54161 management consulting in the us industry report

WWW.IBISWORLD.COM Management Consulting in the US October 2014 1

IBISWorld Industry Report 54161Management Consulting in the USOctober 2014 Jeremy Edwards

Help wanted: Businesses will seek consultants’ advice on restructuring as the economy recovers

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

15 Demand Determinants

15 Major Markets

17 International Trade

18 Business Locations

20 Competitive Landscape20 Market Share Concentration

20 Key Success Factors

20 Cost Structure Benchmarks

22 Basis of Competition

23 Barriers to Entry

24 Industry Globalization

25 Major Companies25 Accenture PLC

26 McKinsey & Company

27 Deloitte Touche Tohmatsu

31 Operating Conditions31 Capital Intensity

32 Technology & Systems

32 Revenue Volatility

33 Regulation & Policy

34 Industry Assistance

35 Key Statistics35 Industry Data

35 Annual Change

35 Key Ratios

36 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


Management consultants advise businesses, nonprofits and public-sector agencies in the following areas: organizational design, human resources, corporate strategy, information technology strategy, marketing and sales, finances and logistics. This

industry excludes establishments providing day-to-day administrative services and establishments that are concentrated in recruitment, training, public relations, market research, engineering design, computer systems design and investment advice.

The primary activities of this industry are

Actuarial, employee benefits and compensation consulting services

Administrative and general management consulting services

Human resources consulting services

Marketing consulting services

Process and logistics consulting services

54121c Accounting Services in the USAccounting firms provide financial and associated management services.

54121d Tax Preparation Services in the USTax preparation firms provide financial and associated management services.

54133 Engineering Services in the USConsulting engineers help oversee the planning and designing of construction and industrial operations.

54151 IT Consulting in the USIT consultants help plan and design computer systems. This industry is being increasingly linked with management consulting.

54182 Public Relations Firms in the USPublic relations firms are brought in to ensure that a client’s image and perception among customers and competitors is positive.

54191 Market Research in the USMarket research is conducted when firms wish to know more about the market in which they operate.

61143 Business Coaching in the USThis is an education-based industry adjunct to management consulting, whereby employees develop skills necessary for effective and efficient implementation.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Corporate strategy

Financial advisory

IT strategy

Marketing and sales

Organizational design

Process and operations management


About this Industry

For additional information on this industry

www.consultingmag.com Consulting Magazine

www.imcusa.org Institute of Management Consultants USA

www.consultant-news.com Top-Consultant’s Consultant-News

Additional Resources

IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com


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SOURCE: WWW.IBISWORLD.COM

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Revenue vs. employment growth

Products and services segmentation (2014)

36.9%Process and operations

management

2.4%Marketing and sales

20.3%Corporate strategy

20.2%IT strategy

13.1%Organizational

design

7.1%Financial advisory


Key Statistics Snapshot

Industry at a GlanceManagement Consulting in 2014

Industry Structure Life Cycle Stage Mature

Revenue Volatility Medium

Capital Intensity Low

Industry Assistance None

Concentration Level Low

Regulation Level Light

Technology Change Low

Barriers to Entry Low

Industry Globalization Medium

Competition Level High

Revenue

$153.4bnProfit

$18.7bnWages

$69.5bnBusinesses

590,160

Annual Growth 14-19

3.3%Annual Growth 09-14

5.1%

Key External DriversCorporate profitAggregate private investmentNumber of businessesGovernment consumption and investment

Market ShareAccenture PLC 4.0%McKinsey & Company 3.3%Deloitte Touche Tohmatsu 3.2%

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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 35



Key External Drivers Corporate profitCorporate profit measures profit earned across the entire economy and not just the Management Consulting industry. A rise in corporate profit generally increases the number of businesses that are able to afford consulting services. Therefore, an increase in corporate profit precipitates an increase in industry revenue. Corporate profit is expected to

increase in 2014, representing a potential opportunity for the industry.

Aggregate private investmentAggregate private investment includes spending by individuals and businesses on physical structures, equipment and software. As firms increase their investment in software and other equipment, they are more likely to

Executive Summary

Management consultants provide advisory services to businesses, nonprofits and public sector agencies to assist in organizational design, corporate strategy, information technology strategy, marketing and sales and logistics. The industry experienced a small downturn at the start of the five-year period due to plummeting corporate profit, poor businesses sentiment and falling aggregate private investment. Firms cut back on general expenses, including the need for management consultants, as profit margins thinned and workforces were

cut. However, following 2009, the industry experienced an uptick in demand driven by rapid increases in corporate profit and a rising number of businesses. This fueled new growth in investment and, therefore, precipitated new demand for management consultants, who were able to help with new organizational structure and focus on developing profitable business areas.

Additionally, the industry has experienced stronger growth over the past five years as new opportunities have risen. The rapid development of information technology helped create

new demand for management consultants who provided assistance to businesses in a new digital landscape. Furthermore, consultants rely on financial institutions and professional firms such as private equity and asset management businesses. Therefore, growing potential in emerging markets has caused more consultants to provide advice on globalizing business operations and investing in new businesses overseas. Consequently, the industry is estimated to grow at an average annual rate of 5.1% to $153.4 billion in 2014. This includes growth of 3.4% in 2014 alone, fueled by rising corporate profit and new investment.

Over the next five years, the industry is expected to grow more consistently as the general US economy recovers from the recession and subdued macroeconomic conditions. Information technology will continue to be a key growth area for firms, while other sectors such as healthcare also provide new business opportunities. Consolidation from the largest industry players is forecast to continue; however, the overall industry structure will continue to be dominated by small, nonemploying industry firms. These businesses focus on servicing local or niche markets and, therefore, control exceptionally small proportions of total industry revenue. Overall, industry revenue is forecast to increase an annualized 3.3% to $180.2 billion.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Corporations that delayed spending will reinvest profit in consulting, boosting revenue


Industry Performance

Key External Driverscontinued

increase their use of management consultants to maximize utility gained from additional capital. Additionally, firms will use consultants to understand what aspects of their business are most profitable and where investment should be focused, which boosts industry revenue. Aggregate private investment is expected to increase in 2014.

Number of businessesGeneral growth in the number of businesses directly affects aggregate demand for management consulting. An increase in the number of US businesses expands the potential pool of clientele for management consultants and increases demand for industry services, such as administrative, organizational and strategy consulting.

The number of businesses is expected to increase in 2014.

Government consumption and investmentAlthough the corporate sector accounts for the majority of industry revenue, government agencies are responsible for the remainder. Industry revenue is closely linked to government consumption and investment via public sector consulting demand. Concerns about the federal deficit have limited the potential for further expansion of federal spending. Government consumption and investment is expected to increase slightly in 2014; though, any decrease in government consumption would represent a potential threat to industry revenue.

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Business conditions rebound

The general US economy was devastated by the onset of the recession and collapsing property prices, which caused consumer spending to plunge and many businesses to close or at the least, reduce expenditure. Management consultants were not immune to the crash and recorded a drop in revenue for 2009, though, were quick to recover with the overall economy. The industry benefited from many businesses that sought to reduce operating costs in the wake of the recession. Management consultants were hired by a variety of businesses to examine which business segments were profitable and, therefore, were worth investing in. Meanwhile, consultants also provided recommendations on business divisions that were underperforming or failed to be lucrative.

In addition, according to the Bureau of Economic Analysis, corporate profit jumped 25.0% in 2010, which helped trigger a recovery in aggregate private investment. Private businesses, which account for the vast majority of industry revenue, began to invest in new facilities and bring on new staff as profit margins grew. This helped precipitate a 7.8% and 5.0% increase in revenue in 2010 and 2011, respectively, as companies explored and invested in new business opportunities that consultants complement. Over the five years to 2014, aggregate private investment across the United States is expected to increase an annualized 5.8% and, therefore, create new demand for consultants.

