Addressing the needs of the middle market

Prior to the financial crisis most large consulting firms had written off mid-market clients.

Back then, the talk was all about trimming the long tail of short consulting assignments and focusing instead on a small number of transformational projects.  Now, with a degree of humbleness taught by that crisis, consulting firms en masse are re-thinking their approach.  Several factors are driving this, the most obvious being lower than desired growth among big private sector organisations and in the public sector across many parts of Europe.  But there’s also a growing recognition that the size of the ‘mittelstand’ and the challenges / opportunities faced by mid-sized businesses (around globalisation, for example) add up to a potentially attractive market.  Moreover, the price differential between big clients and mid-sized ones is less than it was.

Developing new tools and skills specifically for mid-sized organisations, and charging realistic fees for them, may well stimulate demand and grow the market.  But the pockets of mid-sized businesses are just as finite as those of large ones.  For big consulting firms to grow here, their mid- and small-sized competitors have to shrink.  Indeed, it’s hard to see how mid-sized consulting firms will be able to compete.  Although they have lower overheads than their bigger rivals, they often employ a greater proportion of more senior people, so bringing down their prices in order to undercut the bigger firms can be difficult.  Some expect to be priced out of this market as a result.

The real opportunity for growth may lie elsewhere, in taking a lesson from the large Western organisations which have had to adapt their products, services and business models to the different conditions prevailing in emerging markets.  “Low-cost economies are a challenge for companies accustomed to operating at the top-end of consumers because their proposition is essentially expensive but durable,” says Per-Ola Karlsson at Booz & Company.  “They’ve been forced to re-think their proposition for emerging markets.  By contrast, a lot of Chinese companies start in the mid-market and move upscale, developing an offering which is also interesting to Western companies because it’s cheap and good-enough.”  The tools, skills and price points being developed for mid-market clients may pave the way for more cost-effective consulting among big organisations.  And it may not be the most obvious firms who benefit here: “We think there’s an opportunity for reverse innovation,” says Roop Singh at Wipro.  “Emerging markets have innovated at very low cost and Western organisations are increasingly looking to firms such as Wipro to teach them how to do this.”