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.
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