Current Performance

Firms in the Management Consulting industry provide advice and assistance to businesses, organizations and government bodies on organizational planning, financial planning, budgeting and strategic marketing objectives. The industry is reliant on strong economic conditions and high corporate profit, which encourages investment in advisory services as businesses expand and look to maximize efficiency. However, the industry also displays some countercyclical demand. As company profit margins shrink, many firms seek the advice of management consultants to increase profitability by cutting off unnecessary operations. Therefore, although the industry experienced an 11.3% decline in revenue during 2009 as a result of the recession, industry operators have since recorded growth in each year.

Over the past five years, improving business conditions following the recession have surged industry revenue forward. A rising number of businesses and recovering corporate profit have been key to management consultant

success. Additionally, increased business outsourcing and rapid digitalization have boosted growth as firms hire consultants to help enter emerging and high-growth product and service segments. As a result, the industry is expected to grow at an average annual rate of 5.1% to $153.4 billion over the five years to 2014. Improving conditions and business expansion will also foster a 3.4% increase in revenue for 2014.

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Addressing investment and equity gaps

Asset management and private equity companies represent a key market for management consultants. These firms look to invest through venture and growth capital, which is becoming increasingly attractive when compared with public equity due to higher returns. Growing interest in alternative investments, movement towards defined-contribution pension schemes and new financial regulation continue to alter how companies and individuals invest their money. The overwhelming majority of wealth is held in developed economies; however, emerging economies are growing at a relatively rapid rate. Therefore, management consultants are playing a larger role in assisting US company strategy, including advising

which emerging markets to invest in overseas, as investment moves away from nonequity investments.

Currently, the majority of international wealth is concentrated in bank deposits, but many asset management and private equity firms are looking to move money into equities. This trend has also been exacerbated by relatively low returns and higher volatility in developed markets, according to McKinsey Global Institute. Therefore, over the five-year period, management consultants have become involved in helping businesses allocate their investments, as well as helping smaller firms receive investment as a potential equity gap between the amount investors desire and what firms need to fund growth.

Consolidation and growth

The Management Consulting industry is hyper fragmented, as a large proportion of the industry consists of small, nonemploying firms. Over the past five years, the industry has remained highly fragmented and no significant change in the market concentration has occurred. However, larger industry players have continued to acquire smaller firms with interests in high-growth services. Furthermore, major acquisitions have occurred, such as the purchase of Booz & Company by

PwC in 2014. Nonetheless, the industry has continued to expand as rising profit margins and low barriers to entry encourage new entrants. Over the five years to 2014, the number of

Digital strategy demand

The skyrocketing demand for smartphones and mobile internet connections has helped boost demand for management consultants over the past five years. Although a number of businesses have cashed in on the rising importance of a digital presence, many firms have struggled to keep up to date with the rapidly changing landscape of online systems. Management consultants have benefited from providing custom computer application design and development

services to businesses. Management consultants are increasingly working with information technology (IT) professionals to help businesses understand the market and transform IT functions. In fact, according to McKinsey & Company and the Interactive Advertising Bureau, the amount consumers are willing to pay for services has nearly doubled, which has primarily been due to the acceleration in consumer use of wireless through smartphones and other online services.

The industry has continued to expand thanks to rising profit and low barriers to entry



Segments of growth In the coming five years, all management consulting segments are expected to grow, with particularly robust growth in organizational advisory services and information technology (IT) consulting services. As the economy improves, positive growth in the industry’s core market, private sector businesses, will drive performance. Both the number of businesses and corporate profit are expected to experience robust growth. Furthermore, corporations that weathered the recession but delayed consulting expenditures will put retained earnings to use by making strategic adjustments to their business structure and strategy. This trend will encourage management consulting firms to expand their corporate strategy and organizational design arms. At the same time, revenue from process and operations management consulting is expected to recover as firms continue to pursue cost-effective supply chain management.

Private businesses that shed employees during the recession will also need to hire aggressively as demand recovers in the next five years.

Management consulting firms will play a crucial role in assisting expanding businesses as they decide how many and what type of employees to hire. Furthermore, consultants will play a large role in deciding organizational structures and how many employees are needed in business divisions. Although the US economy is expected to grow consistently over the next five years, businesses remain somewhat cautious following the economic downturn and will be wary of over hiring.

The industry is forecast to have an increasingly technological focus as IT becomes more important to the effective operation of business. The likely result of this trend is a growing overlap between management consulting firms and IT consulting firms, and the division between these industries’ service offerings will likely blur.

industry enterprises is expected to grow at an average annual rate of 2.3% to 590,160. Similarly, rising industry

demand is forecast to help industry employment expand 3.6% to 1.2 million.

Consolidation and growth continued

Industry Outlook

Continued growth in corporate profit and rising aggregate investment is forecast to help increase demand for management consultants over the next five years. As companies make new investments, management consultants will be increasingly called in to advise firms on how to integrate current business units with expanding divisions. Furthermore, consultants will continue to provide

advice to companies on which segments require investment and which should be divested due to poor profitability. Therefore, industry revenue is projected to increase at an annualized rate of 3.3% over the next five years, underpinned by an estimated 3.4% annualized increase in corporate profit during the same period. In 2019, industry revenue is projected to total $180.2 billion.

Overlap between the services of management consulting and IT consulting firms will rise



High-salaried employment opportunities

The industry will experience an increase in employment in the next five years, as management consulting firms will need to bolster their workforce to meet increased demand. Employment in the industry is forecast to increase at an annualized 3.3% in the five years to 2019, to 1.4 million workers. As competition among major companies increases, employers vying to expand

capacity will bid up wages for highly qualified consultants. As a result, total industry wages are projected to increase at an average annual rate of 3.6% over the five-year period. Therefore, average wages are high and are expected to continue growing over the next five years, though part-time employees help drag down the overall industry average wage.

Consolidation and profit

In the five years to 2019, the number of enterprises in the Management Consulting industry is expected to increase as higher projected demand will likely encourage new specialty consulting firms to enter the industry. During the five-year period, the number of firms operating in this industry is expected to increase at an average annual rate of 2.3%, reaching 666,665 companies in 2019.

However, consolidation through mergers or acquisitions will be common for the larger companies in this industry. Companies from external industries, such as accounting services firms, will continue to offer the same services and pursue the same multinational clients as management consulting firms. Healthy competition between the two industries will likely transition into opportunities for mergers during the next five years. However, there will still be opportunities for smaller, niche firms to enter the industry due to low barriers to entry. As a result, firm size is expected to become

polarized, with higher numbers of very large and very small firms.

Historically, the Management Consulting industry has been highly profitable, with typical profit margins over 10.0% of revenue. However, increased competition from internal and external firms, as well as rising industry wage costs, will constrain industry profit growth. Profit is expected to increase marginally in the next five years, rising from 12.2% of industry revenue in 2014 to 12.6% in 2019. Stronger corporate profit and downstream demand will ultimately drive margin growth, but an increasing number of industry players will eat into overall profit and restrain additional profitability.

M&A activity will continue as larger companies aim to be the one-stop shop for consulting


Industry PerformanceGrowth is slowing to a rate roughly in line with overall GDP growthIncreased consolidation, through merger and acquisition activity, is occurring among the industry’s larger playersThere is widespread acceptance and adoption of the services being offered, limiting growth in new markets

Life Cycle Stage


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-10 -5 0 5 10 15 20

DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Accounting ServicesComputer StoresTax Preparation Services

Offi ce Supply Stores

Engineering Services

Management Consulting



Industry Life Cycle The Management Consulting industry is in the mature stage of its life cycle. The industry is characterized by growth in line with the overall economy, an increasing number of industry players and technological change based on improving efficiency rather than developing entirely new services. Over the past five years, the industry has enjoyed strong growth on the back of rebounding corporate profit and new demand for advisory services as digital technologies change the way companies do business. Furthermore, consultants continue to be a key component in helping firms navigate a constantly changing business landscape.

