Profession Is Through Worst of Times Stefan Stern Looks the Business of Providing Because These Individuals Says Michael Traem, Chief Advice to Clients
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BUSINESS OF CONSULTING FINANCIAL TIMES SPECIAL REPORT | Monday November 16 2009 www.ft.com/consulting-2009 Profession is through worst of times Stefan Stern looks the business of providing because these individuals says Michael Traem, chief advice to clients. and institutions do not executive of Arthur D Lit- back on a difficult That would be unfortu- cease to exist, but they do tle. “After a period of near year and assesses nate. Because as we head become unable to perform silence from the big London towards the end of 2009, the function we expect of private equity players, the hopes for a that is precisely what many them in supporting growth phones are ringing again recovery in fortunes consulting firms are of the economy,” writes and private equity is talk- increasingly busy doing. Mark Thomas, head of PA’s ing seriously about new There was no way that a strategy and marketing investments for the first arvin Bower, service provider industry practice, in his new book on time since we entered the the father of such as consultancy was the subject. “Zombie banks recession.” modern man- going to be able to avoid cannot lend as we need; Along with other consul- agement con- the consequences of the glo- zombie consumers cannot tancy bosses, Mr Traem Msulting, had clear expecta- bal recession. The great consume as we need, and so suggests that tougher eco- tions of how colleagues at majority of consulting on.” nomic times have helped to his firm McKinsey & Co projects fall under the head- bring about a healthy should behave. Mirroring ing of “discretionary spend- rethink in his profession. the professionalism of other ing”, and in a grim econ- The upheaval in “If anything, the downturn partnerships such as legal omy discretion has been the markets means has taught us that as con- firms, his consultants were better part of valour. sultants, our business is to to be smartly but soberly Clients’ attitudes and that some business help clients solve problems, attired, producing immacu- behaviour, at least in the fundamentals are not to complete a project late, authoritative reports first half of 2008, have been and present a report back to for clients. Personal enrich- described by their potential being challenged the board.” ment was never on the advisers in a number of That sentiment was ech- agenda. (Indeed, Bower similar ways Ð “rabbits in oed at two well-attended turned down the chance to the headlights”, “keeping A zombie client base will meetings the Financial cash in on his shareholding their heads down”, or “dis- not be able to ask for much Times hosted this autumn, in the business by selling it tracted and simply trying to help. But while we are one in London and the back to the partnership at survive”. clearly not yet through the other in New York, where book value rather than for PA Consulting Group, the period of crisis, and the professionals from consult- what it was truly worth.) large London-based firm, early signs of economic ing firms spoke freely about So how would Bower has gone a step further, recovery remain pretty fee- the difficulties and opportu- have reacted to the sight of describing the current mar- ble, nonetheless something nities they face. Anil Kumar, a McKinsey ket as a “zombie economy”: almost like optimism is For one thing, the radical director, being arrested and banks, governments, com- beginning to emerge in upheaval in markets means charged in association with panies and consumers have some consulting firms. that some business funda- the FBI’s insider trading all had a near-death experi- “We have experienced the mentals are being chal- investigation into the Gal- ence, and are still strug- worst and are already see- lenged. Attitudes and leon hedge fund last gling to come to terms with ing clients migrate back approaches to risk have to month? Probably in the the aftermath. from pure cost-cutting initi- be questioned in a world same way that Mr Kumar’s “We use the term ‘zombie’ atives to strategy projects,” where so many organisa- current colleagues did Ð tions, particularly in finan- with shock and disbelief. cial services, left them- “Nothing like this has Inside this issue selves badly exposed. This ever taken place in 83 years new risk environment may Buyer's market Richard to show originality to of the business,” says some- Brass explains why, despite merit their fees, says not prove all that helpful to one who knows the com- a fall in demand, rates Ross Tieman Page 3 consultancies if clients pany well. “That goes for across the board have become resistant to the idea the firm’s major competi- remained stable Page 2 Recruitment It is a tough of undertaking too many tors Bain & Boston Consult- time for graduate ambitious projects. On the ing Group too. It is unheard Financial services entrants, writes other