How (not) to size the consulting market

Some myths take far too long to die.

Twice in the last week I’ve been part of depressing discussions with the boards of consulting firms in which someone has said something to the effect that 2% of all costs in banking/pharma/healthcare/retail go on consulting services. That assumption may make sizing the consulting market easy–but it also makes it wrong.

Our research suggests that four factors determine the amount of money a given client spends on consulting. The first is external factors. Organisations operating in industries that are experiencing only very slow-moving change have the time to adapt, so are less likely to need the urgent, dedicated assistance consultants specialise in. But those in fast-moving, technology-dependent sectors will rarely be able to pause for breath, and so tend to be heavy users of consulting support. Similarly, those facing waves of new regulation are more likely to turn to consultants for help than those that aren’t. The high-level approach works well here.

But the three remaining factors are all internal and specific to a given organisation:

• • Are they profitable? Although consultants can make plenty of arguments about why clients should invest with them, even in the direst economic circumstances, the reality is that most of today’s clients prefer to be making money before they spend it. As a result, clients often use consultants to boost low profit margins, but only rarely do so when they’re actively losing money.

• • Then we have the attitude of the organisation’s executive team to the use of consultants generally. Does the CEO like them, or hate them? Whichever the preference, you can bet that senior executives and middle managers alike will follow their leader’s lead. If the CEO is prepared to hire consultants, then so will just about anyone else who has the budget (see point #1, above).

• • Finally, clients don’t just hire consultants because the latter have got specialist skills not available internally, but because consultants are a flexible, easy-on-easy-off resource that allows them to sidestep budgetary constraints. Headcount freeze? No problem.

Put those three factors together and you start to appreciate that taking a standard X% of costs in any sector, and claiming that that’s the size of the consulting market, will never be accurate. It’s the equivalent of assuming that everyone of the same weight eats the same food, or that every car of the same make will travel at the same speed.

If you’d like to know more about how we size the consulting market, you might be interested in our video.