Académique Documents
Professionnel Documents
Culture Documents
1
Table of Contents
Consulting Industry 2
Of all the businesses, by far,
Consultancy's the most bizarre.
For, to the penetrating eye,
There is no apparent reason why,
With no more assets than a pen,
This group of personable men,
Can sell to a client more than twice,
The same ridiculous advice,
Or find in such a rich profusion,
Problems to fit their own solution.
Bertie Ramsbottom,
in The Financial Times,
April 11, 1981
Consulting Industry 3
What is Consulting?
The functional view of Consulting describes the consulting process as any form of
providing help on the content, process, or structure of a task or series of tasks, where the
consultant is not actually responsible for doing the task but is helping those who are.
Professional Service: Management Consulting provides technical knowledge and skills relevant
to practical management and business problems. A consultant accumulates, through study and
practical experience, considerable knowledge of varying management situations, and by acquiring
skills needed for solving problems, improving organizational performance and sharing experience
with others : understanding the nature and goals of organizations; finding information; analyzing
and synthesizing; developing proposals for improvement; communicating with people; planning
changes; coping with resistance to change; motivating people; helping clients to innovate and
learn from experience.
Advisory Service: Consultants are usually not used to run organizations or take delicate decisions
on behalf of the managers. They have no direct authority to decide on changes and implement
them. Their responsibility is for the quality and integrity of their advice; the clients carry all the
responsibilities that accrue from taking it.
Temporary Service: Consulting is a temporary service. Clients turn to consultants for help to be
provided over a limited interval of time, in areas where they lack technical expertise, or where
additional manpower is temporarily required.
Commercial Service : Consulting firms are sellers of professional services and clients are buyers.
Consulting firms are businesses.
Consulting Industry 4
Generic Consulting Purposes
Achieving organizational purposes and objectives
All consulting tends to pursue a general purpose of helping clients to achieve their
business, social or other goals. These goals may be defined in various ways sectoral leadership,
competitive advantage, customer satisfaction, total quality or total productivity, corporate
excellence, high performance, profitability, improved business results, effectiveness, growth etc.
Consultants are not just used for troubleshooting. Organizations which are successful and
well-managed may call in consultants for tracking back deviations that have taken place and
finding and correcting the reasons for them . They use consultants for identifying and taking new
opportunities.
Enhancing learning
Many clients turn to a consultant, not only to find the solution to one distinct problem,
but also to acquire the consultants special technical expertise. They also gain knowledge about
the methods used in assessing organizations, identifying problems and opportunities, and
developing improvements.
Implementing changes
Consultants are called when an organization is short of people able to tackle a given
problem with the same chance of success. It may often involve new techniques and methods in
Consulting Industry 5
which a consultant has acquired special expertise. Consultants can be used to achieve the
principal purpose and the gaps in knowledge concerning general management policy and
planning.
Consultants are called when companies are in need to examine the company organization
or marketing policy, and require the full attention of senior managers. as this may effect the day
to day business and senior managers cannot concentrate on both operational and conceptual
problems simultaneously.
Sometimes even the best of the people in the organization may be too influenced by the
personal involvement and fail to see the problem in a true light, hence cannot propose feasible
solutions. As a consultant is independent of the organization he can be impartial in situations.
A manger might know what he wants and what his decisions will be, but consultants are
approaches with a request to undertake assignments, so that a manager can justify his decisions
by referring to the consultants recommendations. But sometimes consultants services might be
misused for in-company politics.
New areas of consulting came into being. One of the first consulting firms of the kind
known today was established in Chicago by Edwin Booz under the name Business Research
Services. Consulting in finance developed rapidly. In the 1920s and 1930s, management
consulting gained ground. Consulting for the army and to governments was of importance during
World War II.
Consulting Industry 6
Golden Years of Consulting
The current market is a global market, where all larger consulting firms operate
internationally and have offices in several countries.
It is an important market with worldwide consulting revenues being in the order of tens of billions
of US dollars.
It is a competitive market, where supply has matched and even outgrown demand.
Clients can be more and more selective service quality and innovation have become criteria in
judging consultants.
It is an open and liberal market. Entry into foreign countries is easy since there are
minimal legal barriers to business consulting services. Language and cultural barriers persist but
do not constitute serious obstacles to consulting across national boundaries.
Large Multifunctional Consulting firms employing several hundred professional and with
offices in many countries
Management consulting services of major accounting firms have grown into large
multifunctional management consultancies
Small and Medium sized consulting firms employing from a few to 50-100 consultants
Sole practitioners exist despite competition from large professional firms because their
strength is in a highly personalized and flexible approach
The consulting professors are those academicians consulting on a part-time but regular
basis
Consulting services of management institutions offer consulting services in conjunction
with experienced consultancy firms from other countries
Non-traditional suppliers of consulting services is formed by a heterogeneous group
consisting of suppliers and vendors of computer equipment, commercial and investment
bankers, suppliers of equipments in energy, statistical research institutes etc.