hand, those consult- of.” The new Charles Batchelor ing firms that can convince McKinsey has launched competitive Page 4 clients that they have an an internal inquiry into this landscape is insightful understanding of affair (no one has been con- creating work, Opinion Dave risk may prosper. victed of anything, it should writes Rod Newing Ulrich (pictured) Other big questions were be stressed), while other Page 2 draws lessons asked around the table in consultancies, suppressing from the current both cities. Is it the case any momentary schaden- Public sector downturn in that “the traditional way of freude, have been forced to With budget cuts demand for governing a company no take a good look at them- ahead, firms consultants longer exists, because the will have Page 4 selves. This risks being an Puzzling it out: the recession has taught consultants the importance of focusing on problem-solving for clients dreamstime unwelcome distraction from Continued on Page 2 2 ★ FINANCIAL TIMES MONDAY NOVEMBER 16 2009 Business of Consulting Firms Daily rates fail to match fall in demand survive BUYERS' MARKET would cause a commensu- cess in the buying process.” consultancy a bewildering erecting a barrier between rate fall in prices, in consul- But while consultants in landscape for a client on a consultants and clients. Richard Brass tancy, apart from dips in general may so far have budget, and the perform- “The genuine expertise, worst of looks at prices, specific areas, rates across been spared a direct drop in ance-related option, or risk- innovation and creativity the board have, so far, rates in line with the over- reward, can appear the that once attracted the best procurement and remained curiously stable. all fall in demand, the clearest route through it. and brightest graduates to performance “If I look year-on-year, recession has brought pres- Consultants are, however, careers in consultancy are times I’m actually seeing pricing sure from clients on other reluctant. A key problem, fading at the hands of pro- up on last year,” says Ash- fronts, most significantly in some say, is that not all curement-driven purchas- Continued from Page 1 Consultancy today is a buy- ley Unwin, head of consult- a growing preference for projects, among them areas ing behaviour,” says Mark ers’ market. The boom days ing at PwC. “Our pricing performance-related pay such as change manage- Mulcahey, managing direc- traditional business model of more demand than the for our first quarter – to the structures. ment and human resources, tor of Arthur D Little UK. no longer exists”, as one industry could satisfy and end of September – versus Performance-related pay are easily measured by “Procurement’s short- attendee in New York put consultancies practically the whole of last year is up is currently used in only a results and therefore do not term return on investment it? Is strategy dead? (The choosing their clients seem something like 3 per cent.” small proportion of consul- lend themselves to this kind cycle encourages consult- view of some corporate cli- a long way off, and firms That, says Ms Czerniaw- tancy services, but many of payment. Another is that ants to deliver incremental ents now, apparently, is are facing a much tougher ska, is largely due to consultants report that cli- the usual current motiva- but measurable changes to that life is all about execu- world. increased astuteness among ents have been voicing a tion for going down the clients, which are likely to tion, that is to say, “doing “It’s an immensely diffi- clients that pre-dates the preference for moving more risk-reward road misses the spiral into further project stuff”.) cult market,” says Fiona current downturn. “Going point. work for the consultants, The role of government Czerniawska, author of a back 10 years to the dotcom “I would say that in one which will in term result in was also raised as a newly- series of books on the boom, rates were unsustain- `Clients are getting in every three major bids similar incremental change. significant factor. Even as industry and founder and ably high. In 2002-03 they much more we’re going through now, This self-fulfilling cycle public spending looks set to managing director of con- fell by about 15 per cent, risk-reward comes on to the risks permanently driving be cut aggressively all sulting industry research and they haven’t signifi- knowledgeable table,” says Mr Unwin at innovation and genuine around the world in the firm Arkimeda. “Recently cantly recovered since. about how, and PwC. “It was coming up in problem-solving out of the wake of the massive state an invitation to tender for a “In the boom period conversations two or three industry.” spending to prop up the particular project was between 2004 and 2008 there what, to buy' years ago, but it was more According to Raju Patel, banks, government itself is issued and more than 100 wasn’t a huge hike in rates, of a tactic in the negotia- chief executive of specialist a big presence: as both a responded.