What are the Biggest Challenges for Management Consulting Firms?

Innovation is essential for any business to remain competitive and keep up with changing customer demands. This is especially true for management consulting firms, who no longer have a monopoly on specialized knowledge. Two decades ago, firms such as McKinsey, Boston Consulting Group and the Big Four had unique knowledge and advice on best practices, making their offering invaluable. Now, much of this information is available online for those willing to do research.

In addition, former students from top-tier consulting firms are now widespread. McKinsey alone has more than 30,000 alumni who hold leadership positions in the private, public and social sectors around the world, meaning that their experience has been disseminated across the industry. As clients become more willing to seek consulting services, they have more influence than in the past and demand greater value and flexibility at lower prices. In a Deltek survey, 54% of operations managers said that their biggest challenge, caused by “changing customer behavior”, was to offer more value at the same cost.

In another survey conducted by Deltek, researchers surveyed consulting executives on how they think they could increase the company's profitability. Increasing scrutiny over cost control came first, followed by the improvement of working capital through better management of incoming and outgoing flows and limiting the number of budget overruns of projects, especially in the case of fixed-price projects. Driven by new innovative technologies that allow them to do more with less, new players are entering the consulting market and alternative and digitally savvy business structures are being deployed. In the Deltek survey, 55% said that addressing growing competition in the sector was one of the top business priorities, while 33% of chief operating officers said that “defining competitive advantage was one of their top three priorities for the next five years”.

Boutiques and specialized firms are not the only form of competition that is increasing. The increase in independent consultants is also proving to be a major competitive force. In the United Kingdom, there are now more than 2 million self-employed workers and that number will continue to grow. Most of these independent consultants operate in the fields of professional services, consulting and project management.

They are putting pressure on prices, because they operate without the same overhead costs as larger companies and can charge well below what established consultancies can afford. Currently, in the United Kingdom, a fifth of the more than 10 billion pounds sterling in management consulting work goes to independent consultants. Elsewhere, at the top of the market, the most important players are only growing. The ten largest consulting firms in the world now have a 56% share of the industry, while the top 200 have about 80%.

Both percentages have been increasing since the beginning of the century, driven by the Big Four and the growing number of operations in the industry as a means of growth. As a result, the professional services sector is facing an increasingly difficult situation: companies that are too big to be seen as specialists and too small to compete in the top positions are under significant pressure. In one section of a study conducted by Deltek researchers discussed their perspectives for the industry for the next 3 to 5 years as well as how they planned to respond to those challenges. Just a little short of uncertainty in the market, 47% of management consulting firms were concerned about changes in the way buyers buy services. While our data does not include specific details, we suspect that this concern is due to an increase in online searches, social networks and other non-traditional channels used to find and evaluate consulting firms.

Lowering one position compared to last year but remaining in third place was increasing competition from both new companies (42%) and larger competitors (35.4%).In fact, these threats were among the top five challenges for each industry segment studied. The emerging technologies behind automation and artificial intelligence (AI) were for the first time among these 5 most anticipated business challenges mentioned by 36.2% of management consulting firms. This concern is not unique to management consulting firms; in fact automation and AI were also listed as third most anticipated business challenge according to companies across all professional services sectors. Schedule a 10-minute meeting to start your test; not all projects are amazing. Companies don't pay companies a lot of money to solve easy problems; they get paid to solve complex and challenging problems which can be bad for a lot of reasons such as tight deadlines or unreasonable demands or insufficient resources etc.

Anyone in this industry knows that today's companies face a number of business challenges some old some entirely new. The top five general business challenges for management consulting firms present an interesting picture of today's market.

Rós Kimberl
Rós Kimberl

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