Consulting Industry 7
The Consultancy Model
The model is person-centred rather than problem-centred. Hence it focuses on the characteristics
of the client as an individual to be worked with, rather than as a bringer of a problem which the
consultant needs to solve.
The results for the clients business have far more consequences than for the consultants if the
problem is not solved. Consultant solutions are rarely as supported or committed to by clients
as solutions which they believe have grown from a deep understanding of their own, particular
business realities. Consultant solutions have a greater likelihood of failure and an often-seen
consequence of blaming the consultant Not invented here. The model views consultancy as a
sharing of mutual expertise, a building of trust, and a joint commitment both to the process and
the outcomes of the consultant-client relationship.
As a result the model explicitly recognizes that it is essential to gather accurate, valid data on
client operations in advance of proffering solutions which may well have worked in similar
businesses. At the very least it is impolitic not to have been seen to complete this data-gathering
phase effectively. At its worst the consultant is seen as failing to understand the specific, unique
realities of the clients position often seen as being only interested in selling catch-all packaged,
generalized solutions.
Consulting Industry 8
This model has several distinguishing characteristics:
It has four progressive stages with each stage being divided into an information
gathering and a decision-making phase.
As a general rule, each stage is successful only to the extent that the preceding stage was
successful. For this reason, stage one and contracting are critical.
The skills required build on the skills needed in the preceding stages.
The skills of stage one are those which most people typically use least in the course of
everyday life.
The entry stage recognizes explicitly the additional requirements of work as an external
consultant and the need both to sell and to cost consultancy work accurately. It does not,
however, require any additional behavioural skills, merely high levels of business area
familiarity and in-depth knowledge of the technical capabilities of the consulting firm.
Each complete diamond shows a stage, the widening out of the diamond the first phase that of
information gathering the closing of the diamond the second and decision-making phase.
Stage one is about the consultant seeing the problem from the same perspective as the client:
putting yourself in their shoes. The consultant has to understand the problem, as it is stated, in
such a way as to see it in exactly the same way as the client sees it. For most people, this is
extremely difficult at first.
Stage one requires the consultant to suspend the use of their technical expertise and evaluations
and particularly the desire to say how they personally see the problem. As such, the opening-out
phase of stage one is a Sensing phase. Its currency is the history, experiences and detailed
perceptions of the client. The consultant needs to understand the facts of the case, factors which
affect it now and in the past. To reach some kind of conclusion needs a focus on the clients
Feelings, their wants and needs.
At this stage, typically a somewhat painful stage for the client (in some sense they cannot cope
either because they have not got the time or the expertise), the cold, dispassionate logic of
Thinking is rarely helpful. It fails to make the client feel valuable or worthy, and would not
explore the emotional issues that typically underly the contemplation of making change.
Similarly, relationships are rarely founded on pure logic, rather on factors such as empathy, liking
and respect. In stage one the consultant is committed to building a relationship of trust: trust that
the consultant is interested in helping because he/she sincerely (Feeling) wants to understand
(Sensing) the client and his organization, not to judge prematurely.
Typically the clients criticism of consultants early in the relationship is that they dont really
understand our specific business or fail to treat the client organization as having particular
characteristics and concerns.
By the end of stage one, the client and consultant should have agreed on which issue(s) need to
be addressed further in stage two, which can be dropped, and those which they can return to later,
Consulting Industry 9
if appropriate. Stage one can be said to be complete when both parties agree what the issue is,
what the boundaries of the issue are (i.e. what relates to the issue in the wider arena and what
does not), and whether or not the issue needs further mutual exploration. Stage one ends with a
clear and shared definition of the problem as seen by the client. If the relationship stops here it is
most likely because the client, through exploring the issue with the consultant, has reached some
resolution.
Stage two begins by exploring alternative perspectives of the problem: a much more rewarding
role for the typical NT consultant where his or her strengths are called for. If stage one has been
completed well, and the consultant has earned the trust and respect of the client, this can now be
used to help the client see the problem in a new light. Stage one allowed the client to describe
him/herself and the issues faced so that the consultant could fully understand them. In stage two,
consultants draw on their own perception of the clients problem, their experience of analogous
situations, to help the client see how others might view the issue. The focus is still on the problem
elements as described by the client.
Essentially, stage two involves the consultants relating together these elements, highlighting
inconsistencies (for example between what the client said and how he said it, or between two
actions Thinking), and sharing a broader vision (Intuition) of related problems in parallel
organizations or business environments if these will help the client to understand his own
situation better. A key element of stage two is to help develop a logical framework (Thinking) by
which client perceptions can be revisited and objectified.
