A Big Four boost to strategy consulting

Many of you will have noticed that there’s a boom in strategy consulting going on.

Having hunkered down for the duration of the (private sector) recession, companies are looking to see how to respond to the recovery. What has changed? How do they need to adapt? Not surprisingly, this leads to increased demand for strategy consulting: that’s happening at the moment, just as it happened after the last downturns in 1997 and 2002.

So far, so similar: but there are important differences this time around. First, the rebound is more marked. Unlike 2002, when the dot com era left a nasty aftertaste in the mouths of many clients, consultants haven’t been blamed for this recession, the bankers have. Moreover, there’s more to think about: an unprecedented financial crisis and the most serious recession since the 1930s have challenged plenty of strategic planning assumptions. The second difference is pricing. In 2002 fee rates fell pretty much across the board and perhaps by as much as 15%. In 2009 ‘official’ rates fell by much less and possibly not at all for the most senior and experienced consultants (specialist expertise remains valuable). There was, however, a lot more discounting, with many firms willing to offer reductions on their standard rates in specific circumstances, often when they’re trying to build up a presence in a new market and/or client.

Nowhere has this been truer than in strategy consulting. As our new report, published this week, makes clear, strategy consulting firms responded to the last downturn by doing more work to help their clients implement their strategic plans. While enabling the firms to continue growing, the drawback to this approach was that it opened the door to a swathe of new entrants, firms which tended to be focused on more operational issues but which saw the opportunity to move into more strategic work. The most significant group of firms to walk through that open door has been the Big Four and – not surprisingly – they’re also the firms we see discounting most. Our last quarterly survey showed that around 45% of clients found Big Four firms were willing to discount, against 25% who’d found them unwilling. The reverse was true of strategy consultants: 60% of clients found them unwilling to discount, compared to 20% who found them willing to do so.

That raises some interesting questions for the future. It suggests that the current boom in strategy consulting may be short-lived: pent-up demand will dissipate quickly and lower prices will encourage clients to spend now, rather than in the future. Once growth has settled to more normal levels, we’re likely to see Big Four firms with a larger share of the strategy market, reinforcing the shift that has taken strategy consulting into execution. As firms coalesce around this issue, differentiation becomes even more of an issue. It also raises the question of who will occupy that small, but precious space where competitive advantage comes from clear, innovative thinking, not from helping clients implement....