During the 10 years to 2019, industry value added (IVA), which represents the industry’s contribution to the overall economy, is projected to increase an annualized 4.5%, compared to average annual GDP growth of 2.7% over the period. The value of management consulting is well accepted in the business community, particularly in the

realms of corporate strategy and organizational design. Accordingly, the industry has achieved a high degree of market saturation, with third-party management consulting widely considered to be a vital source of impartial analysis

This industry is undergoing high merger and acquisition (M&A) activity. The M&A activity of the past five years is expected to continue into the next five-year period as major companies scramble for market share, which is a characteristic of mature industries. In addition, firms from external industries are increasingly offering the same lines of services. In the next five years, large corporate clients will increasingly look for firms that offer “end-to-end business solutions” (i.e. a firm that is involved in every step of the process, from advisory to execution to assessment). As a result, the distinction between the services offered by the Management Consulting industry, the IT Consulting industry and the Accounting Services industry will ultimately blurred.

This industry is Mature


Products & Services Process and operations managementProcess and operations management comprises the largest service group in the management consulting industry at an estimated 31.0% of industry revenue. This service area includes process, physical distribution and logistics consulting. Under the heading of logistics consulting, production scheduling and supply chain management form a consistent source of revenue for management consultants: Profit-motivated companies seek strategies to generate cost savings and increase operational efficiency, regardless of the macroeconomic climate. As a result, this service segment has slightly increased during the past five years.

Corporate strategyCorporate strategy services contribute an estimated 17.0% to management

consulting revenue. This service area includes strategic advice in the areas of general growth strategy, leadership development, performance improvement, mergers and acquisitions, and corporate portfolio design. In the area of leadership development, consultants view employee engagement as a potential source of competitive advantage. As online learning methodologies have reduced the cost of providing employee training, this service area has experienced growth. In general, however, demand for corporate strategy services is cyclical, having only recently (in 2010 and 2011) recovered from sluggish corporate profit growth prior to 2008.

IT strategyInformation technology (IT) strategy services contribute an estimated 17.0%

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

22 Utilities in the US Utilities companies use this industry for organizational, budgeting, and human resources consulting.

31-33 Manufacturing in the US Manufacturing companies require a wide range strategic and organizational planning services that this industry offers.

52 Finance and Insurance in the US The Finance and Insurance industry requires consultancy services for general, actuarial and compensation consulting.

62 Healthcare and Social Assistance in the US The Healthcare and Social Assistance industry uses this industry for administrative and general management consulting services.

92 Public Administration in the US The Public Administration industry uses a wide range of services offered by this industry in general management, human resources, budgeting, and financial consulting.

KEY SELLING INDUSTRIES

44312 Computer Stores in the US Computer stores supply computer hardware and software to consulting firms.

45321 Office Supply Stores in the US Consulting firms purchase office equipment and stationery from office supply stores.

53112 Commercial Leasing in the US The Commercial Leasing industry provides office space to consulting firms.

Supply Chain


Products & Markets

Products & Servicescontinued

to management consulting revenue. Although IT consulting is excluded from this industry (refer to IBISWorld report 54151), management consulting does include the following IT solutions: custom computer application design and development services, computer systems design, development and integration services, and IT infrastructure management services. In some areas, management consulting firms directly compete with specialist consulting firms in the IT consulting industry. However, many clients have recognized that review of an organization’s structure and technology are part of an integrated process. As a result, management consulting firms increasingly integrate IT strategy into their services, making this a growth area during the past five years.

Organizational designOrganizational design services are estimated to account for 11.0% of management consulting revenue. As the name implies, organizational design involves reorganizing a company to change the way it operates. Such reorganization may involve providing advice to firms facing major changes, making a fresh and independent review

of a company’s overall business model, creating a strategy for global expansion and evaluating underperforming business segments. As firms expand geographically, organizational design consulting offers solutions to integrate global operations. Demand for this service segment is cyclical and is expected to slightly increase as the economy continues to recover over the next five years.

Financial advisoryFinancial advisory services contribute an estimated 6.0% to management consulting revenue. Consulting firms engaged in financial advisory services provide finance and risk management executives (such as CFO’s) with financial and economic analysis of the risks and uncertainties facing their companies. These uncertainties include business and legal issues that result from changes in demand, public policy, financial conditions, competition, and the regulatory environment. Financial volatility increases the difficulty of providing solutions to these issues, and thus the demand for financial advisory consulting. This service segment has been a growth area for the industry over the past five years.

Products and services segmentation (2014)

Total $153.4bn

36.9%Process and o

perations management

2.4%Marketing and sales

20.3%Corporate strategy

20.2%IT strategy

13.1%Organizational

design

7.1%Financial advisory



Products & Markets

Major Markets About 90.0% of the industry’s total revenue is derived from the private sector. Financial services, manufacturing, consumer products, telecommunications, energy, utilities and healthcare are all major clients of the Management Consulting industry. The remaining 10.0% of industry revenue comes from government agencies and nonprofit groups.

Financial services companiesFinancial service providers are the management consulting industry’s largest consumer, accounting for an

expected 22.0% of industry revenue in 2014. This market uses a variety of services, from strategic planning to organizational restructuring. Major international banks, for example, employ management consultants to streamline operations and maintain profit levels. While many businesses have since reduced their spending as a result of the recession, this market has also undergone a significant amount of restructuring, which has mitigated losses for many operators. Demand from the financial service industry is expected to increase

DemandDeterminants

The demand for this industry’s services is closely linked to the availability of budgetary resources and other discretionary expenditure by business, public sector, and nonprofit clients. As such, business confidence, corporate profit and government investment are important factors that strongly affect the growth of this industry.

The demand for management consulting services is strongly linked to the economic cycle. It is particularly sensitive to business and government activity levels in areas such as mergers, acquisitions, financial planning, feasibility studies, human resources, strategic planning and corporate profit. Governments’ hiring of consultants, particularly at the federal and state level, has increasingly become a political issue, in terms of actual expenditure and the value obtained from these assignments. Management consultants must prove that the value of their services is worth the

money that is spent because the federal government has a rigid budget.

Unfortunately for industry operators, expenditure on consultancy services by governments and businesses tends to be one of the first areas to be reduced when the level of business confidence and economic growth decreases. Slow economic growth leads to a tightening of the overall budgetary and financial resources. In some instances, however, management consulting can be a countercyclical industry, whereby consulting companies are hired to improve a company’s performance during a downturn.

Global economic conditions, including changes in clients’ particular industries and markets, also affects revenue in the consulting business. Revenue fluctuations are also subject to the introduction of new products, including competing services, and the effect of government policies and regulations.

Products & Servicescontinued

Marketing and salesMarketing and sales services contribute an estimated 2.0% to management consulting in the areas of brand strategy and design, corporate identity and image

consulting. Because marketing and sales expenditures can be delayed or terminated in a climate of poor business confidence, revenue from this segment has remained low during the past five years.


Products & Markets

Major Marketscontinued

slowly over the next five years as the industry continues to rebound from steep losses incurred during the credit crisis and recession.

Consumer products and manufacturing companiesThe consumer products and manufacturing markets focus on the branding and logistics consulting segments because sales and shipping are significant factors in these fields. For example, typical customers in this market include manufacturers, wholesalers, retailers and distributors in industries such as consumer products, apparel, automotive and aviation and aerospace. In 2014, the consumer products and manufacturing markets are expected to account for a combined 22.0% of industry revenue. Higher US industrial production and manufacturing activity has increased demand for management consultants, who offer expertise in streamlining the production process. In addition, the prospect of the high economic growth in many emerging economies over the next five years is leading to a rush by many consumer goods manufacturers to enter these developing markets. Management consulting firms will continue to assist in

the transition to South American and Asian markets, making consumer manufacturing a likely source of demand growth over the next five years.