The decision-making phase of stage two is objective, resulting in logical goals (Thinking). Stage
two skills can be potent medicine used too soon, these can compromise, or even destroy, a
nascent relationship. Successfully operated, clients are brought face to face with different
perspectives on both themselves and their problem, and are aided by the consultant to understand
themselves better. The consultant may need to clarify understanding of new, deeper issues that
arise from using stage two skills.
In a complex change programme, the consultant(s) and client organization may well be at
different stages of the model at the same time; they may be determining corporate vision and
values with top management (stage two) while assessing effective ways to introduce new
technology to the manufacturing plant (stage three) while researching employee attitudes to
empowerment and work satisfaction through questionnaire (stage one).
By the end of stage two, clients should feel that they understand both the problem and themselves
well enough to feel able to make some changes. Hence the final skill of stage two is setting
realistic, achievable goals. Many consultants stop the process at the end of stage two by assuming
that the client is capable of knowing how to achieve a goal once they have decided what that goal
is.
Consulting Industry 10
Stage three Intuition and Feeling
Stage three is the process most likely to be skipped in a change programme as clients (and
consultants too) assume that there is only one way to reach a goal (i.e. stage four follows stage
two).
The opening-out phase of stage three is essentially creative. It helps the client to explore many
possible ways of achieving the goal, with the consultant aiding the client to suspend judgement
about which of these are better or worse until a large number of options have been generated.
This data gathering phase is clearly about what could be the possibilities (Intuition). In
addition to determining how to achieve the what defined at the end of stage two, stage three
focuses on planning the strategies best suited to the route determined. It is also the time at which
the specifics of change dynamics are best addressed.
Stage three may also include explicit development of some behaviours (through training,
development or coaching) required in stage four. The better stages one and two are done, the
easier stage three, which ideally is of two parties working together, on a common problem, to
achieve a common goal on an equal footing.
Stage three requires the consultant to support the client and build the clients confidence in their
own strengths (Feeling): to have the confidence to act and to determine the best solution for him
not one that is necessarily the best (according to some objective criterion if available) but the
one most likely to succeed for that particular individual, team, or organization. The solution
which has the best chance of motivating people and engineering their commitment is most likely
to succeed (Feeling).
Stage three is completed when a programme of action has been determined including the
provision of time for the unexpected a programme to which the client is committed. Without an
effective stage three, the risk of historical approaches (Sensing) or uncaring implementation
(Thinking) is likely, as is an inadequate consideration of the possibilities available (Intuition).
Stage four begins when the programme of change with the best probability of success for the
client has been agreed, and implements this programme as a sequence of actions (the opening-out
phase stressing Sensing) which is monitored by client and consultant, and then evaluates how
well the actions are working or have worked (the closing down phase stressing Thinking).
Stage four is essentially about helping clients to deal with the details of implementation (Sensing
preferences for detailed plans, time-scales and sequences) as the plan is actually carried out.
A strong preference for Intuition is not likely to help in getting the necessary details right in stage
four. The goal of stage four is to achieve the goals set at the end of stage two. The evaluation
process should be dispassionate and objective (Thinking).
Consulting Industry 11
Many consultants feel themselves frustrated that they do not really know whether a consultancy
project has been successful or not. Sometimes this is caused by rapidly moving on to another job,
sometimes because of the lack of clarity of goals or of evaluation itself. Both parties may collude
to fuzz evaluation, as negative results against known criteria would adversely affect the
standing of both client and consultant. Hence Feeling can intrude on Thinking, understandable,
human, but perhaps not effective in ensuring the goals of change are achieved. If the process has
been successfully conducted clients may then choose to use consultants again, but would not feel
that they had to. Skills should have been transferred to the client. New issues may emerge
through stage four which may require recycling back to stage one to address them.
The final close of the stage four diamond recognizes that a choice point is reached: to terminate
the relationship (the contract is over) or to move jointly to address new issues emerging.
For the external consultant in particular, difficulties may be experienced in confronting items 2 to
4 above owing to the commercial nature of the consultant-client relationship. However, to do so
is to act ethically, and to optimize the chance of being invited back in the future, rather than
continuing to offer assertive assistance to a client for short-term financial gain.
External Consultants
An external consultant is administratively and legally fully independent of the
organization for which he works. External consultants are preferred, even by organizations, which
have some internal consulting capability, in situations where the internal consultant would not
meet the criteria of impartiality and confidentiality or would be short of particular expertise.
Internal Consultants
An internal consultant is a part of particular organization entity, which can be a company,
group of companies, a government ministry and so on. Internal consulting services are often
thought to be more appropriate for problems that require a deep knowledge of the highly complex
internal relations, procedures and political factors in large organizations awareness of the various
functions of the organizations and specific constraints affecting its operations. Internal consulting
can be cheaper and more productive arrangement.
