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Margin problem in the CONS industry: who's feeling it the most?

Some say, consulting services are increasingly becoming (or have long become) a commodity. Clients are bargaining and forcing lower daily rates, to the point where the consultancies find themselves in a race to the bottom. How are the different consultancies affected by this trend?

1) Within MBB, do they feel the pressure equally? What about the competition of MBB with Big4/Tier2? Concessions to the rates surely must be avoided at all cost to maintain their reputation?

2) How do the Big4/Tier2 react to competition within their league? They price lower than MBB, but why would a client choose e.g. EY over KMPG, or ATK over Roland Berger, when they all have practices with similar capabilities? Is it all about the rates at the end of the day? I assume expecially the Big4 all have 200k employees each, and cover similar areas of work, both in content and geography.

3) My third question is about strategy units within Big4 & Accenture: what's the future of Monitor Deloitte, Strategy&, etc. in a landscape with MBB, and smaller, 'purely' strategic companies? Being embedded in a huge company must both advantages and inconvenient points. Is there a chance of keeping a 'strategic' profile and pricepoint, when differentiation from the 'leviathan' (their mother organisation) becomes more difficult?

I'm interested in where the industry is going in the next 10 years, and how this will affect the job of a consultant at these three groups of companies/units. Cheers

Some say, consulting services are increasingly becoming (or have long become) a commodity. Clients are bargaining and forcing lower daily rates, to the point where the consultancies find themselves in a race to the bottom. How are the different consultancies affected by this trend?

1) Within MBB, do they feel the pressure equally? What about the competition of MBB with Big4/Tier2? Concessions to the rates surely must be avoided at all cost to maintain their reputation?

2) How do the Big4/Tier2 react to competition within their league? They price lower than MBB, but why would a client choose e.g. EY over KMPG, or ATK over Roland Berger, when they all have practices with similar capabilities? Is it all about the rates at the end of the day? I assume expecially the Big4 all have 200k employees each, and cover similar areas of work, both in content and geography.

3) My third question is about strategy units within Big4 & Accenture: what's the future of Monitor Deloitte, Strategy&, etc. in a landscape with MBB, and smaller, 'purely' strategic companies? Being embedded in a huge company must both advantages and inconvenient points. Is there a chance of keeping a 'strategic' profile and pricepoint, when differentiation from the 'leviathan' (their mother organisation) becomes more difficult?

I'm interested in where the industry is going in the next 10 years, and how this will affect the job of a consultant at these three groups of companies/units. Cheers

1 answer

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Best Answer

OK, that's a question you could write a book on...

Reg 1) I think there is no blanket statement that fits here. Depends on the geography, the industry, the client, the project and even the people involved.

  • Is a project of strategic importance for the consultancy?
  • Does the client have the potential for long-term projects or is this a one-off?
  • Are partners incentivized on revenue or on margins?
  • ...

And a million more questions like these factor into that...

But in general, you are right in assuming that consultancies try to maintain some level of pricing, mostly to not set dangerous precedents.

Reg 2) No, it is not all about the rates. It's about the people and the true experience a company has (not what they write on their website). This may be less true for projects that occupy busloads of consultants at a time, but in strategy consulting, I have personally been on large projects (seven figures) where the clients (we're talking board members of Fortune 500 companies) made the project approval contingent on specific, individual people (project managers, not partners, btw) being on the project team. And not due to nepotism or corruption, but because they did not buy the brand, they wanted to buy these specific people. Basically at any (somewhat reasonable) price.

I have also seen projects where the CEO of one of the largest German (in that case) companies personally called the named project references to vet the consultancy's experience. And in that specific case, one of the MBBs (not saying which one) didn't stack up and where eliminated from the pitch.

reg 3) No clue.

OK, that's a question you could write a book on...

Reg 1) I think there is no blanket statement that fits here. Depends on the geography, the industry, the client, the project and even the people involved.

  • Is a project of strategic importance for the consultancy?
  • Does the client have the potential for long-term projects or is this a one-off?
  • Are partners incentivized on revenue or on margins?
  • ...

And a million more questions like these factor into that...

But in general, you are right in assuming that consultancies try to maintain some level of pricing, mostly to not set dangerous precedents.

Reg 2) No, it is not all about the rates. It's about the people and the true experience a company has (not what they write on their website). This may be less true for projects that occupy busloads of consultants at a time, but in strategy consulting, I have personally been on large projects (seven figures) where the clients (we're talking board members of Fortune 500 companies) made the project approval contingent on specific, individual people (project managers, not partners, btw) being on the project team. And not due to nepotism or corruption, but because they did not buy the brand, they wanted to buy these specific people. Basically at any (somewhat reasonable) price.

I have also seen projects where the CEO of one of the largest German (in that case) companies personally called the named project references to vet the consultancy's experience. And in that specific case, one of the MBBs (not saying which one) didn't stack up and where eliminated from the pitch.

reg 3) No clue.

(edited)

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