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Consulting: Facts and Trends

  • Management consulting is not losing its allure. With the demise of investment banking jobs, many MBAs in 2009 are talking about B2C – i.e., “Back to Consulting”. Consulting firms are hiring although they remain selective – particularly in the top shops like BCG and McKinsey.
  • Less faddish junk and more focus on business. Management consulting firms have been racked by trends in the last 20 years – such as business process reengineering. Today, the large strategy houses are ever more focused on delivering good product – building businesses on paper from the ground up; analyzing profitability; growth potential; competitive dynamics and segmenting customers.
  • Explosion of smaller shops. It has become ever easier for small firms to navigate the marketplace due to better electronic tools, availability of relevant datasets and the general escape of qualified professional consultants from the “grind” to be found in the larger firms.
  • Some of the best people in consulting work in small firms. The reason is that the best people may prefer the autonomy and impact that they can have there. The responsibilities of a consultant are significant, regardless of the size of the practice. Its much more like being an attorney; an attorney in a small firm can have a very large case.
  • Although it can be rewarding to work in a small firm, it’s tough to make it in solo consulting because of the difficulty of maintaining credibility and marketing yourself. Only one in ten solo consultants lasts for ten years.
  • Growing sophistication of “pyramid power”. The way to make money in a large consultancy is to sell projects that use substantial amounts of mid and junior level resources, to then bill out those resources at a substantial margin and distribute the profits up the pyramid. Firms are increasingly focused on doing this efficiently. Compensation in certain firms at the partner level is running over $2 million a year.
  • The business of consulting is large. Last year, over 200,000 consultants sold over $100 billion of advice. Today, technology planning, strategic services and enterprise consulting represent 35 percent, 20 percent and 15 percent roughly of the worldwide consulting spending.
  • It is very hard to break into the top firms in consulting like Bain, McKinsey, and BCG. McKinsey targets hiring at top MBA schools including Harvard Business School, Wharton, Stanford, Sloan (MIT), Kellogg (Northwestern) and INSEAD. That said, the firm hires heavily at these schools.
  • The pursuit of specialized knowledge is rising rapidly. Firms are looking for consultants with very specific knowledge in areas like logistics management, knowledge management, data warehousing, multimedia, client-server development, sales force automation, electronic commerce, brand management and value management. Many large consulting firms also have practices targeted at particular industries–for example, pharmaceuticals, chemicals, and electric power–which require specific technical qualifications.
  • While consulting firms have traditionally targeted MBA students, they have becoming more willing to hire students with Ph.D degrees, lawyers and engineers and put them through business training. McKinsey has a three week mini-MBA course, and reports that only 44% of their consultants hold an MBA, while 24% have a master’s degree in another field and 22% have an M.D. or Ph.D.
  • That said, its important to show an open mind as an engineer or techie entering consulting. While consulting firms are always looking for sharp people with good analytical skills, surprisingly they are often hesitant to hire engineers because of fear that they can’t break out of the box. Rigid thinking that can’t adapt to business situtations is the worry. A good way to get a consulting position with engineering experience is to convey flexible thinking in an interview. Even better would be successful business experience where you applied your engineering know-how to solve a business problem.
  • The accounting firms are back. After Sarbanes-Oxley in 2002 the large accounting firms disposed of their consulting practices (except Deloitte). These disposals had five year non-competes generally. Now, they are reversing themselves and there is a gigantic hiring wave coming out of firms like Ernst & Young, KPMG and PWC. The focus is on areas like systems integration and industry level consulting but there is also interest in getting into strategy consulting in a bigger way.
  • “Relationship consulting” is on the rise. This involves working with a company over many years to ensure continued monitoring, discussion and implementation of new ideas.
  • Longer consulting contracts have brought higher fees. It is not uncommon for a long-term consulting contract to cost over $20 million in consulting fees.
  • Growth in consulting has slowed in the U.S., but continued growth is expected in other countries. U.S. consultants have been consulting for major firms around the globe while helping companies at home such as AT&T and Avon Products crack foreign markets. The Big Six accounting firms and McKinsey have had a strong presence in Europe for many years. The global focus of consulting growth has created high demand for foreign students and those who speak two or more languages fluently.
  • This growth in foreign business will be particularly significant in developing countries. The reason is simple. There is a narrowing gap between developing and developed economies. Consultants are helping to bridge that gap by bringing solutions and ideas to firms in economies as diverse as China, Brazil, and South Africa. Because these ideas are creating huge amounts of value, the demand for consultants’ services has skyrocketed globally and should continue to do so for the next several decades, despite temporary cyclical slowdowns. Several of the main strategic consulting firms are now realizing over half of their revenue outside of the First World. As you go through school, try to develop a framework that you can use to analyze and think about developing economies by taking courses in development economics, trade and international finance. Don’t forget foreign language courses. And if you’re lucky enough to to spend a semester or more living abroad, spend as much of it as possible living like and socializing with the residents of your host country, not hanging out in an expatriate ghetto with friends and fellow students from home.
  • It is now standard practice to include members of the management of the client firm as part of the consulting team. This eases implementation of recommendations and can commit the client to buying into new ideas.
  • Many consulting firms use the case interview method where you are presented with a business situation and asked to suggest a solution. Charles Wendel, VP of Mercer Management Consulting, justified this approach by saying that “We want to get the people who are the most mentally alert and intellectually alive and the case approach works particularly well.” (Business Week)
  • According to a hot consultant at Bain & Co: “Its a funny business. Almost 100% of the it comes from referrals. You do a great job for one company. And a board member there who’s part of another company brings you in. You do a good job there and that leads to more business elsewhere. This means that it is crucial as a consultant to have a total client focus on every job. Your future in the business depends on how well you do in generating enthusiasm and answers that work on every engagement.”
  • Be sure to ask about the extent and type of training that you will get as a consultant. Some firms favor the hit the ground running model of consultant, while others would like to mold you to their culture and values through a training program. Training is a good thing and the best firms have lots of it.
  • One of the largest practice areas is health care. Health care payment and delivery systems are changing rapidly, generating high demand for consultants to help health care organizations change through alliances, innovation, management care, access strategies and quality improvement.
  • Another hot practice area is sales force automation. Many firms with large sales forces are finding that they can vastly improve their marketing effectiveness by providing seamlessly integrated wireless PDAs, contact management systems, easily accessible support databases, e-mail systems.


March 11, 2015

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