Our management consultancy columnist, Mick James, this week looks at the new MCA report, which for the first time, segments member revenues by firm type.

MCA report shows structure of UK consulting market

A friend of mine once advised me there were three things you should never attempt to do yourself. One was move a piano, the second was repoint a chimney. I forget what the third was but I suspect it may have had something to do with coming up with a structural analysis of the management consulting industry.

Fortunately-and this is the point my friend was making-there are people out there prepared to venture up those ladders. For the last few years we have seen a steady improvement in the quality and nature of the information gleaned from its members by the Management Consultancies Association. Unfortunately this has come at a price, as we have to live with media who consider any expenditure on consultancy to be folly. So the year on year increases posted by the Association have not been interpreted as welcome signs of health in a British knowledge industry, but as evidence of a collective descent into madness. The abuse of public sector consulting figures has been particularly atrocious, with any quoted figure will immediately be divided by the cost of a hospital or a police car and portrayed as robbery from the needy.

The problem for the MCA is that in stating aggregate figures for its membership you end up adding a lot of apples to pears. So a member of the commentariat can pick up on, say some apparently daft communication exercise undertaken by a redevelopment authority in the Midlands and then conclude "...and you realize as a nation we spend billions a year on this sort of stuff."

The MCA's response this year has been to undertake a careful, if potentially controversial segmentation of its client base, which raises fascinating question for the future shape of the industry as well as for the MCA itself.

The first bold move is to restate total fee income in terms of different service lines, and restate a figure for "pure" management consultancy for 2006. This is of course a lower figure than the headline figures stated in previous years, but still it shows an increase of around 16% over the previous year-a lower rate of growth than 2005 but still healthy. In the future the MCA will focus very much on this area, partly to ensure that clients understand that this is the area of its members' activities that it regulates.

"It's the stamp of approval," says Peter Hill, the MCA's chief executive. "We want to ensure that people are not selling a non consultant as MCA-approved."

In the longer term the plan is for the MCA to use this core figure as a platform for a much more robust and quantitative discussion about the value clients derive from consultants.

At the moment the current report is bolstered by an in-depth client survey that shows that most clients are satisfied with their consultants, most projects come in within or only slightly over budget and timescale and that they have a very clear cut view of what they want from consultants.

"It's a first step, a very qualitative approach to get something on the value of consultancy from the end-buyer," says Hill.

What is interesting here is that their key priority is neither cutting costs nor increasing revenue, but getting things done more quickly. The only thing the survey is missing is a counterbalancing survey of consultants about what they think clients want from them or value about them, which could offer some highly instructive contrasts.

On the back of this work the MCA-which accounts for around 70% of the industry-has taken the bold step of categorizing its membership into 6 categories, envisaged as an interlocking Venn diagram. At the centre are what it calls Type M firms, who offer "pure" management consulting. Impinging on this centre are firstly, the Type As, accountancy firms including, but not limited to the Big Four. Once the lynchpin of the industry and now in revival mode, this sector still accounts for a healthy fifth of total revenues. A smaller category, Type E, represents the engineering and project management strand, again at one time a central plank of the industry, but now only 1 per cent of the total. The rest of the industry is defined by its involvement with the wider world of IT: Type I who also do IT consulting, and Type O who also do outsourcing. Together these two make up 9 per cent of the market, but unsurprisingly the lion's share is taken by the Type Cs, the IBMs and the Accentures who do everything and take a whopping 61 per cent of the pie.

Two things occur here: one is that a neat Venn diagram has the same appeal to the consultancy industry as a nice smooth patch of wet concrete has to a stray dog and that this picture is bound to become a bit messier. Consolidations and opportunism are bound to mess up what is at the moment a relatively focused industry. My favourite scenario would be for someone like IBM to tackle the lack of competition in the audit industry and set up a Big Five audit firm. Stranger things have happened.

The other is how much genuine overlap there is between the firms, and how much of it is in the "pure" consulting sector, where the Type M firms are prospering and account for 13% of fee income. This, I think, answers those doubts that some people have about the ability of the MCA to represent such a diverse bunch of firms. The centre holds: it's possible that in the future the consultancy industry will go through another phase of demerger. At the moment the mixed business models hold good because clients are happy with them: if I'm enjoying my lunchtime ciabbata I'm relatively unconcerned if I bought from Boots, M&S or the local sandwich maker.

It's always easy to forget that consultancy can only ever define a negative space defined by client problems, and clients will always be a destabilizing force in consultancy. A lethal combination of pester power with purchasing clout can always undermine the most rational business model. In the final analysis, the structure of the consultancy industry will always resemble nothing so much as a chair, which bears the imprint of the last person who sat on it.

All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.

Contact Mick with your views or suggestions at: mick.james@top-consultant.com
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