Life on the margins of the consulting market

By Fiona Czerniawska

The global consulting market may have grown by around 7% in 2012, but the picture in southern Europe is a reminder that good times never last forever.

Our recently published report on the region shows that Italy’s consulting market contracted by 6% between 2011 and 2012 to €1.048bn. During the same period Spain’s consulting market fell by 3% to €1.103bn. Our analysis suggests that while the market is unlikely to pick up during 2013-14, it is, at least, unlikely to fall further. The public sector consulting market was the biggest casualty in 2012, falling by 14% in Spain and as much as 19% in Italy. Better news was to be found in the energy and resources sector: growth there was a modest 1-2%, but it was growth nevertheless. All other sectors limped along, generally suffering a slight contraction, but it was notable that Italy suffered more than Spain, possibly because of the more fragmented nature of the consulting and client markets there.

With clients focused on surviving not growing, strategy consulting suffered; with no jobs to go to, people aren’t a priority, so demand for HR and change management fell too.  If consulting firms want to survive, let alone grow, they need to focus on delivering tangible results, assisting clients to explore new international markets and taking an active approach to winning new business. It won’t be easy though – the pressure on prices and projects is high, competition from an oversupply of consultants is intense and the economic situation is a constant threat.

In this brutally competitive world, which type of consulting firm has the best chance of survival? Accepted wisdom would say that, when the economic meteor hits, it’s the smaller animals which, fleet-of-foot, adapt most quickly to the new conditions, while the dinosaurs lumber towards extinction.

But accepted wisdom is wrong: our research suggests that it’s the smaller firms which are suffering most.  Why?  Because most didn’t have the international connections which took them to more buoyant markets overseas.  Few had finances which were strong enough to be paid from the savings they delivered to clients.  But many compounded these problems by broadening the range of services they provided on the grounds that, if demand was drying up in their core markets, they needed to diversify.  The result, though, was the erosion of whatever scant competitive advantage remained for them: why would a client buy from a small firm which isn’t a specialist?  Big firms, by contrast, have everything going for them: international networks, lower prices, the ability to take financial risks and of course the comfort of the brand.

Unable to adapt, small firms have little choice in these markets but to hibernate until the climate recovers.