Things to think about for 2013: (1) Strategy firms

September seems to have been a good month for most consulting firms in Europe.  This summer, unlike that of 2011, didn’t see a crisis of confidence and many clients came back from their vacations keen to get things moving. For the moment the run up to the end of the calendar year is looking fairly positive.  Inevitably, firms’ thoughts are turning to next year: will 2013 be a good year for the consulting industry?  Vintage or vacuous?  Boom or bust?

This is the first of a series of blogs I’ll be doing over the next couple of weeks which look at the prospects for different segments within the consulting industry, starting here with strategy firms.

Our research suggests that these firms had a combined income within Europe, the Middle East and India worth €6.6 in 2011 (remember that we only count what we call ‘big’ consulting, that done by consulting firms with more than 50 consultants, typically for clients with a turnover in excess of €500m).  We also pegged the average growth rate for strategy firms at around 7%, not as high as some  would like it, but a better performance than most other segments.

If strategy firms are to match that growth over the coming year, there are perhaps four opportunities / issues to be considered.

The first is emerging markets.  Strategy firms have traditionally been in the geographic vanguard, an approach which has yielded dividends in terms of local standing, relationship-building and the ability to recruit the best nationals.  But emerging markets eventually mature: Russian clients may still put a premium on the big strategy brands, but the market is very volatile, able to grow or shrink by 50% in a year.  There are signs in the Middle East that clients are looking for increasingly specialist skills and this creates openings for new firms to enter the market.  At the same time, mature markets such as Germany and the US have been growing strongly, challenging our assumptions about where growth will come from in the future.  There will be a new wave of emerging markets – Turkey and Africa are the ones on many people’s lists – but should they be the priority for strategy firms?

A second area is the way in which strategy firms in particular are used by clients to validate difficult decisions, work that ranges from genuine data gathering and analysis to rubber-stamping conclusions already reached.  It’s a big area of spend – our analysis suggests it accounts for 15% of all consulting expenditure – but there’s limited growth here.  Clients recognise the importance of this type of work (it circumvents length internal wrangling) but don’t expect to spend more on it, so the prospects for growth  are limited.  Moreover, there’s a risk that firms which are too closely associated with this area won’t be able to do anything else: “If we need a specialist or want to get anything done, we look elsewhere,” say clients.

Technology has always been something between a threat and opportunity for strategy firms, but analytics and ‘big data’, because they depend on business understanding as well as IT infrastructure, unquestionably puts the issue centre-stage.  CIOs, our research suggests, think that most technology consulting firm struggle to have a business-focused conversation with people outside the IT function.  They prefer, instead, to use management consultants, throwing the door wide open to a whole host of new firms.

But, while technology may be an opportunity, delivery models remain a barrier to change for strategy firms.  Clients we know are frustrated by an industry whose organisational model seems outmoded – and nowhere is this frustration more acutely felt than with strategy firms (perhaps because clients think they should be in the vanguard of innovation).

On balance – and barring any economic catastrophes – 2013 should be a good year for strategy firms, although perhaps not quite as good as 2011-12, but only if they have the right answers to these four points.

If you missed our recent webinar on strategy firms, you can get a recording of it and the slides by emailing Alice Noyelle.