Industry consolidation: what clients want

By Fiona Czerniawska.

“M&A is integral to our growth,” said one consulting firm we spoke to recently. “It has been for several years and will continue to be. Each year, we factor M&A activity into our growth plan, which in itself is a sign of how strategically important this is to our business.” 

They’re not alone. 2015 saw two and a half times as many acquisitions by consulting firms than 2014 (we counted almost 400, using a fairly strict definition of “consulting”)—and that was on top of a similar increase the year before. However, at the current rate of progress, based on a like-for-like comparison with previous years up to the end of June, we expect the figure for 2016 to be down by about 20%.
 

But the big question is, is any of this frenetic activity adding value to the people who matter—clients? If it’s not, then the chances of it adding value to the consulting firms involved are slight. 

That’s what we set out to answer in the latest report in our Strategic Planning Programme. And we did what we always do: we asked some clients, in this case around 3,000 of them in major consulting markets around the world, what they think. 

Generally they understand why consulting firms make acquisitions, but it still hits them where it hurts. Once a deal has been concluded, clients have one immediate priority—to ensure that, if they’ve got a team of people from a firm that’s been acquired, it doesn’t change—and one longer-term desire, to be able to access a greater range of skills. 64% of the people we surveyed have seen good people leave as a result of a deal, and a slightly smaller proportion say that when one firm is acquired by another, the specialist expertise in the former is lost to sight as it’s absorbed into the latter. Only 56% think that such deals benefit them, the client, a percentage that falls to 48% in the mature US and UK consulting markets.

So why aren’t clients in open rebellion, demanding consulting firms stop all this nonsense? Because they’d like these deals to work. All our recent research has turned up the same result: clients would like to buy more services from one firm. Just for the record, this doesn’t mean they want a one-stop-shop: clients remain pretty cynical of the jack-of-all-trades business model. But they would like to consolidate some of their expenditure, especially where they’re investing in large-scale, multi-disciplinary transformation projects. Industry consolidation should mean that it’s possible for them to do just that. The result is finely balanced sentiment. It wouldn’t, we think, take much to tip clients over into having overtly negative views, but there’s also a lot firms could do to improve the situation: guaranteeing (yes, we know, that’s a big word) continuity, and getting a much more effective message across about the breadth of skills now available.

Clients don’t have a problem with the theory: it’s the practice that they take issue with.

To find out more about this report, click here.