Game of Thrones — Future of The Big Consulting firms

The current state of the “Strategy and Operations” consulting market can be defined by one theme: the quest for scale. Scale has become the overarching objective across the various consulting players in the market. How did we get here?

Clients have changed: Consulting clients have become extremely savvy. In early days in consulting, there was a lot of value in “Outside In”-led strategy projects that essentially leveraged the Consulting firm’s talent arbitrage. Nowadays, every client of even a rudimentary maturity tends to have an internal strategy function run by ex-Consultants and ivy league graduates.

  • Therefore, only firms that have a cutting edge offer+IP, supported by a global scale to support global clients, tend to have any kind of sustainable competitive edge in the market.

There is a natural age advantage playing out in the MBB (#McKinsey, #Bain, #BCG) Group.

  • Age advantage is the advantage a firm gains simply by having been around for longer than its competition (somewhat like the experience curve, but much more broader implications than that)

The Big 4 (#KPMG, #PwC, #EY, #Deloitte) firms are now trying to circumvent their age disadvantage by going for inorganic acquisitions. Given their larger scale overall (Deloitte and PWC are ~3–4 times larger than Mckinsey), they can afford to take the risk of inorganic moves. However, the success of these inorganic moves can only be seen with time — traditionally, inorganic deals in Strategy Consulting have not been particularly successful.

  • There is a natural age advantage playing out in the Big 4 Group too: Around the early part of this millennium, the Big 4 firms (except Deloitte) had divested their Consulting businesses driven by all the scandals. Deloitte’s choice to invest in consulting in the last 15 years has offered it the opportunity to deliver substantial organic growth, as well as the opportunity to buy a range of consulting businesses (think Bearing Point, Monitor, etc).

One twist: Deloitte’s age advantage is restricted to the US (though they are now trying to muscle their way to strength elsewhere) — whereas PWC enjoys a bit of an advantage outside the US 9 (and they bolstered this international advantage a bit with their sequence of failed acquisitions: Diamond, PRTM, Booz, etc) . But overall, given the disproportionate size of Deloitte in the US — it looks like they will emerge winners in this space. However, the rest of the Big 4 are going to try to short circuit their way to scale by grabbing other smaller boutiques (Eg. EY acquiring Parthenon and poaching several very senior MBB directors/senior partners across the globe).

The Big 4 firms have a better ability to support the ups and downs of a Consulting business (given their highly stable, predictable, annuity based, oligopolistic, Audit and Tax businesses). Accenture, unfortunately, cant do the same since such vagaries of the consulting business are not appreciated by their demanding public shareholders.

The mid market Consulting firms will disappear: Booz is gone. Monitor is gone. Parthenon is gone. Roland Berger was supposed to have been gone 7 years back — but ever since they didnt take the Deloitte deal in a last minute turnabout, they have now been depleted so much (through poaching by other firms) that they are are a shadow of what they used to be.

  • AT Kearney has been in the market to get acquired on and off for a decade now — but none of us has been able to figure out how to acquire and succeed with their slightly weird portfolio of offers and capabilities. LEK, OC&C, etc are too regional to make a big difference globally.

My personal suspicion is Bain may go sooner than later to a PWC or Deloitte. Deloitte now has a CEO with an M&A background — so that plays to their advantage right now. However, Deloitte is also reportedly super stingy when it comes to deals — which is why PWC may actually be more successful in bagging a Bain/BCG (Once the right price is offered to the partners, all other barriers to getting acquired will come down).

What future holds? (my personal views)

  • Mckinsey maybe the last man standing, along with the Big 4 and Accenture: In about 5 years time, it shouldn’t be too big a surprise if Mckinsey is the only pure play left in the market, though I would personally bet on BCG surviving independently for ~7–8 years. I think all of the Big 4 will remain relevant to varying degrees. Deloitte and PWC will continue to lead overall — with the #1 player being whoever manages to snatch Bain and/or even BCG.

So. long story short, in 5 years from now, my personal guess is: either BCG would have grown to a scale comparable to Mckinsey, or they would be very close to getting acquired by a Big 4 firm.

All of these predictions need to be taken with a pinch of salt. I have realized that what Bill Gates said is broadly true. “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” While industry consolidation is definitely here to stay, whether this wave plays out in 5 years or 10 years is a bit of a guess for everyone around.

Thank You

Phani Marupaka

https://www.linkedin.com/in/phani-marupaka-02646b33/

Read on Disruptions ahead in the Consulting world’ . Please leave your comments or feedback in my inbox.

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About me: Hi, I’m Phani Marupaka — graduated from BITS Pilani Dubai in Computer Science Engineering, Data Specialist certified by Duke University, Investment Portfolio Specialist certified by Rice University, Digital Marketing Specialist — from Duke University and have around 6+ years experience in Business Development & Sales. I also write on startups, different sectors, industries & technology trends on LinkedIn.

Product Marketing- Technology Writer - Business Development Professional - LinkedIn -http://bit.ly/2DpT2js

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