Top 5 Business Challenges for Management Consulting Firms
Anyone in the management consulting industry knows that today’s firms face a host of business challenges, some age-old and some brand new.
The forces driving change are many and various. Disruptive technology, the rise of new business models and the pressures exerted by intense global competition are transforming the marketplace. At Hinge, we wanted to build a focused understanding of the top issues that are occupying firms — and what that means for the industry at large. So we got down to research.
Diving into the Research
In order to find the answers, we surveyed over 1,000 professional services firms, representing over $70 billion in combined revenues and more than 1 million employees. The study covered a range of firm sizes and industries. In addition, we investigated a subset of these firms (more than a third of the full sample) that deliver consulting services to understand the challenges and drivers of success in that industry.
In one section of the study, respondents discussed their outlook for the industry over the next 3-5 years, as well as how they planned to respond to those challenges.
These insights allowed us to understand the current state of both the professional services landscape as a whole and the management consulting industry in particular. Ultimately, we were able to identify both broad trends and industry-specific issues.
In this post, we examine the business challenges and priorities of management consulting firms. So, what are those priorities, and what do they mean for the industry?
The Top Business Challenges
The top five overall business priorities for management consulting firms paint a striking picture of the marketplace today.
Let’s discuss these challenges one-by-one.
1. The need for new skills
The top concern, and moving up from the fifth position a year ago, 44% of firms identified the need for new skills as a significant challenge for management consulting firms. As new technologies and techniques arise in the marketplace, firms feel an unrelenting pressure to keep up with the constant change. If they don’t, a competitor will. And keeping up, requires the right people with the right skill sets.
There are two primary ways firms can acquire new skills: 1) upskilling and reskilling their existing workforce; and 2) hiring new talent who already possess those skills (SPOILER ALERT: see #3). Most firms use both of these approaches, but each comes with challenges. For example, training existing staff takes people away from lucrative billable work. And hiring new talent in a highly competitive environment can be very expensive. Savvy firms recognize that if they want to compete for the best business they first need to have talent with the right skill sets.
2. Increased competition
Moving down a position from last year, but still a close second, was the challenge of increased competition. Respondents from management consulting firms and all professional services reacted similarly: they worry a lot about competition coming from both new firms and larger competitors, with a slight edge to the emerging-firm threat. In fact, these threats appeared in the top five challenges of every industry segment we studied.
What does this finding mean? Many firms that are not large, established industry players and don’t have a disruptive business model in the works are worried about their ability to stay competitive. After all, a great deal of consolidation is happening in the consulting industry, and new technologies threaten to commoditize lucrative bread-and-butter services. No wonder firms that aren’t part of either of these trends are feeling anxious about the future!
3. A shortage of top talent
Ranking third on the list, and mentioned by 40% of management consulting firms, is finding top talent. This concern is not unique to management consulting firms. Firms across the professional services spectrum struggle with the same issue, and winning the talent war has been a growing concern.
Last year it didn’t make the list. This year it is debuting at number three. Given this growing concern, to remain competitive, firms must focus on reinvigorating their employer brand. If a firm doesn’t have a compelling employer brand — i.e., if it doesn’t have the reputation or visibility for being a great workplace — the best talent often look elsewhere. Our study on employer brand, while it offers no easy solutions, shows that there are many opportunities for firms to improve their ability to attract and retain top talent.
4. Changes in how buyers purchase services
Almost 39% of management consulting firms are worried about the changing ways buyers go about buying services. While our data doesn’t include specific details, we suspect that this concern is driven by the increased use of online search, social media and other non-traditional channels to find and vet consulting firms.
Even the way people get referrals has changed. Many referrals today are made by people who never even hired your firm, but they know about you from other sources. Increasingly, firms are building their reputations online — through sophisticated onsite and offsite content marketing programs and direct engagement in social media. No doubt, some firms feel ill-equipped to adapt to these changes. But they must if they want to compete in this changing marketplace
5. Unpredictability in the marketplace
These are turbulent times, and 38% of respondents agree that unpredictability in the marketplace is on their minds. The consulting marketplace is evolving quickly from one that relied primarily on interpersonal contact to develop new business (think networking or personal referrals) to a wide-open playing field online. Increasingly, that is where the game is played and buyers are selecting the winners.
But there is more feeding the market frenzy than business development changes. The whole landscape is rapidly evolving, too — acquisitions and mergers are happening at a record pace, and new well-funded firms with different business models pop up with unnerving frequency. This churning marketplace is here to stay, and the most successful firms will learn to adapt to the uncertainty.
Turbulent times generate tremendous change, and this is precisely the reality that management consulting firms are facing today. To adapt to rising marketplace pressures, to get ahead and stay there, they will have to adopt an array of marketing techniques. But deep in the forge of adversity lies opportunity — to build resilient and robust brands.
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