| | By Mick James
We’ve come to the end
of the year, a time to
take a Janus-like look
back at 2005 and forward
to 2006, hopefully
making at least one
prediction that won’t be
too embarrassing to
recall in 12 months’
time.
This has been one of
the most exciting years
I can remember in
consultancy: we kicked
off with a new feeling
of confidence that the
green shoots of recovery
had now firmly taken
root. Accenture, always
a bellwether for the
industry, reported a
strong, consultancy-led
first quarter, and
showed this to be no
flash in the pan with
all-time record figures
for the third quarter
figures.
Other firms duly
followed suit, but will
next year be even
better? I suspect not.
Much of this year’s
growth relates to an
upswing in IT spending
which began in 2004.
Much was catch-up work
as IT budgets which had
been on hold were
unfrozen, or companies
realised they could no
longer sweat out the
assets acquired during
the Y2K panic. There’s
also a bulge of spending
driven by the regulatory
blizzard of Basel II and
MiFid which will peter
out during 2006.
In the UK the
industry has also
benefited from a huge
increase in government
spending, and not just | |
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| | on the “usual suspects”
as the awards for the
NHS national IT showed
in late 2004. While the
May election kept
consultant-friendly Mr
Blair and his reform
programme in place (and
saved us from a Tory
blitz on consultancy
spending) this is
probably unsustainable.
Gordon Brown will surely
tighten the public purse
strings, if not out of
economic necessity then
to clear the way for
whatever he plans to do
when (and if) he is
anointed to the
premiership.
Uncertainty over the
economy grew as the year
progressed. We may not
have had the predicted
collapse in
house-prices, but the
consumer boom fuelled by
equity withdrawal is
definitely over. We’ve
still to resolve the
“black hole” in public
finances, the pensions
crisis continues to
loom, and bird flu
remains an off-stage
threat. Add oil prices,
war and the inevitable
natural disasters to the
mix, and 2006 looks to
be even more uncertain.
None of this need be
such a bad thing for
consultants, as one of
the themes of 2005 has
been the resurgence of
“traditional”
advice-driven management
consultancy combined
with a strong focus on
operational efficiency.
Clients will need all
the help they can get
keeping things tight in
the face of flat demand, | |
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| | plus some creative
approaches to such
apparently intractable
problems such as pension
funding or energy
crises.
This reshaping of the
industry has led to a
sharp revival in the
operational consultancy
sector, as shown by the
proliferation of small,
highly focused and
rapidly growing firms
now operating in this
area. At the end of the
year this will be
finally symbolised by AT
Kearney’s bullish
management buyout from
EDS, which will see one
of the strongest brands
in strategy and
operations consultancy
return to the market as
an independent
competitor.
While Kearney and EDS
go their separate ways,
other firms such as IBM
and Accenture maintain
strong links with
outsourcing and IT while
Indian firms such as
Tata and Infosys are
moving strongly towards
consultancy. These
operations will
inevitably (and, to a
large extent, unfairly)
be dismissed as
“pre-sales” by
independent consultancy
firms. A more
sophisticated argument
put to me recently is
that while there will be
a considerable need for
strong consultancy
skills in the management
and implementation of,
for example, a BPO
project, clients will
look elsewhere for
strategic advice and | |
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| | overall vendor
management.
There’s something in
this, as witnessed by
the success of smaller
firms in obtaining
pro-assessment and
programme management
roles in massive
transformation projects.
The big firms may well
lose a lot of this work
to smaller entities, and
the question for them
will be how much
“high-end” capability
they are willing or able
to maintain.
This will not be
entirely a client-led
decision. Firms that
concentrate exclusively
on higher value-added
consulting know that
they will have to pay
over the odds to attract
top talent, and will
increasingly have the
means to do this in a
rapidly tightening
recruitment market.
For 2005 will
undoubtedly also be
remembered as one of the
best times to recruit
consultants. Firms that
are growing rapidly from
a small starting point,
either because they are
a start-up, a new
entrant or rebuilding a
market position, have
probably never had such
a choice of candidates.
Unfortunately, pretty
much all of the slack
has been taken up, and
next year will be much
tighter. The welcome
return this year of
large scale graduate
recruitment will only
partially solve this
recurring problem for
the industry. Matters | |
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| | will hardly be helped by
a major new assault on
the consultancy market
by the “old” Big Four
accountancy firms.
So next year we can
expect to see
considerable
opportunities in
recruitment, as
established firms
continue to grow and new
entrants jockey for
talent. A lot of firms
are still rebuilding
their geographical
position and whether or
not to attempt to “break
America” will be a big
decision for firms whose
critical mass is
currently in Europe.
There’ll undoubtedly be
one or two major mergers
or acquisitions: there
have been some pretty
successful integration
stories in consultancy
recently, and many of
these firms are still
hungry for growth.
As the recruitment
market tightens, I
predict we’ll see more
and more “life/work
balance” initiatives,
and a renewed focus on
recruiting and retaining
women (whom the industry
seems to rediscover
every five years or so).
My final prediction—more
of a hope really—is that
we’ll see a revival of
some of the more “New
Age” approaches to
consultancy that
flourished briefly at
the end of the 1990s.
Consultancy needs a
lunatic fringe!
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