Consulting Industry 12
Now a days large organizations in the public and private sector use both internal and
external consulting for complex assignments. Internal consultants may be requested to define
precisely the assignment for an external consultant
Areas of consulting
Consulting in General Management
The role of consultant is in many ways analogous to that of general manager, like he
should avoid situations in which the basic choices are dominated by considerations of a single
management function, irrespective of the needs and possibilities of other functions. He should
ensure that specific contributions to strategy formulation would be mutually harmonized.
The main reason why a consultant has been brought in by a firm is to examine and reform
the total decision making process. For example excessive centralization of operations may
deprive the organization lose its flexibility. On the other side an autocratic owner may be taking
decisions based on wishful thinking rather than rational analysis. The consultant can look up the
following areas.
Consulting Industry 13
Consulting in Financial Management
1. Enterprise development
This includes the feasibility studies of new developments. New ventures, adding new
product lines, changing product processes, installing new equipment etc. in each of these
instances the consultant measures the resources required and the income and costs that follow.
The main objective is to assess whether the expected benefits justify the resources the client will
put forth.
2. Capital Management
The consultant has two main concerns under capital management. The first one relates to
source of funds and other to the best use of funds. The consultant frequently advises the client on
the proper use of funds. His guidance is invaluable on the correct balance between assets and
liabilities and the maintenance of liquidity. The financial consultant stresses the need for sound
depreciation and replacement policies to ensure continuous renewal and upgradation of
installations and equipment.
This involves the case of a management consultant who has to choose the best possible
option fro the available choices. A financial consultant may be called to evaluate which is the
most favorable. For each alternative he evaluates the amount of resources need to be invested, the
income or output that will result and the costs that will arise.
In many cases devising an evaluation strategy suitable to the particular condition of the
clients organization and passing it over to the client will enhance the value of the consultants
help
4. Accounting systems
This involves the design and development of accounting systems. The major systems
may include:
Management Information
Financial accounting
Credit control
Inventory control
Cost accounting
Information processing
Consulting Industry 14
The consultant has to determine what support the managers expect, the objective of the
system and who will receive the information and how he will use it. To ensure that the system
will serve the intended purpose, the consultant has to
Create an appropriate organization
Design forms to match the procedures.
Select suitable equipment.
Incorporate checks and controls
Consulting in marketing differs from other functions. As in marketing the firm finds itself
in contact with the external entities like consumer, competitors. The firms very survival depends
upon how well it manages to adapt to the market conditions influenced by the activities of these
external entities. A consulting assignment that embraces the marketing function will usually
develop into two separate tasks, one at the strategy formulation level, which will be dealt by the
top management and other at the activities level will be dealt by the middle management which
include sales, advertising, product and market research.
As far as the matters concerning the firms overall strategy the marketing strategy is an
important part. Strategic decisions have far reaching implications for the management of
particular functions such as production, product development and finance control. A useful
starting point is to classify the clients orientation towards the market
Product-oriented
Production-oriented
Market-oriented
In most of the case market considerations are ignored and de-emphasized compared to
others. The idea of thinking in terms of providing solutions to a firm is very useful in marketing.
It helps in identifying new markets, finding new products for existing customers, finding new
customers for existing products, and most importantly discovering potential and possible
unsuspected competition. The consultants have to find out what problems the customers have and
if the firms products or services can provide solutions.
Marketing Operations
Different firms have different ideas about which operations are part of the marketing
function. Selling, advertising, promotion, dealing with distributors and market research are the
major areas. Usually the client sets advertising expenditure purely as an arbitrary percentage of
sales, either the past sales or forecast sales. It is much better to plan advertising campaigns in
terms of the objectives and calculate the required resources. The consultancy in commercial
enterprises deals with adequate checking of stock-control procedures as different types of goods
need different types of stock control systems.
Consulting Industry 15
Some Consulting Firms and their scope of operations
Arthur Anderson Full-service
McKinsey Full service
PWC Full-service
BCG Mgmt. Cons
Deloitte Operations
Roland Berger Strategy Cons
Karvey Portfolio Management
KSA Technopak Strategy, process and technology
Kale Airline and Banking
TCS, Infosys IT & Software
KPMG Internet and e-business
Consulting Industry 16
Asia Pacific Region: Trends
Competitive Overview
Global consultancies that have presence in this market face increased competition from
local consulting companies. Despite the large number of local players, their services offerings are
often in the development stage. Foreign consultancies enjoy good reputations, global reach, a
large scale, high tech, critical mass, customer services, and infrastructure.
The meltdown of the dot-com sector and market consolidation caused foreign Internet
services and consulting pure-plays to leave the region. This may increase demand for consulting
work for the small local consulting companies.
In order to compete with global players, financial services companies and banks have
started the consolidation process. This would accelerate demand for consulting services for the
next 2430 months.
