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Client-side trends impacting growth aspirations


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Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore

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Client-side trends impacting growth aspirations

  1. 1. Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore Acknowledgement I would like to express my sincere gratitude and deep appreciation for all the experts, consultants and researchers from various LinkedIn communities, who have been kind enough to provide their valuable time and insight to validate or otherwise enrich the content of this white paper. Thank you to all those who helped, online and offline, and almost crowdsourced this white paper: Lee Frederiksen, Ron Kennedy, Rick Carter, Tony Rice, Tony Tiernan, Chaitanya Sagar, Puneet Gangwani, Jane Lee, William Woloschuk, Todd Phillips, John Kowa, Mark Slotnik, Joseph Tempio, Andrew Kasumba, Bill Adkisson, Howard Dion, Margo Thomas, Al Paoli, John Burnham, among others. ValueNotes White Paper By Pratibha KurnoolMarch 2011
  2. 2. Table of Contents 1 CLIENT-SIDE TRENDS IMPACTING GROWTH ASPIRATIONS ........................................... 2 1.1 COMPENSATION STRUCTURES BEING ALIGNED WITH VALUE DELIVERED...................................... 2 1.2 CHANGE MANAGEMENT WORRIES LINGER .................................................................................... 3 1.3 SPECIALIZATION INCREASINGLY VALUED MORE........................................................................... 3 1.4 CLIENTS NEED HELP TAPPING GROWTH MARKETS ........................................................................ 4 1.5 GROWING SMB/SME MARKET .................................................................................................... 4 2 PROFITABLE GROWTH STILL POSSIBLE; BUT CHALLENGES PERSIST ....................... 5 2.1 THREE WAYS TO PROFITABLE GROWTH ........................................................................................ 5 2.1.1 Collaboration.......................................................................................................................... 6 2.1.2 Downstream revenue generation (from research & management services) ........................... 6 2.1.3 Re-structuring cost models ..................................................................................................... 7 2.2 CHALLENGES IN ADDRESSING PROFITABILITY AND GROWTH IMPERATIVES .................................. 7 3 HOW EXTERNAL RESEARCH SUPPORT TEAMS CAN HELP .............................................. 8The consulting industry is going through dramatic change, which will significantly alter theconsulting landscape, as we know it. These are evolutionary shifts as far as the consultingindustry is concerned, and a key indicator of things to come has been the increasing polarizationbetween the large, established consulting firms and smaller, independent, boutique firms. The bigfirms are growing bigger in terms of overall market share and revenues, while the pool ofindependent, specialist consultants is growing in sheer numbers. Needless to say, client sideimperatives have been the major drivers. We discuss below some of the key client-side trends,which are impacting the global consulting industry today.1 Client-side trends impacting growth aspirations1.1 Compensation structures being aligned with value deliveredPricing pressure is a pet peeve of consultants, and especially so during downturns. However, ourresearch suggests that the pressure is not so much on the fees per se, but rather on the valueattached to the fees. Clients are willing to pay, as long as they can see the value being delivered.Very often, the consultants that face pricing pressures are those that are not able to establish thevalue they deliver to customers. While measuring value delivered is an inexact science, it is worthinvesting in innovative methods to measure and demonstrate this. Firms which invest in trying toquantify the value will have a clear edge over others who, quite plainly approach the assignmentfrom an “effort” perspective. We believe that clients will want to move towards compensationstructures for that reflect outcomes, with fees linked to performance or returns rather than effort. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 2
  3. 3. A key implication is that consulting can no longer be an intellectual exercise, devoid of contextualunderstanding. Consulting firms will have to align their own business models to bear some of therisks, as well as share the rewards of the consulting exercise. Firms which are able to align theirvalue proposition accordingly will not only overcome pricing challenges better, but alsosignificantly improve their chances of not leaving any spare money on the table. To do this, it‟scritical for firms to understand, articulate and objectively quantity, for each engagement, theimmediate as well as the additional value they will deliver to the client.1.2 Change management worries lingerAs has been oft-repeated, it‟s never the advice that fails, it‟s the execution. Most consultingengagements result in some kind of organization change. Research suggests that thesubsequent change management is an area that most clients are skeptical about, as there isinvariably no one around to see it through. For instance drafting and implementing a customercommunication program may not be enough – overseeing the program till it completely integratesinto the corporate DNA is what clients value most.Given the increased focus on results and outcomes, clients are increasingly demanding that theirconsulting firms have a stake in the execution, either in full or in part. To continue with the earlierillustration of the customer communication strategy, a firm capable of executing the customerengagement program, either on a Build-Operate-Transfer (BOT) mode or as a managementservice, will be able to deliver significantly higher value as compared to those that can‟t or won‟t.1.3 Specialization increasingly valued