Telecommunications and other companiesTelecommunications is a rapidly changing field that is strongly influenced by technological change. Currently, the introduction of voice over internet protocol (VoIP), the ability to conduct conversations over the internet without the associated costs of telephones, is a high growth industry. In 2014, this market is expected to account for 10.0% of industry revenue. Because traditional wireline operators provide the data connections used by VoIP, revenue and thus demand from this market are expected to remain steady over the next five years.

Government, institutions and nonprofit agenciesThe Government and nonprofit market is expected to account for 10.0% of industry revenue in 2014. Management consultants are hired by federal agencies to advise these organizations on methods to better administer grants, deliver benefits and entitlements to their

Major market segmentation (2014)

Total $153.4bn

22%Financial services

companies

10%Telecommunications

companies

18%Other

9%Energy and

utilities companies

9%Healthcare companies

11%Consumer products

companies

11%Manufacturing

companies

10%Government, institutions and nonprofit agencies



Products & Markets

International Trade International trade does not occur in this industry due to the service-based nature of activities management consultants provide. Many of the largest firms in this industry are, however, global players

generating an increasing proportion of their revenue through non-US operations (for more information on this trend, refer to the Industry Globalization section of this report).

Major Marketscontinued

employees and provide necessary services to their citizenry. Consultants may work for governments at the federal, state and local level. In addition, management consultants also work for private endowments, institutions and nonprofits. The prevalence of many cash-strapped state and municipal budgets, combined with debates about a smaller federal budget has the potential to cut into this market’s share of industry revenue during the next five years.

Healthcare companiesThe healthcare market, which is primarily composed of hospital management and pharmaceutical companies, uses the industry’s logistics, human resources and public relations services. This market is expected to comprise 9.0% of total industry revenue in 2014. Healthcare science and technology are rapidly expanding frontiers, even as economic and financial

pressures reduce profit margins, intensify competition and constrain the funds available for investment. This changing environment is encouraging healthcare companies to hire management consultants to aid in improving cost while maintaining standards in treating ill patients. This market is expected to grow over the next five years.

OtherFirms in the Management Consulting industry serve nearly every other industry in one way or another. Many management consultants specialize in serving very specific segments of the market in order to differentiate their services. Examples of such industries included in this segment are agriculture, forestry, chemicals, fisheries, sports entertainment and events, hospitality and gaming. Consequently, a significant portion of industry revenue is generated in other industries.


Products & Markets

Business Locations 2014

MO1.5

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT0.1

MA4.9

RI0.2

NJ4.7

DE0.2

NH0.2

CT2.6

MD2.7

DC2.2

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.4

CA12.7

NV0.7

OR0.6

WA1.3

MT0.1

NE0.2

MN2.0

IA0.3

OH3.0 VA

5.1

FL4.9

KS0.5

CO2.0

UT0.6

ID0.1

TX6.9

OK0.4

NC1.5

AK0.1

WY0.0

TN1.4

KY0.5

GA5.0

IL8.4

ME0.1

ND0.1

WI0.9 MI

3.2 PA4.6

WV0.1

SD0.0

NM0.2

AR0.2

MS0.1

AL0.5

SC0.5

LA0.4

HI0.1

IN1.1

NY8.4 5

67

8

321

4

9


Mid- Atlantic

Revenue (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations The geographic distribution of establishments in this industry reflects the US population distributions as well as the distribution of overall US business activity, with increased consulting density in proximity to key demand markets, including financial service companies, large corporations and government clients.

The Southeast contains the highest share of industry establishments, accounting for an expected 26.3% of total industry establishments in 2014. In keeping with its large population, the Southeast produces the greatest share of industry revenue and employment.

The Mid-Atlantic region is strategically important for management consulting firms. The region accounts for an estimated 18.1% of total industry establishments; however, consulting firms in this region contribute 23.0% to industry revenue. This region comprises the offices of some of the industry’s largest players, who primarily serve

high-profile clientele, many of which are located in New York. New York City ranks first amongst US cities in terms of Fortune 500 corporations. Also within the Mid-Atlantic region is Washington, DC, home to a majority of federal agencies. Consulting services in these two cities target the industry’s largest- and highest-value corporate and institutional clients. Consequently, revenue per establishment in this region is higher than the national average, as is the average regional wage.

The West region accounts for an estimated 16.7% of total industry establishments. Among states in this region, California ranks first in industry revenue with a contribution of 12.8%. With a large concentration of high-growth tech and finance firms located in the San Francisco Bay Area, California produces the greatest share of management consulting revenue, establishments and employment of any state.

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RevenueEstablishments

Distribution of revenue vs. establishments


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RevenuePopulation

Distribution of revenue vs. population


Cost Structure Benchmarks

ProfitCost structures within the Management Consulting industry vary based on a variety of firm-specific factors, including business size and markets served. Industry profit margins, defined as earnings before interest and tax, are anticipated to account for 12.2% of

industry revenue in 2014. Industry profitability is significantly higher for larger companies such as Deloitte, who have recorded margins in excess of 20.0% over the past five years. Economies of scale and vertical integration with taxation and audit procedures allow the company to bundle

Key Success Factors Ability to compete on tenderMost consultancy tasks are subject to competition, so competitiveness on price and service offerings is crucial.

Well-developed internal processesGiven the generally labor-intensive nature of the industry, operators need to ensure that appropriate cost- and time-management systems are in place on a project basis so that these can be closely monitored.

Access to highly skilled workforceOften, consulting contracts are entered into on the basis of the consultant

possessing specialized knowledge that relates to clients’ operations. Without this skill base, the consulting firm has little bargaining power.

Access to niche marketsFirms can be more successful if they have specialized skills or services and can serve a niche market.

Having good working relationships with subcontracting building trade specialistsSubcontractors are used to ensure that quality output can be guaranteed on time and budget. Many skilled consultants operate as independent contractors.

Market Share Concentration

The Management Consulting industry is hyper fragmented and primarily consists of small, nonemploying firms that service narrow geographic or niche markets. However, the industry still contains a number of large businesses that are renowned for their customized business solutions and organizational and strategy services. This includes specialized industry players such as McKinsey & Company, Bain & Company and Boston Consulting Group, who maintain a prestigious reputation in the industry. Additionally, the largest accounting firms such as Deloitte and PwC have extensive industry operations as they combine audit and tax solutions with advisory services. In 2014, the largest industry player is Accenture,

though, the company is estimated to only control 4.0% of total industry revenue. Consequently, the four largest industry players are estimated to account for 13.0% of total revenue.

Over the past five years, the Management Consulting industry has continued to exhibit a similar share of market concentration. Although the largest industry firms have continued to pursue mergers and acquisitions, these have not been sufficient to change the structure of the overall industry. The most notable acquisition over the five-year period was PwC’s acquisition of Booz & Company. The acquisition was finalized in 2014 and Booz & Company will now operate under the PwC brand name as Strategy&.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

a number of products and record high margins. Smaller industry operators tend to record low profitability in this industry, which is due to the majority of earnings being recorded as wages as opposed to profit.

Profit margins have increased during the past five years from 10.4% in 2009 and a low of 9.8% in 2010. During the recession, falling corporate profit across the United States caused firms to reduce expenditure on external consulting. Lower demand for industry services led to price based competition, as management consulting companies lowered their prices in order gain or maintain clients. However, a rebound in the economy and corporate profit, helped facilitate an increase in industry profit from 2011 onward.

