Management consultants shift down

When economic times are good, and profit growth is strong, demand for management consultants to assist in growth and expansion is great.

When the economy experiences a downturn, such as Australia is experiencing in 2009, many of the same clients look to consultants to assist in downsizing, or developing cost-cutting operations to protect balance sheets while revenue plummets.

In 2008-09, this industry will enjoy some revenue growth, despite the dire economic outlook. IBISWorld estimates that over the five years to 2008-09 industry revenue will increase at an average annualised rate of 5.1%.

While the share of revenue controlled by the industry’s big names is likely to grow in 2008-09, the number of small firms in the industry is set to increase as well. Many consultants are likely to trim staff, or focus on employing consultants with expertise in change management, meaning many specialists may find themselves unemployed.

The average wage is set to increase over the current period as industry players attempt to halt the sea of talented staff being lured overseas by higher wages and greater opportunities. Firms are likely to establish strategic partnerships and alliances with other firms with specialist skills to access specific consultancy tasks as they are needed, rather than having all of these skills in-house.

The business world has developed a reliance on outsourced consultants, and this is likely to stop due to a brief, if severe, economic downturn. As such, over the five years to 2013-14, real industry revenue is expected by IBISWorld to increase at an average annual rate of 5%.

The primary driver of this will be a resurgent economy and as key economic indicators begin to recover, consumer spending grows, and company profits rebound, firms will once again be inclined to invest in expansionary activities.

Continuing strong competition from other industries will ensure continued innovation in service offerings, as well as greater investment by firms in consulting services. This greater acceptance of the value of consultants is central to industry growth.

In 2009-10 the industry is expected to continue its sluggish growth as the global economy slows. Over the remainder of the outlook period, forecast stronger economic growth is expected to increase industry activity, demand and revenue, although external competition is expected to increase significantly.

Due to the nature of work done by management consulting firms, many have, and will continue to have, problems in both attracting and then holding on to their employees.

Over the whole period there is expected to be pressure on what consultants can charge, due to continuing price competition within the industry and from constraints on clients’ budgets.

Key success factors for operators in the industry

• Provision of development programs for personnel. A key component of being part of a skill and knowledge intensive industry is the ability to devote considerable resources to on-going staff training.
• Use of production techniques that add value to base product(s). Companies must be able to develop specialist and value added services, at higher charge-out rates, that are highly valued by clients.
• Willingness to outsource when appropriate. Companies should have in-house, or at least access to, consultants with specialist skills, to offer a broader range of services to clients, to assist in containing overhead costs.
• Possession of accurate information. It is important that companies have access to a national and international information data base, or reports and data, with ease of access and transfer.
• Access to the latest available and most efficient technology and techniques. To have access to the latest and appropriate computer software and hardware, to ensure maximum labour productivity and support is a key success factor of this industry.
• Ability to effectively communicate and negotiate. To have strong presentation skills, particularly in relation to client report presentations and for tenders is a key success factor for companies in this industry.

Products and service segmentation

Major market segments

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au