has been made, as it is obvious that there was failure to integrate these areas when the buyout of a large federal consulting practice was completed a couple of years ago; leading to the firm’s large federal footprint.
While the opportunities within the federal sector increase, resulting in what appears to be great revenue growth, problems still exist. Some of these issues have resulted in talent trying to cross over to the commercial side, or leaving the firm. These struggles illustrate how Operational Effectiveness can be very different, even within one firm.
Prior to the acquisition, my firm merely dabbled in the federal markets. However, it did not build an infrastructure specific to this sector, as it was not large enough at the time. The acquisition not only grew the practice, but caused an influx of over 90% of the other entity's personnel. At present time, there is a struggle between the two cultures. Those brought over from the acquired firm still compare company policies to the way that they used to do business. The new hires to the firm have embraced the culture of the acquiring entity.
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