In the next five years through 2019, industry margins are projected to marginally increase. Continued strength in the US economy will lead to

higher employment and a greater number of US businesses. This will increase the potential pool of clientele for management consulting firms and increase demand for industry services such as administrative and benefits consulting. However, increasing competition from a rising number of industry entrants in a highly competitive market place will mitigate the growth in profitability.

WagesWages are the industry’s largest expense and expected to comprise 45.3% of industry revenue in 2014. Management consulting firms employ highly educated individuals, most of whom possess either a bachelor’s degree or graduate degree in business or a related field. In addition, work in this industry requires a high degree of client engagement and client service skills, which commands higher salaries.

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2014)

Industry Costs (2014)

0

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45.3




Basis of Competition The Management Consulting industry is composed of firms with the skills, expertise and flexibility to meet the needs of a variety of clients with varying budget constraints. Given the high level of competition for large consulting projects and the importance of repeat business, there is a strong emphasis placed not just on the quality of the insights provided, but also on generating tangible results in a cost-effective manner.

Internal competitionBefore submitting a bid, a management consulting firm has already submitted a crucial component of its offer for

scrutiny: its reputation. Over time, a management consultancy develops a record of success or failure in terms of the strategies implemented as a result of its advice. It is this reputation, substantiated by past client performance against a benchmark such as stock price, that is the biggest selling point for management consultancies, particularly large industry players.

Increasingly, management consulting firms advertise as one-stop shops, boasting an ability to provide insights and implementation strategies for the whole of large, complex corporations. In this area, consolidation among top firms

Cost Structure Benchmarkscontinued

Over the past five years, wages have declined as a proportion of revenue. The recession caused many firms to cut employment in order to cut costs. Furthermore, many employees were forced to accept wage freezes while firms sought to maintain profitability. When the economy improved this trend began to reverse itself and total industry wages started to increase in line with revenue growth. As a result, wages as a portion of industry revenue are expected to stabilize in the five years through 2019.

Purchases and depreciationPurchases are expected to account for 10.6% of industry revenue in 2014. Businesses typically require the procurement of software, office related products. Reimbursing agents for expenses, such as travel are included in the purchases segment. Depreciation in this industry is relatively low, estimated at 1.0% of industry revenue, which includes investment in office equipment and building locations.

Rent and utilitiesRent and utilities combined are expected to account for 4.1% of industry revenue in

2014. Firms in the industry often consider their offices and buildings a representation of their brand and invest in modern, attractive properties. Although a large share of consulting work is done offsite, at a client’s place of business, facilities for consultants are necessary for day-to-day work, client meetings and training sessions. Meanwhile, utility costs represent payments for water, gas, electricity and communication networks.

OtherOther industry costs relate to expenses such as accounting, insurance, bank service and legal fees. In addition, marketing costs are estimated to account for 1.8% of industry revenue in 2014. Marketing expenses are an essential component of a consulting firm’s operating costs, as management consulting companies attempt to differentiate themselves from competitors in their own or other related industries. However, marketing costs are significantly higher for large industry players, while smaller firms operating in local markets rely on recommendations and reputation in a narrow market.

Level & Trend Competition in this industry is High and the trend is Increasing



Barriers to Entry Management consulting firms face a low level of regulation and minimal startup costs. However, firms attempting to enter this industry will face a variety of impediments.

Attracting skilled and talented employees will be difficult for new firms. Employees in this industry are highly knowledgeable, attaining at minimum a bachelor’s degree and often possessing a graduate degree in business or a related

Basis of Competitioncontinued

evidences a race among consulting firms to expand their service base through acquisitions and mergers. Simultaneously, small and large firms compete for niche markets, promoting their industry-specific expertise and their experience in a particular set of topics important to management (e.g. corporate strategy, human resources and logistics).

As demand for consulting services fell during the recession, price-based competition intensified, with many firms offering lower fees or more flexible contracts. Although the largest firm accounts for less than 5.0% of industry revenue, the industry’s largest firms benefit from economies of scale in marketing and service distribution, giving them a greater capacity to serve clients around the country and win high-value contracts. Small- and medium-size firms, however, may have lower overhead costs, enabling them to provide a high quality service at a lower cost. Furthermore, small consultancy firms have greater flexibility and may undertake consultancies at a strategic loss in order to establish a hold within a particular consulting area.

External competitionAs a result of this push to train specialist consultants in a variety of fields, competition has recently increased from

firms in other industries, especially in the information technology (IT), finance and human resource areas. For example, the services provided by the IT Consulting industry (IBISWorld report 54151) have increasingly overlapped with this industry because IT has become more relevant to management, production and logistics strategy. Use of the terminology “managed services,” which encapsulates this merger of advisory and implementation services, is growing. In fact, Accenture is considered one of the largest players in both the management consulting and IT consulting sectors.

In addition to competition from consulting firms external to this industry, the Accounting Services industry has emerged as a significant competitor to traditional management consultants. Consulting services represent the top-performing segment for each of the Accounting Services industry major players. At PricewaterhouseCoopers (PwC), for example, the consulting or advisory line of business accounts for about 30.0% of total global company revenue. Many of the industry’s largest firms are transitioning into full-service consulting providers, as this higher-margin, less-competitive service offers more growth potential than traditional audit and assurance practices.

Barriers to Entry checklist Level

Competition HighConcentration LowLife Cycle Stage MatureCapital Intensity LowTechnology Change LowRegulation & Policy LightIndustry Assistance None


Level & Trend Barriers to Entry in this industry are Low and Steady



Industry Globalization

The industry’s largest players, such as Deloitte, have expanded globally by establishing branch offices in Europe and the Asia Pacific and Middle East regions. Increasing connectivity between developed and developing economies is allowing large industry players to broaden their international approach, conducting consulting projects across international borders and increasing industry globalization. As a result of further growth opportunities, the overall level of industry globalization is projected to continue increasing gradually.

Industry clients demand a high level of customization of services and personal

attention, minimizing the ability of firms to offer internationally homogeneous services. Client firms require advice tailored to the business culture of the geographic region in which they operate. For this reason, the major companies have focused on developing local offices around the world; this strategy produces a cost-effective and qualitatively superior product compared to alternative strategies that ship US experts to countries with which they may lack familiarity. Larger firms in this industry are increasing their offices around the world to build a global management consulting brand.

Barriers to Entrycontinued

field. As such, total wage costs in this industry are high, accounting for just under 50.0% of industry revenue. In addition, developing a network of clients that can provide regular flow of work can be a significant challenge for new entrants. Work in this industry is done on a contract basis and successful firms are usually able to secure repeat business from satisfied clientele.

The industry’s largest players bring strong brand recognition, as these firms

tend to target big-name clients and offer services across a wide variety of industries and activities. Such firms can provide services on a global basis and have the staff and capacity to work on large projects. In general, firms entering the industry cannot expect to compete with these operators, particularly for high-value clients. New entrants, by contrast, tend to be highly specialized in a certain skill set or geographic region.

Level & Trend Globalization in this industry is Medium and the trend is Increasing


Player Performance Accenture Ltd. is one of the world’s leading management consulting, technology services and outsourcing companies. Accenture began as the consultancy arm of accounting firm Arthur Andersen but split from its parent company in 2000, just a year before Andersen Worldwide effectively dissolved as a result of its participation in the Enron scandal. Chartered in Dublin but headquartered in New York, Accenture has a global presence, with operations in 54 countries and about 260,000 employees in 2013. In fiscal 2013, the company generated $28.6 billion in global revenue.

Accenture’s business is structured around the five major operating groups of its clients: consumer goods and services (e.g. consumer packaged goods or industrial equipment); communications, high technology and media; financial services (e.g. banking and insurance); resources (e.g. utilities, chemicals and

energy); and government. Within each group, the company provides core services in management consulting, technology and business process outsourcing. This industry focus allows Accenture to provide clients with high-value expertise and insights from industry experts and professionals with local market knowledge. During fiscal 2013, all five operating groups experienced growth in revenue from consulting activities. In the second half of 2013, the company has pursued an aggressive strategy of expansion, with plans to acquire as many as seven companies in five countries. These new acquisitions will strengthen the company’s ability to help clients in the areas of business solutions, product lifecycle management, military healthcare, mortgage processing and procurement business process outsourcing.

