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, the Hinge Research Institute surveyed over 1,000 professional services firms, representing over $176 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 (almost 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 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, our aim is to 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 go over these challenges one by one.
1. Increased competition
The top concern mentioned by almost 40% of firms was the specter 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.
That these threats topped both categories (consulting firms and all professional services firms) can’t be a coincidence. In fact, it appeared at or near the top of almost every industry segment we studied (the lone exception being Accounting and Finance, where it ranked 5th).
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!
2. Changes in how buyers purchase services
Almost 38% of management consulting firms are worried about the changing ways buyers go about buying services (this compares to 30% — and 6th place — across all professional services industries). While our data don’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 source. Increasingly, firms are building their reputations online — though sophisticated 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.
3. Unpredictability in the marketplace
Whether you are talking business or politics, these are turbulent times. 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 battlefield on the Internet. Increasingly, that is where firms are doing battle 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 uncertainty.
4. Downward price pressure on services
Another common concern in the industry is increasing pressure to lower prices. Mentioned by almost 36% of consulting respondents, this threat is related to several other issues surfaced by the sample, including increasing competition, globalization, commoditization and automation.
As cheaper alternatives and more efficient technologies emerge, even expertise-driven consulting services are subject to fee erosion. But this trend represents an opportunity, too. For example, firms that leverage the power of marketing automation and artificial intelligence — and marry these technology efficiencies with their expert insights — will be positioned to differentiate themselves. This is especially true given that nearly half of management consultants are struggling to use technology effectively.
5. The need for new skills
Noted by 35% of respondents, the need for new skills is a common challenge for management consulting firms. As new technologies and techniques arise in the marketplace, firms can feel an unrelenting pressure to keep up with the constant change. If they don’t, a competitor will.
There are two primary ways firms can acquire new skills: 1) by training their professionals; and 2) hiring new talent who already possess those skills. 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. If a firm doesn’t have a compelling employer brand — i.e., if it doesn’t have a reputation for being a great workplace — the best talent often look elsewhere. Savvy firms recognize that if they want to compete for the best business they first have to win the war for the best people.
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.
- Discover what today’s most successful professional services firms are doing right in the research summary 2019 High Growth Study.
- Check out Hinge University, the premier place on the Web where professional services go to learn new marketing skills and grow their firms.
- Find out more on becoming a sought-after expert in your industry by downloading a free copy of The Visible Expert®book.
How Hinge Can Help:
Hinge is a global leader in helping professional services firms grow faster and become more profitable. Our research-based strategies are designed to be implemented. In fact, our groundbreaking Visible Firm® program combines strategy, implementation, training and more.
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