moreIn a world increasingly obsessed with specialization, “management consulting” or even „strategyconsulting” sounds a tad too generic. Clients value specialized knowledge, especially in sectors and fields that call for a high level of technical knowledge orSpecialization is necessary industry experience. Pharmaceuticals, specialty chemicals,Large firms can build deep healthcare, manufacturing, logistics, financial services are a fewspecialization catering to examples of sectors where specialization is critical. Similarly,multiple industries given theirscale and size while niche specialization in terms of service orientation, such as Humanfirms, by definition are already Resource Management, Supply Chain Management, Changespecialized. However, mid- Management, IT/Technology, sales and account management,sized firms, especially those brand management. etc., is also valued for the consultant‟sthat try to or want to do add too experience and subject matter expertise.many specialist practices, willend up not being specialized in Large firms (McKinsey, PricewaterhouseCoopers, Bain &Co) areanythingIndian and international able build deep specialization catering to multiple industriesjournals.given their scale and size while smaller niche firms, by definition are already specialized.However, mid-sized firms, especially those that try to or want to do add too many specialistpractices, will end up not being specialized in anything. The most significant challenge in addingany kind of specialty discipline is in recruiting the right people. Real “specialists” either choose to White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 3
  4. 4. join large consultancies with heavy pay packages or harbor ambitions of owning their ownboutique practices.The value attached to specialization combined with the challenges of sustaining a discipline-based organization structure can put mid-sized firms with limited specialist skills at a particulardisadvantage.1.4 Clients need help tapping growth marketsThat clients are seeking growth is a given, especially in an environment where growth isextremely difficult to come by. The bulk of the growth opportunities are either in (untapped)emerging areas or geographic markets. Consultants with appropriate breadth of operations(either geographically or in high-growth sectors) and are able to guide their clients throughuncharted waters will be valued significantly higher than those who offer limited services (read:restricted to traditional markets).What this means for a consulting firm is that there are multiple consulting opportunities, which canbe exploited, if and only if, the firm is able to demonstrate the required capability. Helping clientstap emerging / newer market opportunities goes beyond “advice”, and includes significantlydeeper insight with respect to evaluating such markets, assessing specific opportunities, scoutingfor partners / collaborators, meeting them, negotiating and finally ensuring successful marketentry. This kind of end-to-end program management is what customers are seeking now andunfortunately, it is also where most mid-level firms fail to deliver!1.5 Growing SMB/SME marketThe SMB/SME market and the mid-market or the middle market companies are among thoserecording the highest rates of growth today. These companies The SME/SMB market isare also in real need of consulting, the most prominent areas attractivebeing IT/technology, CRM and sales. Historically, these smaller A key differentiator will becompanies have been the most neglected, by the large and innovative pricing mechanisms,small consulting firms alike. However, larger firms are now which can effectively addressaddressing the mid-market needs by providing standard the price-value conundrum thattechnology-and-process enabled consulting services, for a clients face in their decision-fraction of the fees that they would have charged their larger making process while hiringclients. Innovation in service delivery or commoditization by the consultants. The target clientlarger firms is helping them tap newer opportunities while base has limited resources for funding such assignments andfocusing on profitable growth. consulting firms will therefore,Given their positioning and size, small and mid-sized firms are need to have aligned cost structures to meet demand,best-positioned to address the more bespoke needs of this without compromising on valuegrowing market A key differentiator will be innovative pricing delivered..mechanisms, which can effectively address the price-value conundrum that clients face in theirdecision-making process while hiring consultants. The target client base has limited resources for White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 4
  5. 5. funding such assignments and consulting firms will therefore, need to have aligned coststructures to meet demand, without compromising on value delivered.2 Profitable growth still possible; but challenges persistThe combined impact of the trends on the small to mid-sized consulting firms is the mountingchallenge to compete in an era of shrinking client budgets and increasing client expectations2.1 Three ways to profitable growthIf all the challenges faced by small and mid-sized consulting firms face today had to be summedup in two words it would be “profitable growth”. A deeper analysis of this two-word expressionwould throw up two unique challenges – Growth and Profitability.Figure 1: Sample List of Consultants’ Networks Growth at the cost of profitability is neither General Management / Strategy Networks sustainable nor scalable. Big consulting firmsAssociation of Management Consulting Firms are getting the biggest and the best contracts, because they have the branding, the scaleManagement Consultancies Association (MCA) and the resources to compete at every level.The International Guild of Professional Consultants The smaller deals are at threat from smaller consulting firms, who are using low-overheadsConsulting Network driven cost advantage to compete on price.Independent Consultants Network (ICON) Commoditization of the consulting market inBusiness Consultancy Network (BCN) the SMB/SME segment, as discussed in Section 1.5, is taking away a key customer Practice Specific Networks segment from the smaller firms. The challengeAssociation of International Tax Consultants will be to prove and deliver the value proposed to the client, in the midst of increasingThe Association of Due Diligence Professionals competition from the larger, established firmsIndependent Computer Consultants Association and pricing pressure from the independent consultancies.Qualitative Research Consultants Association (QRCA) So, how can the mid-level firms grow Vertical Specific Networks profitably? There are three ways small to mid-American Association of Healthcare Consultants sized consulting firms can build a strong competitive edge which we believe will initiallyThe European Chemical Marketing and Strategy lay the groundwork and subsequently act asAssociation (ECMSA) the lever to drive future business.Automotive Consultant Association White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 5
  6. 6. 2.1.1 Collaboration Trends in the consulting industry indicate a growing need for collective collaboration among consulting firms. Collaboration will enable firms to unlock opportunities otherwise beyond their reach. For instance, for management consulting firms, vertical specialization is easier said than added - specialists come at a cost, if at all they can be added that fast. So how can a firm convince a bank about being the best positioned to carry out the channel engagement strategy when it does not have a banking expert on its rolls? A bank‟s challenges are unique and the bank needs an expert who understands banking, in and out. The value proposition goes up several notches if the consulting team were to include a channel management expert along with a banking consultant. Therefore, collaborating with or consciously cultivating strategic alliances with other boutique consultants or specialist research firms will enable small consultants to compete with larger firms and be of real value to their clients. Joining a network of consultants for sharing ideas and best practices and collaborating for supplementary or complementary expertise can significantly increase business visibility, and consequently increase growth opportunities (see Figure 2 for sample list of networks) 2.1.2 Downstream revenue generation (from research & management services) Research and consulting may sound synonymous to many, but there are plenty of consultants out there who consider research as a step down the ladder. A closer look at the largest consulting firms today reveal that all of them spice up their consulting with rock solid research. These research outfits are typically low key, but provide these firms with a distinct value proposition which helps bag the big consulting deals.Downstream revenue from There are many other opportunities downstream, such as, say,research the complete execution of the proposed customer communicationAt many of the largest firms, strategy. The consulting firm is possibly the best equipped todownstream revenue from align the execution with the advice, meaning it generates theresearch and management content for the communication (white papers, case studies, webservices hogs a significantly content, and newsletters), manages the communication andhigher proportion of the revenue takes complete charge of customer engagement so that theas compared to core consultingrevenues. client sees immediate benefits from the consulting activity. In fact, at many of the largest firms, downstream revenue from research and management services hogs a significantly higher proportion of the revenue as compared to core consulting revenues! While research is a core input to consulting, revenue per consultant is typically lower for the research component, and absorbs valuable bandwidth. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 6
  7. 7. 2.1.3 Re-structuring cost modelsThe way to profitability, especially on the bigger contracts, is to break it down into a WBS (workbreakdown structure) system, where 80% or more of the tasks are performed by the most junioremployees. Re-structuring WBS systems not only results in higher profitability, but also helpsfirms maximize the most critical metric – revenue per consultant. A typical break-up ofconsultants‟ timesheets at smaller, mid-level firms reveal more than 75% of time being spent onsmaller or lower value-added tasks requiring lower competency levels.To illustrate, if the consulting engagement is to reduce wastage during packing at amanufacturing facility, the first step will be to benchmark industry averages for packing wastage.This would involve a set of tasks such as conducting advanced internet searches to findcompanies with a similar manufacturing profile, listing down their products and researching theirpacking practices and metrics, possibly using extensive primary research. It may be argued thatnone of these are core consultant jobs, and can be performed by good market research people. Itis vital for firms to realize that they need to free their primary revenue drivers from jobs requiringdifferent skills and put in place a cost/business model which ensures each consultant operates attheir highest level of competency.2.2 Challenges in addressing profitability and growth imperativesA key concern that consultants from small and mid-sized firms voice often is the inability toBalancing Project Delivery balance project deliveries with business development. Ensuringand Business Development a healthy pipeline of future projects, for atleast the coming 4-6 months, is challenging, given the delvery pressures of currentA key concern that consultants consulting assignments as well as limited business developmentfrom small and mid-sized firmsvoice often is the inability to bandwidth.balance project deliveries with And there remains the question of who will free up thebusiness development.Ensuring a healthy pipeline of consultant‟s time? If the consultant has to review 10 competitorfuture projects is challenging, profiles before meeting a client, she (or he) often has to startgiven the delvery pressures of with making them herself (or himself). This includes searchingcurrent consulting assignments for information on the Internet, looking through annual reports,as well as limited business financial statements, business press and finally synthesizing alldevelopment bandwidth. the information into a format which that can be reviewed andanalyzed. Invariably, there is inadequate junior staff that can take the load off the mundanesearching and synthesizing. Further, even the junior consultants‟ time is also very valuable; andactivities such as these directly eat into their billable time. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 7
