‘May you live in interesting times,’ is an oft quoted Chinese curse – and these are interesting times for the $200 billion management consultancy industry. “The buzz is back!” trumpets Management Consultancy magazine in its review of 2005. The large firms are recovering from the post millennium dotcom crash and the energetic niche players created in the fall out are thriving. The return to sustainable double digit growth is widely forecast.

But the world economic order is changing. The real impact of globalisation is being felt and talked about by people on the streets of London, Paris and Washington.  Corporate activity is reaching record levels as firms consolidate to address the challenges of global supply chains. China is now the world's fourth largest economy having overtaken the UK last year. Infosys, the Indian-based IT services company is now capitalised at $21billion and is ranked at number three worldwide ahead of EDS and CSC. Major developed economies are building up ever extending current account deficits. They are also struggling to fund retirement for ageing populations from a declining base of people of working age. The prosperity enjoyed by the West over the past 50 years is unsustainable, states investors Jim Mellon and Al Chalabi, in their recently published book, “Wake Up.”

Against such a backdrop, can the consulting industry really assume that good times are back? This is not 1995 when the industry last emerged from recession.  The changes that have taken place over the last 10 years threaten the return to the historic pattern of six to eight years of growth interspersed with a couple of lean ones. The consulting industry needs to face up to the new global market place and address the following challenges:

• Globalisation and the impact of changing competitive advantage
• Government appetite to consolidate and outsource services and processes
• Continued tension between regulation and advisory services
• Impact of technology on the nature of work
• The need for consultancies to prove the value they are adding.

Globalisation is both the greatest threat and opportunity for consultancies. The movement to global supply chains for products is already being mirrored in services. The rise of Business Process Outsourcing (BPO) firms operating transactional services across the globe is a forerunner for the movement of more complex and valuable activities such as analysis and advisory services to be provided from developing economies, such as India and China. India will soon be Accenture’s second largest employee base. Large consultancy firms will continue to globalise to deliver services from competitively priced resource pools. This will mirror the experience of IT service firms, initially motivated to provide services from countries like India simply on grounds of cost, to gaining access to quality resources and innovation. Niche players may survive locally but middle sized players will be challenged. They are already starting to be absorbed in both the consulting and BPO industries.

Government process consolidation to achieve efficiency savings through shared services is now openly on the agenda in both Britain and America. The scale of the change is a challenge to both suppliers and government departments and agencies, as they look to manage the human implications of these changes. Traditional competitors are working together in consortia to provide the breadth and complexity of solution required. Niche players can add value to these solutions if they can overcome procurement ‘barriers to entry’.

There is continuing tension between regulatory and advisory services. The large accounting firms, who mostly sold their consultancy operations to IT services firms in the past five years, have quietly re-entered the consultancy game. The uneasy tension of being both regulator and business advisor – ‘referee and player’ - continues post Enron. Indeed some of these firms don’t use the word ‘consulting’ to avoid any perceived conflict of interest and they segregate their offers between audit and non-audit clients. However, the consulting / ‘advisory service’ market is too tempting to miss out on and the re-introduction of strong accounting brands will continue to make the market place more competitive, as evidenced by the failure to improve rates even as the market has improved.

The increasing automation of processes will lead to the stream-lining and elimination of not just low value-add transaction services, but also will change the nature of functions like finance and IT from a managerial emphasis to a decision support one. This will provide an interesting dilemma over offshoring. Why spend money moving an activity – albeit to a lower cost environment – when you can stop doing the activity altogether? The almost inevitable reduction in routine service work in the existing developed economies will set society the challenge to find value- adding work in which these economies still retain competitive advantage

The consultancy offer is becoming more clearly defined with the segmentation of BPO service provision and the move of IT Integration to the IT service providers through their purchase of the consultancy arms of major accounting firms. The industry that has emerged from this is more focussed on adding value by helping organisations improve their performance. The move towards using consultants as ‘heads’ rather than ‘hands’ has challenged traditional industry charging models. Value is not measured by how many hours are spent in a client office, even though this is still the predominant industry billing model. Both consultancies and – more importantly – their clients will need to link consultancy rewards to the value they create. Such alternative models may allow consultancy spend not to be seen as the first variable expense to be dropped when belts need to be tightened – often at just the time when consultants would be most useful!

Consulting needs not only to face up to these challenges, but will be critical in helping both their clients – public and private - and economies overcome them and win. Otherwise, if there is no change, there is no need for consultants. The unparalleled level of change to come will create both challenge and opportunity. The industry may finally shake off its watch stealing image and come of age.

Roy Barden is CEO of Catalise, an independent strategy implementation firm specialising in shared services, outsourcing advice, strategic portfolio and management IS transformation.

Email: Roy.Barden@catalise.co.uk