Investigating the Consulting Industry? What Does that Mean?

I had been an aspiring actor, waiting tables and diving a taxi for a couple of years. Then I decided to become a booking agent for speakers like Dick Gregory, Erica Jong and H. Ross Perot for nine years. Then I went to business school  to become a management consultant.  I liked the work - stayed in it for thirty-seven years, in fact, but it was a career I stumbled into without much research or critical thought.

Often when people would ask what I did for a living, I would answer, “I’m a consultant.” Then they would ask me, “What does that mean?” In my early days of consulting, I honestly thought that was a dumb question, but over time I came to realize that dental assistants were calling themselves oral hygiene consultants and that the question wasn’t so dumb after all. Saying ‘management consultant’ really didn’t help much. Responses varied from “huh?” to a harangue about negative experience with members of my profession.

People understand what a doctor does and mostly understand what a lawyer or accountant does, but very few understand what a consultant does.  Webster isn’t particularly illuminating, “a person who gives advice professionally.”  Sometimes I would explain that management consulting is part of professional services available to businesses. Accountants help businesses with records and taxes, lawyers help business with the law and consultants help businesses solve problems and make changes. 

If this was a cocktail party or neighborhood barbeque conversation, soon my conversation partner was waving at someone they just had to talk with across the room or yard.

Industry structure

The global management consulting industry revenue is variously reported as somewhere between $250 billion and $1.3 trillion. (Don’t you love the precision of such reporting.) Of course, the issue is what is included. Do you only count firms of a certain size, over three consultants for example, and leave out the millions of independent consultants? By one 2019 estimate, globally there were 700,000 firms of three or more consultants; and for every consultant that worked for a firm there were between five and fifteen that earned at least some part of their income from independent consulting, or at least ten million independent consultants. 

How do you count the management consulting revenue of accounting firms and law offices? What about advertising agencies? Do training firms count? What part of the revenue of the large software development and systems integration firms are you counting?

Suffice it to say, there are a lot of management consultants and the industry makes a lot of money.

The consulting industry has many of the characteristics of a fragmented market. It has:

• Low barriers to entry – Someone once defined a consultant as “someone with a black briefcase more than fifty miles from home.”
• Many competitors – there are literally millions of consulting firms globally ranging in size from Deloitte with more than 280,000 employees to millions of independent consultants and small practitioners.
• No real economies of scale- the predominate delivery mechanism in consulting is consultants time, billable hours. You can’t really scale people, there is no multiplier or as independent consultants frequently moan, “You can’t earn money without showing up.”

Fragmented industries often have significant turnover of firms, lots of start-ups, many failures, mergers and acquisitions between smaller and larger players.

The consulting industry also has many of the characteristics of an oligopoly. Much of the revenue, prestige and press in the industries is controlled by a few firms:

• The Big Three – McKinsey & Company, Boston Consulting Group (BCG), Bain and Company, all got their start as strategy firms but have become more generalist firms. They are the most prestigious firms to hire. The expression, “No Board every fired a CEO for hiring McKinsey” could easily be applied to the other two firms. The big three have an edge at attracting both clients and consulting talent.
• The Big Four – Deloitte, Price Waterhouse Coopers (PwC) Ernst & Young (EY), Klynveld Peat Marwick Goerdeler (KPMG), are the consolidated firms of the Big Eight, that were around when I started. These firms all got their stare as accounting and auditing firms that moved into management consulting and systems integration.
• The Third Tier – Accenture, Cap Gemini, AT Kearny, Booz Allen Hamilton, IBM Consulting Services, Infosys, Cognizant, Hitachi Vantara Consulting, Tata Consulting, and others. Many of these firms are quite large and many focus on information technology and systems integration.
• Boutique Firms- Some of these firms are quite prestigious to work for as they are known for a particular methodology, or industry expertise. They are too numerous to mention all, but a few examples are L.E.K., Roland Berger, Mercer, Huron, Oliver Wyman, The Keystone Group, Putnam Associates.

Should Accenture, L.E.K., or AT Kearny be in a separate tier?  Are the HR firms like Merce, Oliver Wyman, Aon Hewitt, Korn Ferry, or Willis, Towers, Watson really boutiques? One could endlessly debate which firm belongs in the bottom two groups, and the list I have provided in by no means exhaustive, but the top two groups certainly garner most of the press about the industry. The top two groups are most likely to receive a Request For Proposal (RFP) from the largest  global client firms. The top two groups often set new entrant salaries and billing rates.

That is not to say that even all the firms in all four groups control a majority of industry revenue. While accurate figures are hard to come by, the millions of small firms and solo practitioners all make a good living. Some even work for the same large clients right alongside teams from huge consultancies. I know this for a fact because I was often in that situation.

What attracts a person to a in consulting?

For some, it’s the money; in actuality, the consulting profession isn’t likely to make you tech entrepreneur or investment banker rich, but it can produce a solidly upper-middle-class lifestyle.

For others, it’s the “glamour and prestige.” These folks often quickly learn that constant travel is grueling, not glamorous, and talking to CEOs about changing their business is just a work meeting where pleasing your boss (a consulting partner) and your boss’s boss (a client CEO) at the same time is a challenge.

I was attracted to consulting for these naive reasons, but what kept me in the field was the work of structured problem solving, and the fact that the variety of industries I worked in and problems I worked on provided a continual steep learning curve. I find learning fun.