Accenture’s management consulting division works closely with professionals from relevant operating

Major CompaniesAccenture PLC | McKinsey & CompanyDeloitte Touche Tohmatsu | Other Companies

89.5%Other

Accenture PLC 4.0%

McKinsey & Company 3.3%

Deloitte Touche Tohmatsu 3.2% SOURCE: WWW.IBISWORLD.COM

Major players(Market share)

Accenture PLC Market share: 4.0%

Accenture Ltd. (US consulting segment) – fi nancial performance

Year*Revenue

($ million) (% change)Net Income

($ million) (% change)

2009-10 4,453.6 -1.5 602.4 8.8

2010-11 5,223.4 17.3 710.6 18.0

2011-12 5,602.3 7.3 778.6 9.6

2012-13 5,999.4 7.1 911.4 17.1

2013-14** 6,209.3 3.5 956.9 5.0

2014-15** 6,526.0 5.1 1,002.7 4.8

*Year-end August, **EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD


Major Companies

Player Performance McKinsey & Company is a premier provider of management consulting and a top employer for new MBA graduates. The company was founded in 1926 in New York. Currently, it employs 17,000 workers in 97 offices across more than 50 countries. In 2013, the company generated an estimated $7.8 billion in total revenue.

Although McKinsey competes directly with other major players, it possesses a competitive advantage in its ability to

attract top corporate and government clients due to its reputation, as well as its extensive board relationships. McKinsey boasts a client list that includes over 90.0% of the world’s 100 largest companies and two-thirds of the Fortune 1000 list. The company specializes in management consulting in a number of specific industries, including the finance, media and entertainment and consumer goods sectors. It also provides strategic advice to clients in areas such as

Player Performancecontinued

groups to develop and deliver solutions to clients in the areas of customer service, finance and performance management, process and innovation performance, risk management, strategy, supply chain management and organization performance.

Financial performanceAccenture’s US consulting revenue is expected to increase at an annualized rate of 6.4% to $6.2 billion in the five years to fiscal 2014. Revenue declined during fiscal 2010, due to falling demand for consulting services as a result of the recession. Because of the short-term nature of Accenture’s consulting contracts, which are typically shorter than 12 months and

easily terminated, the management consulting segment is vulnerable to declines in business sentiment, as evidenced by weak performance during 2010. In fiscal 2011, management consulting revenue increased 17.3% as rising corporate profit renewed demand for management consulting. In fiscal 2014, US industry-specific revenue at Accenture is expected to increase by 2.7%. Clients will continue to look to Accenture to identify operational efficiencies and deliver cost savings. Accenture, like other management consulting firms, have experienced high growth in digital services and analytics and will likely expand these business lines in the next five years, either organically or through acquisitions.

McKinsey & Company Market share: 3.3%

McKinsey & Company (US consulting segment) – fi nancial performance*

YearRevenue

($ million) (% change)Employees

(People) (% change)

2009 4,032.0 N/C 10,080 N/C

2010 4,095.0 1.6 10,395 3.1

2011 4,410.0 7.7 10,710 3

2012 4,725.0 7.1 10,710 0

2013 4,914.0 4.0 10,750 0.4

2014 5,110.6 4.0 11,000 2.3

*EstimatesSOURCE: IBISWORLD


Major Companies

Player Performance Deloitte Touche Tohmatsu Limited (DTTL) is well known as one of the Big Four accountancy firms, but it also ranks high in consultancy. In 2010, Deloitte was reorganized as a private British company headquartered in New York. It operates as a global professional services

network of member companies working in over 150 countries with about 185,000 employees in 2013.

A relative newcomer, Deloitte Consulting (formerly the Deloitte and Touche Consulting Group) was founded in 1995. In 2014, industry-relevant consulting revenue


information technology, pricing, corporate finance, marketing, leadership and organizational structure and processes. Geographically based offices act as the main organizing cells, but the firm maintains cross-geographical practices around industry sectors and management areas.

In September 2013 McKinsey acquired Henry Rak Consulting Partners, a premier US-based growth strategy and analytics consulting firm. Acquisition of this company will strengthen the company’s ability to develop actionable growth strategies that identify where and how companies should compete profitably, based on an in-depth understanding of actual consumer behavior. The company also acquired Lixto Software, a Vienna-based solution, which will

enhance their suite of revenue management solutions.

Financial performanceAlthough the firm’s financial records are not publicly available, IBISWorld expects McKinsey’s US consulting revenue to have increased at an annualized rate of 4.9% to $5.1 billion over the five years to 2014. This growth represents a slight slowing from prerecession levels because corporate clients have become increasingly reluctant to enact the expansions for which they would require consulting. However, McKinsey stands out among the major players for consistently positive revenue growth during the five years to 2014. Additionally, this growth reflects a moderate improvement in demand as US business outlook improves.

Deloitte Touche Tohmatsu Market share: 3.2%

Deloitte Touche Tohmatsu (US consulting operations) – fi nancial performance*

Year**Revenue

($ million) (% change)Operating income

($ million) (% change)

2008-09 3,179.0 N/C 897.8 N/C

2009-10 3,115.6 -2.0 903.2 0.6

2010-11 3,629.6 16.5 935.1 3.5

2011-12 4,083.0 12.5 993.3 6.2

2012-13 4,473.2 9.6 1,095.9 10.3

2013-14 4,696.8 5.0 1,152.9 5.2

2014-15 4,964.5 5.7 1,216.3 5.5

*Estimates, **Year-end JuneSOURCE: ANNUAL REPORT AND IBISWORLD


Major Companies

Other Companies While there is some consolidation among the industry’s larger players, no single company controls more than 5.0% of the industry’s revenue. Many industry operators are independent management consultants. The majority of these firms account for a very small portion of market share, so even firms with a 1.0% market share are significant players. Even though larger firms have increasingly pursued expansion through acquisition, the industry remains highly fragmented and continues to be very competitive.

PricewaterhouseCoopers LLP Estimated market share: 2.4%PricewaterhouseCoopers, trading as PwC, is as UK-based accounting and advisory firm. The company was founded in 1998 through the merger between Price Waterhouse and Coopers & Lybrand, which made it one of the largest accounting and audit firms in the world. The business is focused on the provision of audit and assurance, tax and consulting services. Additionally, the company provides human resource, forensic and other services. PwC is headquartered in the


contributed to about 30.0% of total DTTL revenue. Deloitte Consulting provides management consulting and implementation planning across industries in the areas of strategy and operations, human capital and technology. Based on the reputation of its parent company, Deloitte Consulting is able compete with top-tier players, such as McKinsey, but also has the global scale to compete against larger firms, such as Accenture, on the basis of cost.

As a number of mid-tier firms have merged or been sold in the recent economic downturn, Deloitte Consulting has drawn on the financial resources of parent company DTTL to expand through aggressive acquisition activity. For example, DTTL acquired the vast government consulting practice of BearingPoint (formerly KPMG Consulting) in 2009. Furthermore, in 2011, DTTL acquired two more consulting firms specializing in sustainability. In late 2013, Deloitte Technology Consulting continued to aggressively chase growth with the acquisition of two Australian technology companies, Quattro and NXG, which specialize in customer relations management software and Systems

Application Product (SAP) software. These acquisitions will enable the company to better service the needs of their clients’ finance functions and will help solidify Deloitte’s position as leading player in the design and implementation of next generation enterprise resource planning solutions.