  8. 8. Let‟s quickly take a look at how chasing growth might drag profits down in the short term.Figure 2: Challenges in addressing growth imperatives Challenges to growth  Bother of additional human resource or workforce management Firms need to recruit people with additional skill sets, they need to find office space for them, they need to align HR policies to include them - and before the firm knows it, it is spending more time managing people than working on client strategy  Inability to manage disparate skill set requirements for each engagement Skills required to execute one assignment may not be the same as the next one. Assignment-based freelance recruitments are often too expensive. Most firms take the easy way out and stick to what they do best and leave the rest to someone else  Challenges of managing spikes in business volumes The variability in assignments can be very high, that managing spikes is a big issue. One consultant idle for 15 days will dramatically eat into profits  Fear of losing control If hiring is not an option, using freelancers doesn‟t work too well either. There is always the danger that the knowledge and the experience is resting with the freelancer, who may not be available for the next assignment.Therefore, the problem is not so much that firms are not aware of the various growthopportunities or of the multiple avenues through which they can grow. The challenge they face ingrowing, is in growing profitably, and through means that do not diminish brand value.3 How external research support teams can helpThe biggest consulting firms today have “captives” or back- Research support teamsoffice arrangements where most of their non-core jobs are Consulting firms in the US, UK,performed. These back-offices form a vital component of the many parts of continentalfirms‟ operational strategies and are critical in ensuring the Europe and Australia areconsulting business grows profitably. The operational model at increasingly outsourcing theirthese captives is built around serving the needs of the core research and other alliedconsulting outfit. Some of the biggest back-offices have their activity to research firms whoresearch support teams organized as per verticals, thereby specialize in providing researchensuring vertical expertise down the line. Analysts at these support to consulting firms. Theback offices are trained to provide ad-hoc research support so costs of outsourcing are negligible while the RoI on thethat consultant time on lower value-add tasks is reduced, outsourced activity isincreasing revenue generating capacity across the immediate.organization. These back research captives are typicallylocated in countries where talent availability is high and costs are low. India, Sri Lanka andPhilippines are among the most favored locations for setting up research support offices. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 8
  9. 9. Setting up a research support office is not an option for many of the smaller and/or mid-levelconsulting firms. It requires significant capital investment to start with and a threshold minimumlevel of activity which can be immediately sent offshore. The captive model has its own problems,and the high start-up and fixed costs mean that even large consulting firms are using third-partyvendors.Consulting firms in the US, Figure 3: Research Support for Profitable GrowthUK, many parts of continentalEurope and Australia areincreasingly outsourcing theirresearch and other alliedactivity to specialists thatprovide research support toconsulting firms. The costs ofoutsourcing are negligiblewhile the RoI on theoutsourced activity isimmediate. Further, unlikecaptive firms, outsourcing toexperienced researchagencies provides firms withthe flexibility to scale up orscale down support teams atvery short notice. So there isno “fixed cost” involved and allcosts are directly proportionalto revenue generated (or,variable costs). The best research agencies are able to provide a wide suite of services acrossmultiple horizontals. Consulting firms can leverage their vendor‟s vertical experience andgeographic bandwidth to not only strengthen their value proposition to end clients, but alsoincrease customer satisfaction and delight. The lower costs of research provide teeth toproposals by ensuring competitive pricing. The cost arbitrage provides ample opportunity toincrease margins.Some of the most important and immediate benefits that offshore research support teams canprovide consulting firms are highlighted below. 1. Provide the needed flexibility to manage spikes in business volumes. Support teams can be scaled up or down depending on business demand. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 9
