Managing the downturn

Management consultants have been hit hard by the GFC, but as the economy rebounds and companies look to expand, the sector will thrive.

Industry revenue in the management consultant’s sector over five years to 2009-10 financial year will average a growth rate of 3.0% per annum, due to such strong returns early in the period. Many consultancies are adjusting their service offerings to provide more simplified services to struggling clients in 2009-10, after spending many years offering more complicated business solutions to aid in growth. The number of individuals employed in the industry is lower than the number of consultants thought to be operating in Australia. This is primarily due to many of these consultants being engaged in other forms of consultancy, such as recruitment, public relations and information technology. Also, there are a large number of consultants in the industry employed by groups that require consultancy on a regular basis. The most obvious of these is political parties and politicians, who employ full time advisors and consultants.

While the share of revenue controlled by the industry’s big names has grown over the current performance period, the number of small firms in the industry is set to increase as well. Many consultancies will trim staff, or focus on employing consultants with expertise in change management, meaning many specialists may find themselves unemployed. These consultants are likely to start their own firms as a means to ride out the current downturn, utilising existing industry contacts.

Industry earnings over the projected outlook period to the conclusion of the 2014-15 fiscal year are anticipated to show even stronger growth than that of the current performance period, with the annualised growth forecast at 4.4% over the five years. As key economic indicators begin to recover, consumer spending grows, and company profits rebound, firms will once again be inclined to invest in expansionary activities. Management consultants thrive in this environment, as they can offer highly differentiated services, priced at a premium. In terms of the management consultancy component, the major growth areas are currently in training and productivity improvement, skills audits, enterprise bargaining implementation, right sizing of businesses and building on core activities and competitive strengths, total quality management, advising on and implementing “world’s best practice” and to a lesser extent now on information technology strategies.

Some of the Big Four Accountancy Services Industry operators have recently indicated that they are preparing to re-enter the management consultancy business and re-establish these operations in-house, which will inject significant revenue into the industry. It will also contribute to the growing similarities between many industries offering advice to clients. Accounting and financial advice will likely become another service offering provided by management consultants. Due to the nature of the work done by management consulting firms, many have, and will continue to have, problems in both attracting and then holding onto their employees, although this has been less of a problem recently due to the less attractive environment now offered by businesses in the IT and e-commerce areas after the many high tech company collapses.

Key Success factors for operators in the industry

  • Provision of development programs for personnel. A key component of being part of a skill and knowledge intensive industry is the ability to devote considerable resources to on-going staff training.
  • Use of production techniques that add value to base product(s). Companies must be able to develop specialist and value added services, at higher charge out for rates that are highly valued by clients.
  • Willingness to outsource when appropriate. Companies should have in-house, or at least access to, consultants with specialist skills, to offer a broader range of services to clients, to assist in containing overhead costs.
  • Possession of accurate information. It is important that companies have access to a national and international information data base, or reports and data, with ease of access and transfer.
  • Access to the latest available and most efficient technology and techniques. To have access to the latest and appropriate computer software and hardware, to ensure maximum labour productivity and support is a key success factor of this industry.
  • Ability to effectively communicate and negotiate. To have strong presentation skills, particularly in relation to client report presentations and for tenders is a key success factor for companies in this industry.

 

Robert Bryant is the general manager of business information firm IBISWorld. For more information on the management consultancy sector please click here.

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