Countries such as Taiwan, Malaysia, and Hong Kong will take full advantage of
deregulation in the telecommunications sector in the Asia/Pacific region.
The Internet market in the Asia/Pacific region is far from being mature. An increasing
number of Internet subscribers are rapidly changing the market landscape, particularly in Korea
and China. Korea is the country with the highest number of broadband subscribers, and it is
predicted to stay the same in the short term. The Internet subscriber base is increasing at the
highest pace in China. The current economic stage as well as the relative non-maturity of the
market will result in the high growth of discrete IT consulting in the Asia/Pacific region.
Market Inhibitor
The Asia/Pacific region is not as homogeneous as other regions of the world. Every
country within the region has its own political, economic, social, and cultural environment. This
Consulting Industry 17
situation is not expected to change in the near future. This poses significant challenges for foreign
and local consulting companies that are aiming at conquering the entire region. A unified strategy
for reaching out to this market wont do the trick. There has to be a customized approach when
strategizing operations in each country, and economies of scale in this region may be limited
Indian perspective
Services play a crucial role in our economy. Among services, consultancy profession
assumes significance as a catalyst of change in the ever expanding industrial scenario.
Consultants help in optimizing use of resources to enhance efficiency and overall returns from a
project. According to the ESCAP report, the number of consultancy organizations and consultants
in India is now well over 4000 with annual turnover of Rs.1000 crores which include consultancy
exports as well. Over 100,000 specialists are employed, including nearly 10,000 management
consultants. The wide spectrum of disciplines and services provided by Indian consultants range
from project identification to commissioning involving, supervision and training of personnel,
market surveys, rehabilitation of sick units as well as operation and maintenance. The
consultancy organizations in India are directly or indirectly supported by more than 1,000 R&D
institutions and research laboratories both under CSIR as well as other major scientific
organizations such as DRDO, Atomic energy and space. Consultancy organizations also work in
close unison with IITs, Universities and Financial institutions. Major financial institutions such as
IDBI, IFCI and ICICI have also promoted the use of consultants by establishing state-level
consultancy organizations. Largest concentration of consultancy organizations is in the four
metropolitan cities Delhi (25.7%) has the highest number of consultancy organization among four
metropolitan cities followed by Mumbai (25.5%) Chennai (12.1%) and Calcutta (9.1%)..
26%
1
2
3
27%
26% 4
5
12%
9%
Consulting Industry 18
Professional Strength in Indian Consultancies
16%
>1000 2%
<10
14%
11-25
68%
The above graph shows the fragmentation of the market. The firms employing more than
1000 professional constitute just 2% of the total number of consultancy operations yet
contribute to more than 90% of the total revenue.
1. Well dispersed and wide ranging areas of specialization to service diverse range of
clientele needs.
2. Advanced technical talents/ skills at reasonable cost.
3. Familiarity with local conditions
Over the years, consultancy capabilities have grown in several sectors, public and private and
more recently a number of foreign consultants have also started operations in India. However, the
domestic consultancy capabilities need to be strengthened and skills be upgraded continually in
several sectors, since the consultancy profession growth in India has not kept pace with the
industrial and economic developments over the years. Thus, there is a need to support and
strengthen the domestic consultancy capabilities, in order to meet the emerging challenges and
business opportunities in domestic and export markets, particularly in the context of new policy
environment and WTO. At the same time, there is a need for professionally competent and
reliable multidisciplinary services at affordable costs to the clients including SMEs as well as for
greater awareness about the role of consultants.
Consulting Industry 19
The above graph gives an relative domain specializations of the Indian as well as the
Multinational consultancies. Some firms like Kale consultants specialize in niche areas like
Aerospace consulting. While firms like Pricewaterhouse Coopers offer consultancy services in
over 30 areas
Department of Scientific & Industrial Research is concerned with the task of promoting
and strengthening the consultancy services in the country. Towards this, a Plan Scheme
"Promotion and Support to Consultancy Services" is being implemented in DSIR.
The main objectives of the Scheme are to strengthen and promote consultancy services in various
areas including :
Consultancy services within the country for the establishment of new enterprises,
improving the performance of the existing units including sick units, mergers and
acquisitions, etc.
Infrastructure development
Consultancy services for acquisition or import of technologies, requiring technological
and managerial competence to evaluate the technologies and engineering them as per
local requirements, Promoting quality Foreign Direct Investments (inward and outward).
Consultancy services for export of projects, technologies and services and setting up Joint
Ventures abroad, etc.
Consultancy services for development and transfer of technologies from R&D institutes
and strengthening linkages of R&D system with industry.
Consultancies for new and emerging areas of national interest.
Other areas as may be identified including special efforts for consultancies for SMEs and
tiny sector.
Consulting Industry 20
Support for studies related to assessment of consultancy capabilities in various sectors /
fields.
Support for skill Upgradation, training, quality management, etc to consultants.