Financial performanceIBISWorld expects Deloitte’s US industry-relevant consulting revenue to grow 8.1% to $4.7 billion in fiscal 2014. The company generated $32.4 billion in total revenue for fiscal 2013, which represented an increase of 3.5% on the previous year. However, the company’s US and consulting-specific both grew at a relatively faster rate than the company. Consulting revenue grew from 42.1% of revenue in fiscal 2012 to 43.0% of revenue in fiscal 2013. This is expected to continue in fiscal 2014, when US industry-specific revenue is forecast to grow an additional 5.0%. Deloitte is continuing to focus on providing more advisory and consulting services to clients as these operations tend to be highly profitable when compared with other taxation and accounting services.


Major Companies

Other Companiescontinued

United Kingdom and generated $32.1 billion in global revenue and had about 184,200 staff in 2013.

PwC operates through three main business segments: assurance, advisory and tax. The company’s assurance segment, which includes financial statement and internal audits, corporate reporting and regulatory compliance, comprises the majority of revenue. In 2013, PwC generated 46.0% of revenue through its assurance segment; however, advisory services have experienced the most growth. In fact, advisory services accounted for 28.5% of revenue in 2013, which is up from 21.7% in 2009. The company is increasingly moving to providing consulting services due to the increasing demand for business intelligence and higher profit margins associated with advisory services. Over the five years to 2014, PwC’s US industry-specific revenue is expected to increase an annualized 17.0% to $3.7 billion. The company has finalized the acquisition of Booz & Company, which will now operate as Strategy& under the PwC brand and bolster US management consulting revenue.

Marsh & McLennan Companies Inc. Estimated market share: 1.7%Marsh & McLennan Companies Inc. (MMC) is a US-based global conglomerate headquartered in New York City. MMC provides professional services in two operating segments: risk and insurance services and consulting. MMC currently operates in more than 100 countries with 51,000 employees. In 2013, Marsh & McLennan generated $12.3 billion in global revenue.

In the past five years, MMC has become a major presence in the US management consulting market through its holdings in Mercer and the Oliver Wyman Group. Mercer has more than 25 years of experience providing consulting services in human resources

and related financial advice. The company counts among its clients a majority of the companies in the Fortune 1000 and FTSE 100. Some of its largest clients include Bristol-Myers Squibb, Corning and the New York Times Company. MMC’s Oliver Wyman Group provides economic and management consultancy through about 3,400 professionals in 25 countries. Wyman pairs clients with industry experts specializing in strategy, operations, risk management and organizational transformation. Together, the consulting operations of MMC account for about 46.5% of company revenue.

IBISWorld estimates MMC’s US management consulting revenue in 2014 to be $2.6 billion, representing a 3.0% increase from the previous year, which is attributable to a resurgence in demand following weak performance in 2009 and 2010. Mercer consulting revenue increased 5.0% in 2010, driven by renewed demand for health, benefits and compensation consultation. Oliver Wyman Group revenue increased 6.0% in 2010, driven by double-digit growth in financial services, healthcare, transportation and consumer sector consulting.

Boston Consulting Group Estimated market share: 1.7%The Boston Consulting Group (BCG) is a global management consulting firm with more than 70 offices in over 40 countries. The firm prides itself on an employee-focused culture and is recognized as one of the best consulting companies to work for in Fortune magazine. The company was formed in 1963 when Bruce Henderson became the head of a new management consulting division of the Boston Safe Deposit and Trust Company.

BCG works with some of the world’s largest and most innovative companies. The majority of BCG clients rank among


Major Companies

Other Companiescontinued

the 500 largest corporations in North America, Asia, Europe and Australia. BCG also advises midsize companies, nonprofit organizations and government agencies. Worldwide, the firm also works on a pro bono basis for worthy organizations and efforts.

Boston Consulting has been one of the industry’s star performers over recent years. The company generated an estimated $2.6 billion in revenue in 2014. The majority of growth over recent years has been the result of geographical expansion into strategic emerging markets such as China and India.


Capital Intensity Because the Management Consulting industry is fundamentally service-oriented, capital intensity remains low despite economy-wide increases in the use of labor-saving technology. IBISWorld estimates that for every dollar spent on labor, industry operators spend an average $0.02 on capital investment in 2014. Both capital depreciation expenditures and capital intensity have remained stable during the past five years.

In 2014, direct labor costs account for about 48.3% of industry revenue. Total wage costs in this industry are high, primarily due to the high level of education and experience required of management consultants. Further, a premium is paid for consultants with a

name, reputation, and professional network that will draw business to the firm; contracts can be won or lost if a

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Accounting ServicesComputer Stores

Tax Preparation Services

Engineering Services


Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit


Professional, Scientific and

Technical Services

Economy

Level The level of capital intensity is Low


Operating Conditions

Revenue Volatility The Management Consulting industry has a moderate level of revenue volatility. In the five years to 2014, year-on-year revenue changes averaged 4.8% in absolute value. Industry revenue has increased every year from 2010 onward, with growth rates ranging from 6.4% in 2010 to a low of 2.9% in 2013.

Management consulting revenue is linked to, but not determined solely by, macroeconomic conditions. Corporate profit levels determine the availability of funds private sector consulting, while tax revenue largely determines the funds available to the public sector. In some cases, consulting expenditures are viewed as discretionary and firms facing compressed profit margins

Technology& Systems

Although the Management Consulting industry benefits from rapid innovations in communications technologies, the general mix of inputs required to produce and deliver consulting services has not changed dramatically in the past five years. The industry is labor intensive; productivity is more dependent on the human capital embodied in its employees rather than the technology those employees put to use. Nonetheless, major companies in the Management Consulting industry devote considerable resources to maintain their technological infrastructure. Most technological investments are dedicated towards data security, as compromising sensitive client data could result in a loss of business.

The most important technological innovations for management

consultants are those that improve the speed and connectivity between firms and their clients. Familiar communications technologies, including email and telecommunications services, enable firms to quickly and efficiently transmit time-sensitive information. For large firms, specialized intranet systems facilitate information-sharing through internal company databases, web sites and documents. Consequently, consultants can increasingly take advantage of the knowledge, techniques and lessons learned within their company through access to previous reports and evaluations. At the same time, many firms are expanding their access to external internet-based libraries and databases for research purposes.

Capital Intensitycontinued

certain expert enters or departs a company. The consultation process is very personalized, and a firm’s most respected consultants are often requested by name.

Because the majority of industry expenditures go toward personnel costs rather than the purchase of equipment, depreciation of these fixed assets represents just 1.0% of revenue in 2014. Capital intensity within the Management Consulting Industry is relatively low compared to the sector-wide average. Though still labor-

intensive, the other industries in the sector, Environmental Consulting Services and Scientific & Economic Consulting Services (IBISWorld reports 54162 and 54169, respectively) have a relatively greater reliance on costly scientific equipment, resulting in a higher level of capital intensity. In contrast, management consulting firms’ capital investments are largely limited to the computer programs, networking and computer hardware necessary to conduct analysis and communicate with clients.

Level The level of Technology Change is Low

Level The level of Volatility is Medium



Regulation & Policy As a whole, the Management Consulting industry is subject to a light and steady level of regulation, with variation depending on the firm’s consulting specialization. While there is no generic licensing for management consultants, human resources consultants are subject to additional regulation and licensing. Human resources consulting companies, such as Marsh & McLennan subsidiary Mercer, provide public and private sector companies with assistance in the design and management of their employee healthcare and pension plans. Firms engaged in similar benefits and insurance consulting are subject to the same licensing requirements and regulatory oversight as insurance intermediaries. Similarly, retirement-related consulting services, including trustee services are subject to pension law and financial regulation within the United States under

the SEC. Both health and retirement consultancies must comply with numerous state and federal laws governing the protection of health and other personally identifiable information.

