Business model

By Fiona Czerniawska.

Regular readers of this blog will know that we see the consulting industry dividing into two markets: the low-cost market, where familiarity results in super-specialisation, standardisation, and—ultimately—commoditisation; and high-value consulting, in which unfamiliar problems can only be solved by smart people supported by clever tools. We’ve argued that these two markets co-exist, but the former, although bigger (about 70% of the total, we estimate) is growing more slowly than the latter—which would be fine except that clients are telling us that these markets are also diverging, making it hard for firms to do both. All that’s created pressure on the consulting business model.

By Fiona Czerniawska.

Size has long mattered in the consulting industry: in the last five years, we estimate that firms with more than 1,000 consultants have grown by 46%, 2.3 times the rate of smaller ones.

That’s not new: if you went back to the 1970s and tracked firms’ growth since, allowing for all the inevitable mergers and acquisitions, you’d see that the firms that dominated consulting then are still those that rule the roost today. Smaller firms come and go, but the big firms march relentlessly on.  There are several reasons for this. Big firms are more likely to work on big projects for big clients: if you’re the CEO of a major corporation you’d don’t hire a ten-person firm to do the global roll-out of your new strategy. You may bring small firms in for specialist advice, and you may well be prepared to pay a premium price for that, but you don’t expect them to cover the ground. With more money coming in, big firms have been able to invest in account management, so they’re alert to upcoming opportunities and are more likely to win them because they know those involved. The biggest firms, too, have been able to attract the best people because they pay more and claim to offer more interesting work with iconic brands.