Management Consulting Services
SIC 8742
NAICS 541611
Management consultants provide administrative, strategic, and technical advice and training to organizations in the public and private sectors. Examples of these services include financial planning, organizational planning, marketing advice, information technology consulting, human resource planning, and logistics advice. Certain industry firms also provide management accounting and auditing services; see also Accounting, Auditing, and Bookkeeping Services for a discussion of these activities. Others specialize in various forms of information technology planning and systems management, which is discussed in greater detail under the heading Information Technology Services.
The management consulting industry is highly fragmented and polarized. Participants vary widely in size, type, and specialization; the majority of firms are either extremely large or extremely small. Management consulting services range from general management advice to technology development to financial advising to strategy implementation. The industry is also characterized by its broad scope and increasingly blurred functional boundaries. Barriers to entry are low, it remains largely unregulated, and there are no certification requirements for becoming a management consultant. However, consultants can obtain a Certified Management Consultant (CMC) designation, which is internationally recognized. Members must adhere to a strict code of professional conduct.
The industry's US$125 billion in revenues are concentrated primarily among large U.S. and Western European consulting and accounting firms. However, while the United States weighs in with the largest presence in the industry, the U.S. market is maturing. Accordingly, opportunities for market growth exist in emerging markets in Eastern Europe, the Commonwealth of Independent States, Latin America, and the Pacific Rim. Most large U.S. and European firms are shifting their revenue bases abroad—thus increasing integration of the world market.
For many years, an attractive feature of the industry was its stability and durability. Consulting was considered largely recession-proof by many analysts because during times of economic decline, businesses tended to look to consultancy firms for restructuring advice and financial planning. When the dot-com bubble burst and recessionary economic conditions took hold in North America and Europe, however, growth in worldwide management consulting revenues began to slow. After several difficult years, the industry appeared to be recovering by mid-2004, but growth rates were expected to remain low. Industry revenues increased 3 percent in 2004, to approximately US$125 billion, according to Kennedy Information Research Group.
In the larger, more mature U.S. and Western European markets, demand is concentrated largely in the private sector. However, the trend for growth in the U.S. has been in the government and healthcare areas of the marketplace. In newer, smaller markets, including central and Eastern Europe, India, and Asia, public sector institutions, including government bodies and international organizations account for larger proportions of the demand. In particular, national governments in these regions are among the most rapidly growing client base because they utilize consultancy firms to increase economic competitiveness. China has accounted for the largest amount of growth in the Asia Pacific region.
The global management consulting industry comprises six major industry sectors:
An increasingly competitive consulting sector, IT includes companies that use computer and telecommunications technologies to solve business problems, create/seize business opportunities, and address business and management issues surrounding the implementation and integration of new technologies such as electronic commerce, technology needs assessment, and change management. Many of these types of consulting companies have found their recent growth to be increasingly coming from outsourcing. Numerous IT consultancies have evolved beyond merely offering consulting services and have become full-service firms, with many traditional IT firms forming their own consulting subsidiaries. Alliances with providers are becoming common. IT consultants may consult with a company to determine its IT needs; purchase, install and integrate the recommended software and hardware; and eventually operate the system for the client.
Firms in this group plan, develop, and implement programs that help managers motivate and compensate employees, as well as develop their ability to achieve corporate objectives. Examples include total quality management, team building, competency modeling, job analysis, benefits packaging, diversity planning, and pension funding. According to Kennedy Information Research, in 2003, this sector of the management consulting industry was responsible for US$13.2 billion in revenues.
These establishments help managers and directors develop and implement comprehensive, deliberate, strategic plans for improving an organization's competitive position or furthering its corporate mission. Such services often include growth and Internet strategies, acquisition and divestment advice, restructuring planning, and privatization implementation.
Recent trends have shown clients to be tired of strategy in itself. They have become increasingly sophisticated consumers of strategy consulting services, and are looking for results that can be implemented quickly. Clients have become more results-driven with the result being a greater desire for compensation to consultants being tied to these results.
Operations consultants help managers improve production methods and business processes to increase efficiency and effectiveness. Activities include materials requirements planning, inventory planning and control, statistical quality control, customer relationship management (CRM), and project scheduling. This sector of the consulting industry is expected to have the largest growth rate in the next few years.
These firms advise managers on matters of financial management, investment, and reporting to help them maximize the value of their organizations and ensure their future viability. Examples include shareholder value studies, treasury management, financial planning and risk management, and financial market review.
These consultants provide managers with information and advice to help them maintain or increase market share. These firms' services include market analysis and segmentation, new market entry/positioning, product research, and new product development.
Traditionally, firms have billed their clients on an hourly basis, charging anywhere from $100 to more than $500 per hour. In the 1990s, however, a growing number of consulting businesses, especially smaller firms, began generating a substantial amount of their charges from performance-based fees for projects with a measurable outcome, often as much as 70 percent. Recognizing the importance of results and accountability, these firms began accepting payment based on the clients' realized results. Some skeptics criticized this practice, suggesting that it could raise ethical concerns; for example, consultants accepting performance-based fees might be tempted to advise clients in such a manner as to encourage greater short-term results, neglecting the long-term stability of the company. To offset this potential danger, many consulting firms included members of the clients' management staff on the consulting team.
During the North American and European economic slowdown of the early 2000s, the industry saw a return to more traditional billing practices. According to a 2001 issue of Consultants News, performance-based pricing in the management consulting industry declined 50 percent between 1999 and 2000. This shift was due, in part, to the need for clients concerned about containing costs to obtain specific price quotes before hiring consultants.
Major suppliers of management consulting services are a diverse, competitive, and rapidly consolidating group. Firms differ along a number of dimensions including organization type, organization size, area(s) of expertise, degree of specialization, clients and industries served, geographic presence, and global reach. The five major types of suppliers are:
These are organizations for which the sole or primary line of business is the delivery of management advice and assistance. The majority of consulting firms are small, with annual billings of less than US$5 million. High profit potential, growing demand for management consulting services, and low barriers to entry fueled an influx of small firms and individual practitioners during the 1990s. Although fewer in number, large consulting firms, typically defined as those with annual revenues exceeding US$1 billion, account for a significant portion of global industry revenues. Fourteen firms met this...
To continue reading
Request your trial