No tears shed for this downturn

Consolidation is on everyone's minds - whether they are banks, car manufacturers or, indeed, management consultants.

Consolidation is on everyone's minds - whether they are banks, car manufacturers or, indeed, management consultants.

Until recently, economies of scale associated with size were amongst the key objectives of the big six consultancy firms. Now, these are being hit, the six have become five and will eventually become two or three.

There is more than a whiff of concern, however, in the hallowed boardrooms of the big firms. Are there conflicts of interest? There are accountants, auditors and management consultants all advising on "separate" areas of a business, offering different advice, but from under one roof.

Certainly, global end-to-end management consultancies associated with multinational companies do provide a broad range of services - from the development of strategy, to its implementation, and eventually to post-implementation support services. It is true that the big firms hold substantial appeal to such companies which feel secure in the knowledge that advisers - known as management consultants - will always be there.

With each successive merger in the sector, experienced partners with specialist knowledge developed over 15 or 20 years have been "let go". This has given rise to a range of specialist niche firms known as "category killers". These companies believe that no-one can beat them in their particular field or offer anything like comparable experience.

Obviously the impact of the recession in the US and 11 September in particular has had a significant impact on the consultancy business, particularly the IT side. Projects have been delayed or cancelled and corporate management in general has become more cautious, more averse to taking risks, and more aware of security issues.

But in many respects this is a valuable stimulus to our business. In the past, company directors and those in charge of corporate IT have not been good at calculating, and subsequently justifying, the return on a particular IT investment. These costs have often spiralled out of control making IT a frequent target for the grey accountants.

The cautious approach, however, has resulted in a more diligent approach to investment. Buyers have become more canny and are expecting more from their suppliers in the form of guarantees and post implementation service.

The pace of change in IT is increasing and is being fuelled by the Internet. Five or six years ago, most staff simply took at face value the advice from the IT department. They believed that what it recommended must be best. Now, staff may not be so compliant. They may believe that they know better - indeed, they may have more powerful equipment at home.

As to the future, outsourcing is the next big event to take the industry by storm. But the complexities of outsourcing will require careful management.

Outsourcing comprises various elements. Historically, the benefit of outsourcing a particular activity was obvious: payroll management and other non-core activities could be handled more cheaply by a third party, off site.

Then came offshore outsourcing: companies turned to India and the Philippines where there is a ready supply of highly skilled and relatively low cost, reliable labour.

For clients that are reluctant to go fully offshore, there are onshore/offshore arrangements where the buyer has a project manager based in the UK who, in turn, oversees the offshore operation. This is an expanding area and another refinement in the outsourcing process.

The structure of the management consultancy business is undergoing a fundamental change. Large firms have wider global reach than before, but they lack the depth and experience which niche firms provide and which clients require. Clients are also becoming more specific in their requirements.

This is undoubtedly good for the industry and good for business, particularly if your firm is able to demonstrate domain expertise and flexibility to meet a client's rapidly changing needs.

A focus on experience, a focus on skills to deliver and a levelling of the playing field in favour of the small firm - and for all this we owe the downturn. Who says big is beautiful?

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