  10. 10. 2. Enable access to specialist analysts and horizontal/vertical expertise. In most research support contracts, consulting firms can leverage the research firm‟s expertise and choose specialist analysts. 3. Provide back-end support needed to go from implementation to advice. For on-going client engagements, the support team can be trained to take on all the “regular” tasks, while the consultant can focus on the implementation aspects. 4. Provide access to research expertise. A well-rounded research firm will be able to provide specialist research expertise, quantitative, qualitative, survey-based, data analysis, presentation support, company profiling, industry profiling and other research all of which is typically valued by consultants for providing top-quality consulting services. 5. Improve TAT. The research teams provide another pair of eyes and hands, and most often are located in a different time zone as well. This leads to a 24/7 working environment, leading to faster project completion. More significantly, firms can improve value proposition upfront by promising faster turnaround to clients 6. Improve conversion of proposals made to clients. The support team can help prepare the proposal, freeing consultant‟s time to think through and define the value being proposed to the client. The research team can also help in marketing related activity, including generating leads, developing marketing communication for the consulting business, ghost- writing blogs, producing case studies, white papers, knowledge maps and such other collaterals to support business development activity. 7. Improve profitability. The difference between the price billed to the client and the cost incurred on the research team can be significant. Offshore research teams therefore, provide the crucial cost arbitrage advantage for increasing profitability on every engagement. 8. Provide access to and presence in emerging markets. Typical research teams tend to be located in emerging markets. These are invariably the very same markets that clients are seeking growth from and firms with presence (albeit through their research support teams) in these markets can enable successful market entry for their clients.Consulting firms seeking profitable growth must consider adding offshore support teams. Buildinga research support team or even entering into contract with a research firm for ad-hoc researchsupport will significantly enable firms to work the client-side trends to their advantageWe believe that these client-side and environmental pressures are not going to go away soon,and consulting firms choosing to ignore them are running the risk of stagnation or worse. Firmsneed to consider these trends and evaluate them for the impact on their business whilestrategizing for growth. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 10
  11. 11. About the AuthorPratibha Kurnool is a solutions consultant at ValueNotes. She has over seven years‟ experience engagingwith global corporates, research agencies, publishers and consulting firms. At ValueNotes, she hasmanaged teams providing business and investment research support to premier clientele, including some ofthe world‟s largest companies, asset managers, wealth managers and management consultants. Shedesigns customized research solutions for clients, to address specific business challenges. She hasauthored three major reports on Accounts Payable, Accounts Receivable and Tax Returns Offshoring. Shehas also conceptualized and designed the first-ever Investment Confidence Index in India (the J.P.MorganInvestment Management – ValueNotes Investment Confidence Index).Pratibha is a Chartered Accountant from the Institute of Chartered Accountants of India.About ValueNotesValueNotes is an India-based provider of business research and intelligence. Over the past ten years,ValueNotes has specialized in the management of research, business intelligence, and information. Wework with several clients in the US, UK, India, Singapore; and the repeat work we get from them is atestimony to our capabilities. We have experience across a broad range of sectors, and have specializedteams for healthcare/pharma, banking & financial services, BPO (outsourcing), telecommunications, IT,education, engineering, utilities, media & Internet. We work with leading global corporations, consultingfirms, research and B2B publishers, PE and VC firms, and money managers.We partner with global consulting firms to offer a variety of research services via flexible engagementmodels to specifically meet the needs of global consulting and market research firms. Desk – based / internet research (Data collation and synthesis, financial analysis, company profiling, internet – based comprehensive research studies) Marketing Communication Support Content and Editorial Support Vertical Expertise (BFSI, Pharma, Healthcare, Engineering, Manufacturing, Infrastructure, Industrial, Automotive, Retail, FMCG, Education and Training, Telecom, Media & Internet) Survey modeling and analysis Continuous research support Primary research White label industry reports India market entry studies (opportunity assessment, market sizing and segmentation, competitive landscaping, partner selection and due diligence)How ValueNotes has helped other global Consulting and Market Research firms Reduced project delivery lifecycle and faster turnaround by leveraging the India research support centre Enhanced cost-competitiveness, especially while leveraging industry expertise or higher level research capabilities (statistical modeling, analytical report writing) Provided access to high-quality Indian market expertise Enabled hassle free management of primary research – difficult to source CXO level interviews, large scale B2B research across geographies within a limited time, etc Expanded consulting and research bandwidth – our clients have been able to service many more clients by leveraging their partnership with us Generated additional avenues for revenue generation – we pass on consulting and research leads to our global partners, which is beyond our ambit of servicesTo get in touch with ValueNotes, please call us on (+91 20) 6623 1743 or email us ValueNotes Database Private Limited, 1 Bhubaneshwar Society, Abhimanshree Road, Pashan, Pune 411 008. India. White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 11
  12. 12. © ValueNotes 2011 - you may reference or excerpt any part of this document provided due attribution is given toValueNotes and the author White paper | March 2011 | Five Client-side Trends that Mid-Sized Consulting Firms Can‟t Ignore 12