Size has long mattered in the consulting industry: in the last five years, we estimate that firms with more than 1,000 consultants have grown by 46%, 2.3 times the rate of smaller ones, writes Fiona Czerniawska of Source.
That’s not new: if you went back to the 1970s and tracked firms’ growth since, allowing for all the inevitable mergers and acquisitions, you’d see that the firms that dominated consulting then are still those that rule the roost today. Smaller firms come and go, but the big firms march relentlessly on. There are several reasons for this. Big firms are more likely to work on big projects for big clients: if you’re the CEO of a major corporation you don’t hire a ten-person firm to do the global roll-out of your new strategy. You may bring small firms in for specialist advice, and you may well be prepared to pay a premium price for that, but you don’t expect them to cover the ground. With more money coming in, big firms have been able to invest in account management, so they’re alert to upcoming opportunities and are more likely to win them because they know those involved. The biggest firms, too, have been able to attract the best people because they pay more and claim to offer more interesting work with iconic brands.
There are parallels here in economic history. The most powerful countries have been the most populous, because more people meant a greater chance of surplus labour that could be used for something more than simple survival, and because more people meant bigger armies in times of war. Multinational corporations have been able to grow through exploiting the economies of scale their size gives them.
However, even before the political upheaval of 2016, the balance of power between large and small countries (and between central and devolved governments) was being debated and sometimes voted on. Similarly multinational corporations are finding that localisation can yield a better return on capital than global standardisation. So will size continue to be an advantage in consulting?
The first response has to be yes: it’s very hard to conceive of a world in which large companies aren’t buying large projects from large firms. But there are signs of change around the margins. Agile working has already sown the seeds of shorter projects, geared more to rapid prototyping than the traditional waterfall-style approach. Robotic process automation promises to reduce the number of consultants needed: though we don’t know by how much, it’s likely that a firm’s ability to demonstrate that it can do the same volume of work with fewer people will become a differentiator.
Fiona Czerniawska is a leading commentator on the consulting industry and a co-Founder of Source who provide specialist research on the management consulting market to consultants and their clients.
© Fiona Czerniawska 2017. All rights reserved.
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