Consulting firms to get bigger, buyers need to get better!

Writing “Buying Professional Services” with Fiona Czerniawska was made much easier because of her knowledge of the market, how to get books published, and her all round good sense and intelligence. She work mainly with Source for Consulting now, and her blogs are always worth reading.

Here most recent suggests that a number of mega-consulting firms will emerge over the next few years, driven by big clients who are looking for “transformation”.  A she says, following her firm’s research, “between one third and two thirds of organic growth among big consulting firms in 2012 came from large-scale transformation projects”.

But she’s not talking about transformation in the way we might use that expression to cover improving the procurement function, but rather businesses looking to fundamentally transform their own prospects by moving into totally new markets. “Crucially, though, transformation work is not aimed at changing how an organisation works, but what its business is”.

Her argument is that this needs such a broad and deep mix of skills that very few firms will be able to do this work. And, once a few firms have this sort of thing on their corporate cvs, they may move ahead of the mass of other firms.

I bow to Fiona’s understanding of the market. On the other hand, is there a danger that these firms start looking like “jack of all trades” rather than true specialists if their proposition is that they can do everything the client needs? And the recent incident with Lloyds TSB and Deloitte showed the reputational risk for professional services firms when the move away from their core business.

But if she’s right, for procurement people and buyers of professional services, fewer firms able to carry out a certain sort of work is bad news as it tends to drive less competitive behaviour, complacency or higher prices. And the sort of project Fiona is talking about is so critical for the customer that you can’t afford to get it wrong and select a provider who isn’t really up to it.

But the basic principles still apply, however big and important the project. Understand very clearly what you are looking for in terms of the work. Research the market to establish which firms can best meet your needs. Run a competitive process to assess the potential providers and find the best solution. And manage the provider effectively, including risk and reward sharing where that makes sense.

Those principles apply whether it is a £10,000 or a $150,000,000 project. And if the market is going to coalesce at the top end into fewer, stronger firms, then buyers need to get better and smarter too.

Anyway, do read Fiona’s article here for the full story.

Voices (3)

  1. John Diffenthal:

    Concentration of the market isn’t inevitable in perpetuity. The current market favours concentration because buyers are risk averse and want to deal with a business of scale that they can sue.

    Transformation sounds exciting but I’m sure that you can all remember Enron and their genuinely transformational approach to accounting and the consultants who recommended it?

  2. Tony Lockwood:

    Undoubtedly this is an issue now in my opinion – the Big 4 in particular breed off the back of their reputation and PI cover whilst the delivery capability in specialist areas is either diluted or often ‘bought in’ through JVs with smaller specialist consultancies or ‘independents.

    As such, many organisations are often better off cutting out these ‘middle men’ and going direct to the specialist niche suppliers, who have the experience and knowledge required to make change not only ‘stick’ but also deliver the expected benefits.

  3. RJ:

    An interesting view from Fiona, whom I also greatly respect for her in depth knowledge and the research that Source carries out. Her article des conclude, however, that because of the scale of such projects even one more or less in the entire market could cause supply issues or the market to effectively collapse. This does not seem to me to be a sound basis for the major multi-functional consulting firms to start to put a lot of eggs in this basket.

    In addition, it also contrasts with what has happened in the outsourcing market since the recession began. Everest and others have noted that the volume of mega-outsourcing deals has diminished to almost zero in the last couple of years. The market has, however, continued to grow (albeit more slowly) with a laarge volume of mid-sized deals taking place.

    Could it be that “transformation” is the big thing for a few huge firms at the moment that is driving a temporary distortion in the market? I think I’ll wait and see before I pass my verdict.

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