Support for developing consultancy capabilities in emerging and newer areas.
Promote and support the availability of consultancy services to tiny and small & medium
sector.
Supporting the setting up of consultancy clinics and design & engineering services
facilities in specific sectors particularly for SMEs.
Support for consultancy for commercialization of technologies from R&D, and academic
institutions for multiple licensing for SMEs.
Training programme etc.
As organization acquires power, it uses that power, not surprisingly, to serve the ends of those involved.
These ends - job security, pay, promotion, prestige, company plane and private washroom, the charm of
collectively exercised power - are all strongly served by the growth of the enterprise. So growth both
enhances power over prices, costs, consumers, suppliers, the community and the state and also rewards in
a very personal way those who bring it about. Not surprisingly the growth of the firm is a dominant
tendency of advanced economic development.
This is the key difference between the oligopolists on the one hand and perfect
competitors, monopolistic competitors and monopolists on the other hand. The behavior of
oligopolists is strategic, which means that take explicit account of the impact of their decisions on
the other hand. Oligopoly is also consistent with a large number of smaller players called a
competitive fringe, as long as a big few dominate the sector.
Consulting Industry 21
The consulting industry in India can be called as an oligopoly on the basis of the following
factors.
1. Few consolidated companies exist in the market. The market is dominated by a few
Multinational entities which control over 90% of the total consulting market
2. The firms are not price taker nor are they price givers. There is intense competition firms
and they frequently resort to understating their fee but the fee is still determined by them
and not the market
3. The competition exists in the upper strata of the market where the bigger names jockey
for space.
4. The action of each firm is not independent of each other rather the decisions taken by an
organization are taken after a detailed analysis of the reaction that the decision will attract
1. Economies of scale: applying the term economies of scale to an industry is fraught with
dangers however the point that is meant is that in a service industry which is inherently
knowledge driven the larger the expanse and scope of the firm (in terms of number of
employees and type of services offered) the higher the probability of it being able to resolve
an issue successfully. This would in turn get it better clients and thus more experience.
2 Economies of scope : This is related to financing and marketing. It is costly to enter a market
to establish a knowledge setup , create a reputation and make consumers aware of services.
These costs are same irrespective of the size of the firm and thus affect a smaller setup more
than a larger firm.
Although the condition that the firms act together would give rise to a monopolistic
situation and thus increase their joint profits, it will be profitable for any one of them to cut its
price or raise its scope provided the others do not do the same. If they all make the same changes
then they will be worse off as a group and individually. An equilibrium that is reached by firms
when they proceed by calculating their own gains, without cooperating with others is called non-
cooperative equilibrium or a Nash equilibrium named after the US mathematician John Nash who
developed the concept in 1950s and was awarded the Nobel Prize in economics for his work. Its
Consulting Industry 22
an equilibrium in which each firms best strategy is to maintain its present behavior, given the
present behavior of other firms.
Absolute Size
Oligopolistic firms that operate on a national or global scale are also huge in another
sense - they are just plain big. Many have several hundred thousand employees and multi-billions
of dollars in assets. Size is itself a source of power. Size provides protection against potential
competition - remember that ease of entry is one of the factors by which we measure competition.
The sheer size of their operations gives them financial leverage. Creditors are less likely to force
a large firm into bankruptcy. There is an old saying to this effect: 'If your owe your banker a
million dollars you are a customer, but if you owe your banker a billion dollars you are a partner.'
Size also opens opportunities for further expansion by swallowing other firms. IBM paid
$3.5 billion for Lotus in 1995. That is about equal to the entire annual output of Nepal, which has
a population of 20 million.
Global Operations
Another source of economic power is the ability to operate on a global scale. The
consulting industry like the automobile industry is an example of global oligopoly. Major firms
have their operations in not one but several countries and this gives them inherent bargaining
power since they are able to shift focus from one country to another without a very big impact on
their operations
Firms might increase their size and financial power by expanding into unrelated or only
peripherally related areas. Such strategies can also reduce risk. This conglomerate fad was
particularly popular in the 1960s. Corporate leaders and business school professors talked about
achieving 'synergy' from the joining together of unrelated firms. Business schools in the United
States also supported the conglomeration fad by promoting the idea that management is a
profession unto itself and that there is no essential difference in managing a soft-drink company
from managing a computer manufacturing firm.
Consulting Industry 23
Present scenario of Indian Consulting
The consulting industry in India is presently not going through a good phase. The foreign
consulting firms in India are slashing billing rates, pruning costs, discreetly downsizing and
desperately diversifying, all this, just to stay alive. The diversification makes things worse in some
cases: consulting firms are stepping on the toes of the software companies in a desire to capture a
slice of the lucrative technology transformation pie, and on those of investment banks as they try to
get afoot into the happening corporate finance advisory business. The sheer number of their
consultants on the bench in India is also forcing some firms to body shop. Increasingly relatively
inexpensive Indian hires are assigned to global projects if any: the business is not booming
anywhere in the world.
