By Dr. Oliver Gottschall
I started working as a management consultant for one of the leading consulting companies more than 8 years ago. Between my early days as a young consultant and now, the industry has changed significantly. The financial crisis in 2008/09 was a discontinuity that has shaken many of the established consulting companies, which had to rethink (and partially re-invent) their client service models in order to adjust to the new demands in the market. The consulting industry – this is certain – has become more competitive, with industry growth in Europe and North America slowing down 1.
Management consulting is by nature of the business a very dynamic industry. Consultants have to be always at the forefront of innovation, and many of the leading consulting companies invest a significant amount of money in research on new markets, new technologies, and new trends in their client industries 2. Quick responsiveness to client demands and to changing trends is one of the key strengths of leading consulting companies, and a key requirement for consulting companies wanting stay ahead of their competition. Asia – which can be said to have been a “net importer” of consulting concepts and methods in the past – has now become a major growth engine for many of the leading consulting companies, and due to the dynamism of Asian markets and the need to quickly adjust to client demands in the growing economies of the region, it has also become the origin of many innovative consulting concepts. Especially the so- called “Big Five” management consulting companies (McKinsey & Company, Boston Consulting Group, Bain & Co., AT Kearney, and Booz & Co.) are in permanent search for the next innovation to gain a competitive edge in a tightly battled Asian consulting market.
This article examines four recent trends observed in the management consulting, particularly in Southeast Asia.
Trend #1: Hiring for expertise
For a long time, large consulting companies have focused their recruiting efforts on bright, young MBA graduates, who were (and are) excellent at analytics skills, eager to travel and work long hours, bring fresh ideas to existing business problems, and easily adjust to the unique company culture of the top consulting companies. In 2012 alone, top management firm McKinsey & Company alone hired 517 of the best MBA graduates from leading US and European business schools and – based on a survey among fresh graduates – managed to defend its leadership role as the most popular consulting destination among Business School students 3.
Nevertheless, while MBA recruiting is continuing to play an important role for top consulting firms, the trend goes increasingly towards what is called “experienced hiring” – i.e. the recruiting of ‘more seasoned’ consultants with multiple years prior experience in industry. As Rich Lesser, CEO of Boston Consulting Group, stated in a recent interview:
“What has changed is the kind of teams our clients expect. They want a depth of expertise in particular industry sectors or functions, so the breadth of talent that we draw on is broader. (…) And we hire more people from industries, at all levels, who can bring insight and expertise.”4
The reason behind this trend can be easily explained: As more and more management positions in industry are filled with young bright MBA graduates, or with former top management consultants themselves, clients become more sophisticated, and expectations are growing far beyond what has been demanded from consultants a decade ago5. Especially in Asia, where hierarchy and respect is still closely associated with age and experience, ‘more seasoned’ consultants find it easier to work with C-level clients than their younger colleagues who come fresh out of college or business school.
Trend #2: Partnering for expertise
The demand for more expertise among clients also gives rise to many specialized “niche” consulting firms – small firms that specialize in specific industries or functional areas. Southeast Asia-based consulting company PYI, for example, has specialized in offering advice on Investor Relations and Financial Analysis, specifically to companies operating in Southeast Asia6. This specialized offering and the deep expertise PYI has built in this area gives the company sufficient business and an opportunity to grow within their market niche – without having to compete directly with the “Big 5”. Other niches emerging in recent years are Social Media Consulting, Environmental Solutions
Consulting, M&A Consulting in Asian markets, as well as industry-specific consulting for the Southeast Asian region (particularly with the background of upcoming ASEAN economic integration in 2015). Larger consulting firms, which typically aim to offer a broad choice of service lines to their clients, react to the increasing demand for deeper expertise by forming strategic alliances with these niche consulting firms. For the large firms, this has the advantage that they can further expand their service offering into innovative areas (such as social media, environmental solutions, etc.); for the smaller niche consultants, a strategic partnership with a large company means a much larger exposure and access to Fortune 500 clients which are normally difficult to enter for smaller consulting firms.
Especially the “Big Five” are engaging in strategic partnership to strengthen their client offering. For example, to meet the growing demand for expertise in social networking and social network marketing, McKinsey in 2010 entered into a joint venture with market research expert firm AC Nielsen to form ‘NM Incite’. And only recently, in November 2012, NM Incite in turn decided to further strengthen its position through the acquisition of SocialGuide, a leader in social TV measurement, analytics and audience engagement solutions. Through this strategy of strategic partnering combined with strategic acquisitions, only two years after being established NM Incite has become one of the largest global players in applying social media to solve marketing problems, and has expanded to operating in over 30 markets.?
