by Owen Stuart
April 30, 2019
Long dominated by massive firms cloaked in secrecy, the model and value of consultancy services delivered by the likes of McKinsey and EY is being challenged. Startups are competing with lower-tier consultancies by making consulting an option for companies that would otherwise be unable to afford it.
Hiring a top-tier consulting firm is incredibly expensive, in part because the management consulting industry is very opaque in terms of pricing and bidding. Many pricing structures for these firms are not disclosed to the public, and firms often use time-based billing (e.g., hourly, daily, or retainer rates), instead of charging based on the value they provide (e.g., a share of profits from a consultancy-advised new product launch by the client). Companies can spend millions on consulting per year.
The industry is also relatively concentrated in the top tier. Competitors include the Big Three strategy firms (Bain, Boston Consulting Group, and McKinsey), the advising arms of the Big Four accounting firms (Deloitte, EY Advisory, KPMG, and PricewaterhouseCoopers), and an array of boutique firms that specialize in solving specific business challenges.
The rise of management consulting startups may point to a new business model for management consultancies. Two new businesses provide a glimpse at alternate models with disruption potential.
Wikistrat bills itself as a “crowdsourced consultancy”. The company uses a simulation with dozens of its over 5,000 experts to test scenarios and deliver insight on possible outcomes. Currently, the company offers simulations, monitoring, red-teaming (challenging a given conclusion or plan of action), wargaming, and insight delivery. The work Wikistrat does competes with the strategy work that many of the Big Three do.
Catalant uses an algorithm to match employer-posted projects requiring consulting to consultants qualified to fulfill those jobs. Consultants bid on the job offered, and employers choose the most attractive bid. Employers can easily expand the number of personnel working on a project by hiring consultants without the long-term costs of hiring employees, and posted upfront rates let employers compare prices easily.
These consultancies deliver transparent and less expensive pricing than traditional firms, and often significantly improve the turnaround time on a project from months to weeks, or even less. For example, Wikistrat advertises its executive memo service, which delivers a policy memo to deal with a customer crisis in three hours.
The industry may see further bifurcation. High-cost consulting firms will likely still be able to command premium pricing due to the reputation and prestige that surrounds their brand. However, low-cost consulting will likely be pressured by the transparency offered by Catalant and other similar pricing models.
In addition, management consulting firms will continue to shift their insight and expertise into new areas to remain relevant to clients. For example, McKinsey unveiled its McKinsey Design business line in 2018; the service designs products, customer experiences, and consumer-facing processes (e.g., customer service). Premium consultancies branch their practices out to encourage a wider tranche of businesses to use their firm.
We have you covered! For additional information and analysis of US industry trends, see Management Consulting Services: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group. This report forecasts to 2023 US management consulting services revenues in nominal US dollars. Total revenues are segmented by service in terms of:
To illustrate historical trends, total revenue, the various segments, and industry data (employer firms, establishments, and employment) are provided in annual series from 2008 to 2018.
This report represents employer and nonemployer revenues. With the exception of actuarial consulting services, the discrete consulting segments include the provision of advice and implementation thereof. This report excludes industries such as private equity, portfolio management, investment advice, professional and management development training, executive search, and market research. Also excluded are environmental and other scientific and technical consulting services (e.g., agricultural, economic, and security consulting).
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Owen Stuart is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, and his experience as an analyst covers multiple industries.
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