Separated at Death
A year ago, the Big Five could have got away with a presence in both audit and consulting. On
paper, the synergies between the two businesses are considerable: accounting firms have
specialized practices (such as telecom); auditing the books of several telecom companies gives the
insights into the dynamics of the business and a presence in consulting provides them with a
profitable outlet for such expertise. Now post Enron, most audit companies are trying to hive off
their consulting arms - Ernst & Young was the first to do it when it sold its consulting practice to
Cap Gemini in May 2000.
On July 30,2002, PricewaterHouse Coopers sold its consulting arm more than 32,000
employees, offices in 52 countries and revenues of $4.5 billion to IBM for $3.5 billion. Not that
other Big Five consulting arms are in the pink of health: Anderson Consultings Indian arm is still
looking for a lifeline-its parents deal with KPMG Consulting seems to have stalled and the
company is close to arriving at an understanding with Deliottes India arm. KPMG consulting
created on 2000 hasnt quite set the corporate world on fire. And Deliotte is the midst of a painful
amputation of its consulting division. Much of the damage is at global level, but the Indian
operations are hurting too.
KPMG 60/ n.a 45 The Indian arm is yet to separate from the audit
CONSULTING business; reported to have high significant IT
Consulting Industry 24
consulting strength
Another factor that has an impact on the consulting market is the state of the economy.
The U.S. economys slowdown should not significantly affect overall spending on business and
IT consulting services on the global scale during 20002005.
However, the market will take a slight short-term hit and will experience redistribution of
spending on different sub-segments of consulting services and different services lines.
Following are the major changes that the supply and demand sides of the consulting market
experienced in the recent past:
Significant changes in the nature of consulting engagements were expressed in such trends as
lengthening sales cycles, decreasing the velocity of projects, increasing the length of projects,
lengthening decision-making processes, and moving the decision-making process higher up in
an organization.
Consulting Industry 25
For end users, measurable ROI validation became one of the most important factors when they
made decisions regarding e-business spending.
There were significant changes in the competitive landscape.
This section of the report will look at the Worldwide Consulting Services market, the current
market trends, as well as drivers and inhibitors of future growth. The worldwide consulting
service providers have been ranked, and some of their key success factors and winning market
strategies have been identified.
A research done by IDC presents the worldwide and US total consulting market through
2005. The worldwide consulting services market will increase at a five-year compound annual
growth rate (CAGR) of 15.2%, reaching $138 billion in 2005. In the United States, which
represents the largest portion of the total consulting market, the growth rate is expected to be
14.8% and spending volume will reach $70.8 billion in 2005.
With business drying up, consulting firms are diversifying into hitherto untapped areas such
as technology (or IT) consulting. The margins in strategy are higher, but the volumes are more in
technology consulting. So the firms are looking at offshore software services (as part of their
larger offering), even outsourcing services targeted at the Indian market. All this flux is certain to
change the topography of consulting. Diversified firms will survive and others will resort to
alliances or even, joint bids.
Consulting Industry 26
80000
70000
0
2002 2003 2004 2005
Market Drivers
The consulting services market will grow and evolve because of various market forces
that keep generating demand and initiating new developments on the market. Although the impact
of each driver is different across the regions, the set of drivers is relatively common worldwide.
Market Inhibitors
Market dynamics that have adverse effects on consulting services spending vary from region
to region. Among market inhibitors for the global consulting market are:
Global economic slowdown and recession
Political instability
Legislative constraints.
Consulting Industry 27
Market Size and Trends by Industry and Type of Consulting
Regional Opportunities
Although the United States remains the land of opportunity with the largest market,
solid growth, and a wide variety of possibilities, other regions growth opportunities and rapid
evolvement seem very promising. Some economies of Latin America (such as Mexico and
Brazil) and Asia/Pacific (such as South Korea, Hong Kong, and Thailand) will experience stellar
growth of the consulting opportunities.
Business and IT strategy are expected to be the fastest growing services segments. In
light of merger acquisition activities and consolidation on the global market, change management
and consulting services around mergers and acquisitions are expected to grow at a high pace.
Considering changes in the client mindset and a shift toward ROI validation and cost saving,
process improvement and business process reengineering will be the segments with high growth
opportunities.
