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The Management Consultancy Industry – An Analysis
Part I – Current State
The management consultancy industry shows a very fragmented picture with various
segments and player groups. This first part of the industry analysis starts with an analysis of
the market segments and player groups. Afterwards it will elaborate on the competitive
situation. The second part of this analysis – Future Prospects - discusses driving forces and
possible futures for the industry.
This paper focuses on the German market, for which it provides figures and statistics. All
statements about trends, competition, drivers and possible future developments, however,
can easily be transferred to management consultancies in all major markets.
1
Market segments
In Germany they are 14700 management consultancies and sole practitioners. They employ
68000 consultants. 1
The market for management consultancy in Germany has shown rapid growth throughout the
last years. Total revenues rose from 16.4 bn DM in 1997 to 18.8 bn in 1998, 21.3 bn in 1999,
and 23.8 bn DM in 2000. Although the annual growth rate declined from 14.6 % in 1998 to
11.8 % in 2000, it is still significantly above the growth rate of the German GDP, being below
3 %. However, growth is not equally spread across the market segments.
Today management consultancy is much more than the traditional strategy consulting. The
Bundesverband Deutscher Unternehmensberater e.V. (BDU, Association of German
Management Consultants) distinguishes between consulting for strategy, organisation, IT
and human resources. Analysis of these segments reveals their different contributions to
overall revenue and growth:
1
All figures and statistics are derived from press releases of the Bundesverband Deutscher Unternehmensberater
e.V.
© Dagmar Recklies, April 2001
Recklies Management Project GmbH § www.themanager.org
Tel. 0049/391/5975930 § Fax 0049/721/151235542 § mail: drecklies@themanagement.de
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Revenues by services
25000
mio DM
20000
15000
10000
5000
0
1998
1999
2000
HR
1692
1065
1094,8
Organisation
3572
4899
5831
Strategy
5640
5538
6545
IT
7896
9798
10329,2
Growth Rate by Service 1999 and 2000
%
50,0
40,0
30,0
20,0
10,0
0,0
-10,0
-20,0
-30,0
-40,0
-50,0
1999
2000
IT
24,1
5,4
Strategy
-1,8
18,1
Organisation
37,2
19
HR
-37,1
2,8
total
13,3
11,8
These figures indicate that IT- and organisational consulting fuelled growth in 1999. This was
driven by the current developments in the IT-sector. The BDU names year 2000 solutions,
Euro-implementations, SAP implementations and e-business activities. These changes in the
customers' environment change their industries more or less and hence create enormous
needs for consulting. Without the impact of Y2K and Euro-implementation, the growth of IT
consulting slowed down in 2000. However, this sector remains the most important field of
consulting with 43.4% of total consulting revenues in 2000. The BDU predicts, that the
proportion of consulting projects that include at least partly some e-commerce consulting, will
grow from 38% in 2000 to about 50% in 2001..
All in all the whole industry shows a dynamic growth. Besides the influence of IT this is driven
by globalisation, technological change and the deregulation of markets.
© Dagmar Recklies, April 2001
Recklies Management Project GmbH § www.themanager.org
Tel. 0049/391/5975930 § Fax 0049/721/151235542 § mail: drecklies@themanagement.de
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2
Player groups
In recent years the industry has seen the entry of many non-traditional consultants into the
market. Barriers to entry are considerably low with little investments into fixed assets needed.
In addition – on the contrary to the auditing business – there are no legal regulations limiting
the entry to this profession. Many former employees of large consultancy firms or senior
managers from other businesses start up as sole practitioners or small consulting firms. On
the other hand, many companies from outside the consulting industry enter this market.
These are mainly IT-companies as IBM or Cap Gemini, but also designers, technologists,
marketing agencies, employment agencies and others.
Rassam (1998) distinguishes as follows:
Accountancy-based firms (e.g. Andersen Consulting,
PricewaterhouseCoopers)
IT companies (e.g. IBM, Cap Gemini)
US based consultancies (meaning here the strategyorientated consultants as McKinsey, BCG)
Small- to medium-sized independent consultancies
(often specialised or non-global firms)
groups of players,
by size and origine
Actuarial firms
Business school based consultants (mostly lecturers and
researchers taking on consulting assignments)
Small consultancies
Sole practitioners
In Germany there are 14700 consulting businesses employing 68500 consultants. The BDU
distinguishes small, medium and large consultancies. Not surprisingly, the large
consultancies, being smallest in numbers make nearly a third of the total industries revenues:
%
Consulting Businesses 1998
100
90
80
70
60
50
40
30
20
10
0
20
68
small
50
medium
large
31,9
30
0,1
by number
by revenues
© Dagmar Recklies, April 2001
Recklies Management Project GmbH § www.themanager.org
Tel. 0049/391/5975930 § Fax 0049/721/151235542 § mail: drecklies@themanagement.de
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This is an ongoing trend. By 2000 the market share of large consultancies has risen to 47%,
share of medium sized firms fell to 36% and share of small firms fell to 17%. This is because
large firms show by far the highest growth rates with an average of 18% in 2000. Medium
and small firms grew by an average of 9% and 2.5% only.
With this small number of large dominant players the market can be characterised as an
oligopoly. Competition is especially strong within the market segments and within the player
groups. Due to the limited growth rates in some segments and the entry of new players there
is also a rising competition across the segments and player groups. Smaller specialised
consultants start to serve customers of all sizes. The large consultants discover small and
start-up enterprises as customers, seeing them as future clients for further consulting and
auditing activities.
According to this competition consultancies have developed different strategies. The large
consultancies establish themselves as generalist. They offer their clients a one-stop-shop
service for all the consulting needs they might have. Thus their focus is on long-lasting
customer relationships and cross-selling opportunities. Many smaller and medium sized
consultancies have specialised in certain areas of expertise like IT, HR or business recovery.
A number of them operate only in their home area.
An important area of competition in consulting business is the supply-side. Consultancies
compete heavily to attract highly qualified people. Demand for these people is rising due to
the growth aspirations of the large consulting firms. The German member firm of
PricewaterhouseCoopers created more than 1000 additional jobs during its first year after the
merger and still continues to grow at high rates. On the other hand, many graduates from
universities and business schools choose to join start-ups in the "new economy" in 2000.
© Dagmar Recklies, April 2001
Literature Recommendations:
James, Rassam (1998) In Sadler, P. (ed.) Management Consultancy – a handbook for best
practice. London: Kogan Page Limited
© Dagmar Recklies, April 2001
Recklies Management Project GmbH § www.themanager.org
Tel. 0049/391/5975930 § Fax 0049/721/151235542 § mail: drecklies@themanagement.de