Consultancies support their clients in a multitude of ways, from helping them to formulate business models, cut costs, predict risk and innovate products, to strengthening their processes for managing talent, staying compliant and recruiting staff. Increasingly, this has involved helping clients stay ahead of the curve when adopting digital technologies, or adapting to rapidly shifting geopolitical situations. As a result, while the global economy seems to be slowing, the consulting industry continues to enjoy robust growth. .
However, in spite of this growth, there are a growing number of challenges that consultants are facing. According to an industry report conducted by Deltek ‘Insight to Action – The Future of the Professional Services Industry’, consulting practices need to consider strategies for dealing with these challenges if they are to remain successful. An overview of five key challenges identified by the study.
Corporate buyers of professional services have become more demanding, pushing back against concepts such as billable hours, and requiring fixed fees and with greater transparency on costs. In an increasingly agile environment, intensified by rapid digital innovation, clients now expect more value, a higher quality of work, and a faster delivery of solutions and services.
As clients are more willing to shop around for consulting services, they understandably hold more sway than in the past, and are demanding greater value and flexibility at lower prices. In Deltek’s survey, 54% of chief operating officers said their biggest challenge caused by “changing client behaviour” was that of providing more value at the same cost..
Buoyed by innovative new technologies enabling them to do more with less, new players are entering the consulting market, and alternative, digital-savvy business structures are being deployed. In Deltek’s survey, 55% said that addressing the increasing competition in the sector was a major business priority, while 33% of chief operating officers said “defining competitive advantage” was among their top three priorities for the next five years. Boutiques and specialist firms are not the only form of competition to be on the rise. The increase in independent consultants is also proving to be a major competitive force. In the UK, there are now over 2 million freelancers and that number will continue to grow. The largest portion of these independent consultants operates in the field of professional services, consulting and project management. They are putting pressure on prices, because they operate without the same overheads as the larger firms, and can charge well below what the established consultancies can. In the UK now, one one-fifth of the £10+ billion worth of management consulting work goes to independent consultants. The rapid rise of independent consultants is accelerated by freelancer portals such as Upwork, PeoplePerHour, Talmix and Comatch. These portals are connecting millions of professionals globally – for example, freelancers in Southern Asia with clients in Europe. This is eliminating the need for professional services companies to act as intermediaries, which for many consultancies was a lucrative part of their incumbent business.
Consulting firms are facing an increasingly complex macro macro-environment in which they must continue to provide the best advice. The global nature of the industry adds to the problem, as firms deliver more projects overseas, in many cases also working with subcontractors, partner companies and/or independents. Delivering a project itself is not the issue – the challenge is doing so faster, more efficiently and to tighter budgets, while continuing to satisfy customer needs. Complexity is also rising because clients are gaining better insight into their projects and demanding more control. The evolution of mobile technology has, for instance, caused a seismic shift in the sector, enabling stakeholders to gain instant access to project information on the go. It presents project managers with the challenge of staying on top of their projects within a more dynamic data environment. Project complexity comes with a cost, too. It makes it harder for project managers to plan in advance, meaning that their resourcing volatility has gone up. It can also put a business’ bottom line at risk, with unplanned changes often required late in a project. Seventy-one per cent of respondents admitted to Deltek that they do not get paid for all change requests they have, either because the client refuses or because they decided to strategically not pass them on.
Consulting firms handle an enormous volume of confidential client information. This ranges from strategic information (used for strategic engagements, or mergers & acquisitions) to commercial (sales & marketing information for pricing engagements) and personal data (employee data as part of reorganisation and cost-cutting exercises). Such high-value information can be very damaging if it falls into the wrong hands. That makes professional service firms obvious targets for hackers, and data breaches, therefore, pose a particularly serious threat to consultancies. In Europe, the introduction of the General Data Protection Regulation (GDPR) – which came into force last year – put extra weight on the importance of getting cybersecurity right. In addition to incurring serious financial penalties, the negative publicity would be damaging to the businesses’ reputation and could affect their ability to win work in the future. Numerous consultancies have already suffered the consequences for failing to comply with GDPR. The result has been hundreds of thousands of pounds in fines and the loss of both current and future contracts.
Commenting on the five major challenges, Fergus Gilmore, Vice President Sales and Managing Director UK and Central Europe at Deltek, said, “The results of our survey reflect some concerns about the future of the consulting industry. Many feel their firms are ill-equipped to tackle current challenges and future risks, expressing a desire to strengthen core business models, as well as internal systems and processes.” He added, “In this climate, consulting firms must focus on three key ingredients in order to gain a clear view of the risks and opportunities ahead: pipeline, projects, and people. That means knowing what kind of projects they are going to bring into the business, and when; how much it will cost to deliver those projects; and whether they have the right skills for the job. The role of technology is vital to for consultancies to get a handle on this information, and more importantly, be able to use it to inform their decision-making.”