Trend #3: Implementation consulting
A third major trend is the growing client demand for implementation consultancy. The traditional consulting model – a consulting team working with a client for 2-3 months, developing a business strategy for the client, leaving behind a 100-page presentation, and moving on to the next engagement – does not seem to meet the need of many clients anymore. McKinsey & Company was among the first top management consulting firms to have added a separate Implementation Service Line to their client offering. As one firm client is quoted on McKinsey’s website, “It’s one thing coming in and doing a bunch of analysis and telling us where the problem [is], but it’s another thing then helping us drive to execution”.8
In response to the increasing client demand, particularly from Asian clients, the firm created McKinsey Implementation, a group dedicated to supporting clients beyond the traditional consulting approach. As it is described on the firm’s website: “That’s why we created McKinsey Implementation, a specialized group with broad Operations expertise that helps turn recommended solutions into concrete performance improvement. Working directly at client sites, across all levels of the organization, our implementation consultants build the capabilities, systems, and processes needed to deliver long-term impact.”9
This new concept of implementation consulting has, of course, effects on the business model and fee structures of consultants. While in the past the big consulting companies missed out on opportunities in long-term implementation work due to their high fee structures, a new tendency towards success-based fees or so-callled “fees-at risk” can be noted in the market, for example with Bain & Company: “Recently, Bain has begun to focus more on implementation cases (.). With an up-and-down economy, long-term relationships and payment based on equity and success make sense on both sides.”10
Trend #4: Capability building
Closely linked to clients’ demand for implementation support, is another – maybe the most significant – trend in the consulting industry in Asia: the increasing focus on client capability building11. A recent survey by McKinsey & Company among 1,440 executives found that “nearly 60 percent of the respondents placed building organizational capabilities (.) among the top three priorities at their companies”12. And McKinsey reacted to the demand by their clients: as Germany’s “Manager Magazin” reported, the company opened its first Capability Center in Munich, where the firm established a designated training area of 1,000 sq.m. for its consultants to train client teams in topics such as Digital Marketing, Procurement, and Retail Banking Operations. Even a “mock- up” retail banking branch is available in the center, to train bank managers in customer interaction in a realistic environment.13 One year later, in 2012, McKinsey opened its first “model factory” in Asia. In cooperation with the Singapore Government and Petrofac Training Services, McKinsey established its so-called “Green Campus”, a model refinery where clients can experience energy-efficient handling of refinery equipment.
But it is not only the “Big Five” who jump on the trend for client capability consulting. Some niche consulting companies even built their entire business model around capability building. AVA Consulting Partners, for example, which has offices in Australia and Singapore, promotes “Sustainable Capability Building” and its “Dynamic Coaching Model” as two of its main tenets14. Founder and Managing Partner Mario Adamo writes on AVA’s website: “(.) we ensure that we work with the client and as many stakeholders as possible are brought on the journey to ensure engagement, understanding and support for sustainable change and value capture. Client team members are coached to be able to execute and repeat all tasks for all initiatives during the consulting engagement. The expectation of every AVA engagement is that the client team members have an elevated level of individual capability at the end of the experience and the organisation has gained a sustainable collective competency.”15
Besides being a new way of servicing clients, this trend for capability building has another important consequence for consulting companies: the need for permanent innovation intensifies. As clients become more capable and strengthen their own organization, the need for ‘basic’ consulting services will continue to decrease, while the need for expert knowledge and specialized consulting will expand.
What will the future bring? Watch out for those trends!
We have looked at four recent trends in the consulting industry, specifically in Southeast Asia. Where will the industry move in the next couple of years? So much is clear: competition in the consulting market is increasing. For now, the dominance of the top three (McKinsey, BCG, Bain) remains uncontested, with McKinsey having been in the leadership position as the most prestigious consulting firm for over a decade, according to market research firm Vault16. However, niche consulting companies are entering the market and quickly fill gaps to meet the client demand for specialist consulting services. Clients become more demanding, and with increasing level of client capability, the need to permanently reinvent the consulting service model intensifies.
Overall, the high demand for consulting services seems still unchanged, and particularly Asia is still a key growth market for the consulting industry. Those consulting companies which can adapt quickly to the changing demands, which can offer their clients innovative solutions, and which can manage to stay on top of latest industry trends will continue to capture market share. Most certainly, the ability to recognize trends and quickly adjust one’s own service offering and business model will be the key competitive success factor in the years to come.
|Dr. Oliver Gottschall is a former management consultant and university lecturer. He teaches Consulting courses at Ho Chi Minh City University of Technology (Vietnam) and Chulalongkorn University (Thailand) and has been living in Southeast Asia for almost 10 years. Currently, he works as Director Operational Excellence at Big C Supercenter in Thailand. In his previous 8 years consulting experience for McKinsey & Company, he has served clients around the world in various industries. Dr. Gottschall holds a Ph.D. in International Management from the University of Lincoln (UK) and a M.A. in Business Economics from Chulalongkorn University (Thailand).|