There are a number of competitive factors that are likely to contribute to the growth and
success of the consulting services industry. Consulting services players are advised to address the
following factors:
Focus on total solutions and integration of services
Enhancement of depth and breadth of services provided
Multiple pricing strategies
Relationship building on the end-user side
Synergistic partnerships and cooperation
IT Consultancy
Consulting Industry 28
Competitiveness of the Indian Consulting Firms
Consultants have crucial role to play in the knowledge Era. Not only firms from all
sectors manufacturing and services but business houses, public sector as well as governments are
increasingly turning to the consulting fraternity for assistance. Many business houses have sought
help, mostly from global majors, to develop corporate strategies for survival and success in the
twenty-first century. Ironically, Indian consulting industry itself has some major challenges ahead
in face of globalization of the industry. Indian firms are very small by any indicators of size,
revenues or human resources, no. of countries served or their information technology
infrastructure
Size does matter! Along with size, the international audit firms are realizing the benefit of
having richer global databases, which only mergers could provide them. The worldwide
consulting business is dominated by the Big Six firms, with billions of dollars in revenues from
audit and consulting operations that sprawl over the globe. Recent times have seen some major
realignments in the consulting industry. Coopers & Lybrand announced a merger with Price
Waterhouse (PWC). Ernst and Young, too, announced plans to merge with KPMG, but then had
to call off the alliance, not being able to work out an agreement reasonable for both the sides. The
consulting and audit wings of Arthur Andersen are still fighting it out over who contributes more,
and how profits should therefore be shared.
But what does all this mean for India? The Big Six are all represented here already. With their
size, experience, superior financial, information technology and other resources they are
successfully exploiting the opportunities offered by vast emerging Indian market. Whether it is
banking sector, global firms have comfortable wins over their Indian counterparts. Many
researches indicates that Indian firms might not have prepared for globalization and resulting
challenge of international competitiveness.
International competitiveness will decide survival and success for Indian firms in
globalized world. Is the Indian consulting industry ready for globalization? Is it internationally
competitive? These are questions that can only be answered in the future
Consulting Industry 29
Recommendations
Experiment with new pricing models in order to maximize revenue, increase customer
satisfaction, and tap into new client segments.
The time of pricing model uniformity, in which the main billing system was based on
time and materials, has passed. In the modern economy, consulting vendors are experimenting
with a number of alternative pricing models, including fixed time/fixed price, risk-and reward
sharing, and equity payment. It is imperative that consulting vendors evaluate various pricing
structures and choose pricing models in accordance with client needs and strategic objectives of
an engagement.
Turn economy slowdown into an opportunity for growth and strengthening the core
business model.
Besides such important activities as managing costs, maintaining focus, validating ROI,
and getting lean and mean, the vendors should consider taking advantage of the downtime to
make strategic investments and conduct strategic hiring and training of human capital.
Build long-lasting relationships with decision makers on the end-user side in key industry
verticals.
As the decision-making responsibility for IT consulting engagements is shifting to senior
business management (as opposed to IT management) and is moving higher up in an
organization, consulting vendors should work hard on building strategic relationships that are
crucial for the consulting business. The relationships have to include decision makers in the
boardrooms of end users, industry experts, and strategists in the prospect and client bases. This is
equally important for high-tech manufacturers that dont have strong relationships on the business
side of end-user business and for professional services companies that need to strengthen these
relationships after separating from their accounting divisions.
Consulting Industry 30
Work on partnerships and competition
In the environment of high-level competition, new entrants to the market, potential
channel conflict, building strong synergistic partnerships, and creating ways for cooperation are
among business imperatives for consulting vendors.
Adjust human capital strategy to the new market requirements while keeping both short-
and long-term goals in mind.
Although the war for talent is over, there is still a shortage of seasoned IT professional
skills. Therefore, while its important to keep the costs, capacity utilization, and financial metrics
under control, long-term strategic goals should not be disregarded. Considering that human
capital is the major asset of a professional services company, it is imperative to benchmark short-
term cost-cutting strategies with the companys overall long-term business strategy. Evaluation
and update of performance measurement, compensation, and reward strategies should also take
place in light of the new economic conditions.
Consulting Industry 31
ANNEXURE I
Consulting Industry 32
Prof. JanakiRaman Moorthy
The project was undertaken for UP Forests Corporation, and the services of Prof.
JanakiRaman and Prof. Ravi Sundar were hired for this purpose. Some insights can be
summarized as follows:
The problems related to efficiency, marketing, inappropriate government policies for
running business, logistics and office automation are going to be the key issues.
Corporations should develop a global vision, and should think along the lines of
global restructuring.
Quite a few of the Indian firms do not trust the MNC consulting firms, and Indian
forms can take advantage from this.
Confidentiality is a major issue when it come to operational consultancy.
Consulting Industry 33
ANNEXURE II
Source: company press releases for all but Ernst & Young, which is an estimate from the Forbes
500 Privates list
The Ranks of the Big Eight prior to the beginning of the consolidation wave in 1989 were:
Arthur Andersen
Arthur Young
Coopers & Lybrand
Deloitte Haskins & Sells
Ernst & Whinney
Peat, Marwick, Mitchell
Price Waterhouse
Touche Ross
Consulting Industry 34