Thursday, August 7, 2014

Where the Growth Is in Management Consulting

 This story, published at, truly is great news for strategy and management consultants around the world. This particular article was published a little over 1 year ago and has proven to be true according to many business strategy consultants like Solvtopia Consulting and others in the market place.

Good news for U.S. management consultants: An overwhelming percentage of clients plan to keep hiring them.

Over the next 12 months, 82 percent of the U.S. clients surveyed by market researcher Source Information Services say they won’t cut the amount they spend on outside help. And nearly half, 42 percent, plan to bring in even more consultants, while 5 percent expect to boost their spending on consultants by more than 50 percent.

Pressure among clients to keep head count low is stimulating growth for consulting firms—at least for the short term, says Fiona Czerniawska, founder of Source. But as the economy rebounds, she says clients may start to “relax head-count restrictions,” dampening that source of growth.
The research organization surveyed 250 U.S. consulting clients (mostly at the C-suite level) and conducted in-depth interviews with another 50 executives.

The U.S. market for management consulting grew 8.5 percent last year, to $39.3 billion. The fastest-growing areas: marketing and sales (25.6 percent), operational improvement (11.3 percent), and technology (10.1 percent). High-growth industry sectors include: health care (18.4 percent), energy (12 percent), and pharmaceuticals (10.3 percent). “After a difficult few years, things are finally getting back on track,” the report states.

Where do U.S. companies need help? Not surprisingly, digitization is high on the list, which the research firm says is benefiting consulting companies IBM (IBM), Deloitte, and Accenture (ACN), leaders in this area. “Where the rest of the world talks about globalization, America talks about digitization,” according to the report.

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U.S. companies, however, are spending much less on strategy consulting. That sector is expected to grow just 3.7 percent next year, not good news for McKinsey, Bain, and other leading strategy specialists. Look for those firms to continue to diversify into other areas, such as implementation and organizational design, as well as tech. “It’s hard to separate technology from strategy these days,” says Czerniawska.

The survey had something else for U.S consultants to ponder: If consulting companies halve their fees, 59 percent of the clients surveyed would “buy a lot more consulting.”

Don’t expect consulting firms to start slashing fees, however. “That’s a cul de sac you can’t get out of,” says Czerniawska. What that response suggests, she says, is the inelasticity of consulting prices, because it would take a huge cut to stimulate growth. Rather, she points out, consultants should focus on communicating the value they add and differentiating themselves from competitors. That’s advice every management consultant can easily grok.


Uber’s Real Challenge: Leveraging the Network Effect


I found this particular article about Uber interesting and informative. This article was written by Neil Irwin of the NY Times.

"Most of the headlines about Uber, the rapidly growing transportation service, involve its battles to do business in more cities around the world. Not surprisingly, cabdrivers who have enjoyed being part of tightly regulated cartels in cities like Madrid, Miami, London and Los Angeles do not much care for the San Francisco-based upstart that brings them new competition.

But whether Uber will ultimately become the kind of wildly profitable company that will justify the valuation of $18.2 billion reportedly assigned to it by its latest funding round doesn’t come down to those regulatory battles. If the recent past is a guide, it will eventually win them.
 The question for Uber as a business boils down to two words: network effects. That’s the concept in which users of a service benefit from the fact that everybody else uses the service as well. It isn’t much use being the only person to own a fax machine, or the only person to show up at a stock exchange. Things like these become more valuable the more widely they are embraced. Network effects are the key to the wild profitability of a firm like Microsoft; Windows and Office are hard to displace, even if a competitor offers a better, cheaper product, because Microsoft products are entrenched as an industry standard.

And when one company controls a market with strong network effects, it can be one of the few sustainable ways to generate huge profits, holding on to customers and fending off competitors. The billion-dollar question is whether Uber’s model for offering transportation services has some of the same network effects as those of great information industry monopolies (Microsoft, Google), or is more like, say, the travel website business, a brutally competitive industry of middlemen.
Uber is itself a middleman, of course. On one side, it recruits drivers, who typically own or lease their cars. On the other side, it markets to consumers who may want a ride. Then it matches them up; the consumer orders a car, a driver accepts the request, the service is provided, and Uber charges the consumer’s credit card. It keeps a 20 percent commission for itself and pays the rest to the driver..."

Read The Entire Article Here

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