While the licensing requirements for human resources consultants have not changed dramatically in recent years, the laws with which their clients’ pension and healthcare plans must comply will likely change in the near term under the Affordable Care Act of 2010. This has represented an opportunity for consulting firms. As the law’s provisions go into effect, clients will require consulting to bring existing employee healthcare plans into compliance. As the funded status of defined benefit pension plans has declined in recent years, many employers are switching to defined contribution pension plans to more easily comply with local pension laws.

Revenue Volatilitycontinued

can quite often defer them. However, volatility within the industry can be mitigated by countercyclical demand, as management consultants have been employed to restructure client companies during periods of slow growth or decline. In addition, large consulting companies

employ expert consultants in a variety of fields; this practice can minimize the effect on revenue of economic shocks affecting only one or two industries. The benefits of diversification, unfortunately, dissolve in widespread economic crisis, such as in 2009.


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level & Trend The level of Regulation is Light and the trend is Steady



Industry Assistance The industry obtains no special assistance or protection from government. The Association of Management Consulting Firms (AMCF) provides professional development opportunities, industry research, legislative monitoring and referrals, and other services to its members. Since the mid-1980s, it has undertaken an annual survey of the

management consultancy industry in which it publishes operating and financial ratios for member firms. Membership is only open to firms that meet minimum size requirements and have been in operation for at least five years. Although membership is voluntary, members are required to observe a strict code of professional conduct.

Regulation & Policycontinued

This trend represents a threat to the industry because these plans are easier to manage and are less likely to require extended consulting expenditures. For

more information on the legislative changes facing the Human Resources Consulting sub-sector, refer to IBISWorld report 54161B.

Level & Trend The level of Industry Assistance is None and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Corporate profit ($b)

2005 131,186.7 69,821.4 476,829 471,282 1,107,655 -- -- 58,670.5 N/A 1,477.72006 133,046.0 76,503.7 435,077 428,879 1,106,846 -- -- 62,533.9 N/A 1,646.52007 131,258.7 77,717.2 525,893 520,331 1,153,491 -- -- 63,410.1 N/A 1,529.02008 135,152.3 69,479.9 509,602 508,091 1,016,946 -- -- 54,883.5 N/A 1,285.12009 119,897.0 69,367.1 529,618 527,525 1,016,813 -- -- 55,698.8 N/A 1,392.62010 129,256.9 73,505.0 533,582 531,402 1,041,527 -- -- 59,545.3 N/A 1,740.62011 135,753.3 77,389.9 552,721 549,127 1,089,089 -- -- 62,457.0 N/A 1,877.72012 144,177.0 84,821.1 571,514 566,699 1,154,434 -- -- 65,645.5 N/A 2,009.52013 148,354.2 85,235.7 579,515 575,766 1,178,677 -- -- 67,284.9 N/A 2,123.62014 153,399.2 89,754.4 594,582 590,160 1,216,395 -- -- 69,505.7 N/A 2,229.82015 159,842.0 94,941.9 612,419 607,865 1,269,916 -- -- 72,564.0 N/A 2,323.52016 167,194.7 99,315.6 616,706 610,904 1,333,412 -- -- 76,409.9 N/A 2,397.82017 171,374.6 102,504.7 639,524 634,118 1,361,414 -- -- 78,855.0 N/A 2,474.62018 174,973.5 104,543.9 652,314 646,166 1,391,365 -- -- 80,747.5 N/A 2,580.12019 180,222.7 107,357.2 666,665 659,089 1,428,932 -- -- 82,846.9 N/A 2,636.6Sector Rank 5/74 5/74 2/74 2/74 4/74 N/A N/A 7/74 N/A N/AEconomy Rank 59/1302 26/1302 14/1301 13/1301 32/1302 N/A N/A 18/1302 N/A N/A

IVA/Revenue (%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 53.22 N/A N/A 118.44 44.72 2.32 52,968.21 0.492006 57.50 N/A N/A 120.20 47.00 2.54 56,497.38 0.522007 59.21 N/A N/A 113.79 48.31 2.19 54,972.34 0.522008 51.41 N/A N/A 132.90 40.61 2.00 53,968.94 0.472009 57.86 N/A N/A 117.91 46.46 1.92 54,777.82 0.482010 56.87 N/A N/A 124.10 46.07 1.95 57,171.15 0.502011 57.01 N/A N/A 124.65 46.01 1.97 57,347.93 0.522012 58.83 N/A N/A 124.89 45.53 2.02 56,863.80 0.552013 57.45 N/A N/A 125.87 45.35 2.03 57,085.10 0.542014 58.51 N/A N/A 126.11 45.31 2.05 57,140.73 0.562015 59.40 N/A N/A 125.87 45.40 2.07 57,140.79 0.572016 59.40 N/A N/A 125.39 45.70 2.16 57,304.04 0.582017 59.81 N/A N/A 125.88 46.01 2.13 57,921.40 0.582018 59.75 N/A N/A 125.76 46.15 2.13 58,034.74 0.582019 59.57 N/A N/A 126.12 45.97 2.14 57,978.20 0.58Sector Rank 31/74 N/A N/A 51/74 24/74 56/74 45/74 5/74Economy Rank 133/1302 N/A N/A 994/1302 117/1302 1164/1301 469/1302 26/1302

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Corporate profit (%)

2006 1.4 9.6 -8.8 -9.0 -0.1 N/A N/A 6.6 N/A 11.42007 -1.3 1.6 20.9 21.3 4.2 N/A N/A 1.4 N/A -7.12008 3.0 -10.6 -3.1 -2.4 -11.8 N/A N/A -13.4 N/A -16.02009 -11.3 -0.2 3.9 3.8 0.0 N/A N/A 1.5 N/A 8.42010 7.8 6.0 0.7 0.7 2.4 N/A N/A 6.9 N/A 25.02011 5.0 5.3 3.6 3.3 4.6 N/A N/A 4.9 N/A 7.92012 6.2 9.6 3.4 3.2 6.0 N/A N/A 5.1 N/A 7.02013 2.9 0.5 1.4 1.6 2.1 N/A N/A 2.5 N/A 5.72014 3.4 5.3 2.6 2.5 3.2 N/A N/A 3.3 N/A 5.02015 4.2 5.8 3.0 3.0 4.4 N/A N/A 4.4 N/A 4.22016 4.6 4.6 0.7 0.5 5.0 N/A N/A 5.3 N/A 3.22017 2.5 3.2 3.7 3.8 2.1 N/A N/A 3.2 N/A 3.22018 2.1 2.0 2.0 1.9 2.2 N/A N/A 2.4 N/A 4.3

2019 3.0 2.7 2.2 2.0 2.7 N/A N/A 2.6 N/A 2.2Sector Rank 38/74 23/74 39/74 36/74 32/74 N/A N/A 34/74 N/A N/AEconomy Rank 465/1302 292/1302 394/1301 371/1301 349/1302 N/A N/A 400/1302 N/A N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

Industry Jargon

IBISWorld Glossary

DEFINED BENEFIT PENSION PLAN A retirement pension plan in which an employer commits to paying its employee a specific benefit for life beginning at his or her retirement.

DEFINED CONTRIBUTION PENSION PLAN A retirement pension plan in which an employer’s annual contribution is specified. The value of future benefits at the time of retirement is not specified.

HUMAN RESOURCES CONSULTING The contracting of a consultant for advice on structuring human resource and personnel policies, employee benefits, compensation systems and wage and salary administration.

MANAGEMENT CONSULTANT A consultant who provides advice and assistance to businesses and other organizations on various issues, including management.

STRATEGIC CONSULTING The contracting of a consultant to advise on long-term planning with an eye toward minimizing costs and maintaining profit, often in conjunction with the development of new products and services.


Jargon & Glossary

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossary continued

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54161 management consulting in the us industry report

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