What Is the Future of Management Consulting?
Management consulting has come a long way in the past century. Some of the largest consulting firms such as McKinsey & Company established their services during this period.
Since then, the growth of these service-oriented companies has accelerated at the same rate as their clients. With an overall average of 10% growth per annum, the billion-dollar industry is showing no signs of slowing down. Today, we are seeing the top firms opening branches in cities where up and coming companies flourish such as Shenzhen and Beijing.
It is important to take note that management consultants have also extended their roles in leading companies as CEOs and members of the board. The consulting network is a tightly knit web of high-level consultants, ex-consultants and their clients, which are composed of the higher levels of management.
Large companies are always on the lookout for new strategies, whether it’s to increase sales, lower operational costs, or for restructuring. Moreover, when faced with a high-risk decision, many companies (that can afford it) rely on the advice of management consultants for a fresh perspective and a solution.
Contrary to popular belief, not all firms are in direct competition with each other. Some large consulting firms rely on others to work on projects that carry over due to an overload of assignments. As a result, both firms benefit from this agreement and trade off.
As mentioned earlier, the growth of the consulting industry heavily relies on the growth of large companies. They are both directly related to each other. Due to these highly competitive markets, big brands are always on the lookout for new strategies.
One of the problems with finding new strategies is that a new perspective is needed. A senior staff who has been with the company for over 10 years may have a difficult time seeing the negative aspects of the business, as he or she might have already been accustomed to working around them. Furthermore, long-time members of the staff have a personal attachment to the company and their peers, making it hard to make and implement new strategies that could harm their personal relationships.
These types of companies heavily rely on the advice rendered from management consultants. The more they earn, the larger the company gets the higher the risks.
To make an even clearer point, notable companies don’t just avail of a consulting firm’s services once. Often times, they have their “go to” firm that is familiar with the in and outs of their company. It’s not rare for a company to request for more than one project at one time. The frequency may also vary depending on the yearly events of the company. The board may request for the services of a management consultant during the yearly budget cuts, or strategy decision work. Because of this, consultants will continue to be in demand in the future.
The Rise of New Sectors
New industries are slowly on the rise. The Information Technology (IT) is a relatively new industry. These days, IT consultants are sought after due to the boom in the technology industry. The same can be said for industries related to medical science, online security and online businesses. These new sectors are in need of a new breed of consultants with relevant backgrounds.
What this could also mean is that other academic backgrounds may prove to be an asset for individuals who want to be consultants for these new industries. Marek Ranis, a management consultant for 14 years with experience in Fortune 500 technology companies, explains this further in an article he wrote:
“First, I think that the “generalist consultant” model is no longer viable. Consulting firms that want to succeed must offer subject matter expertise, not just visions. This presents a challenge to the traditional consulting model of hiring bright people and throwing them at projects as they come. Specialization is a difficult thing to obtain at large consulting houses that are obsessed with chargeability. On the other hand, boutique firms with deep expertise seem to be doing well, especially if they partner with other firms that fill in the gaps.”
We can also say that industries that are not as popular as they once were may also affect the number of consultants that specialize in the specific field. In the middle of the spectrum, we may see consultants that specialize in a particular part of operations or strategy, such as HR consultants or social media marketing consultants where before it was unheard of.
Bad Economy Equals Good Economy for Consulting Firms
A bad global economy doesn’t hurt everyone. Employment companies and recruitment agencies have experienced an increase in customers due to the number of unemployed workers. The sad reality is that because more people are getting sick due to lack of personal funds for medicine, proper food and water, and shelter during bad weather, the medical industry is not greatly affected by the dips in the market.
The same can be said for the management consultant industry. Businesses that are affected by the struggling economy need to do something different. If they don’t, they could risk shutting down their company. Their target market could still be the same, but without the same buying power, a drastic new plan may be needed.
This is when a management consultant comes to the rescue. Large companies that may not be used to losing money are in a state of panic. They may have tried everything, but nothing is working. One of the last resorts would be to restructure and cut down on employees or close offices in countries where business is at an all-time low.
Cost reduction, strategies related to turnaround, and merging (with the intention to save) are specialties that are needed during these times. Consulting firms that specialize in growth strategies, research and development may find that some companies are not looking for these types of services.
Because of the exponential growth of the online world, trends come and go at an alarming rate. The predictability of viral videos is impossible to calculate. Companies can experience a sudden growth in sales in one month, and the complete opposite in the next.
A great example of this is cloud storage. 7 years ago, companies such as Dropbox (estimated value of 8 billion USD), Box, YouSendIt, and SkyDrive did not exist. The entire cloud storage market wasn’t around. They might’ve been under development, but were not open to consumers. Fast forward to today, companies such as P&G, BMW and Pepsi rely on this technology to run their businesses.
Where is cloud storage headed to in the next 5 years? That we don’t exactly know. Developers are constantly making sure that they have the next best feature or update. Management consultants also play an essential role in cloud storage companies, making sure that their actions are low-risk.
The rate at which businesses can succeed and fail is fairly high. Because of this, they may have to invest in the services of a management consulting firm to ensure that their next move is calculated and profitable.
Freelance Consultants Are Here to Stay
Not all companies can afford to hire a consultant from a reputable firm. If they had the budget before, they may not have it in the future. Moreover, consulting firms that bundle their services into large expensive packages may drive businesses that need their services to look elsewhere. After all, some companies say that most of what they are paying for is the “name” of the firm they want to work with. Additionally, information is becoming more and more accessible, which means that the need for a consultant to do extensive research may be lower.
Currently, we are seeing an increase in freelance consultants. The great thing is that distinguishable freelance consultants usually come from a well-known firm, for a fraction of the price. It’s a win-win situation, freelance consultants earn more because they pocket all of the service fees, and businesses are happy to pay the substantially lower price for the same quality service.
In conclusion, the future of management consulting looks bright and stable. As the “Big 3” consulting firms expand to new cities with growing economies, the more we can be sure that the industry is here to stay. Specialization is becoming more of a requirement than a bonus. As businesses struggle to cope with trends, the more consulting firms will continue to bring in new clients.
Lastly, the management consulting industry has adapted to the current economy in a number of ways. The increase in freelance consultants can be beneficial for everyone in the industry due to lower fees, increase in competition (between firms and freelance consultants) and the growth of companies, which is an essential factor in the future of the management consulting.