The Strategy Management Consulting Industry - Term Paper Example

Topic: INDUSTRY REPORT ON STRATEGIC MANAGEMENT CONSULTANCY SERVICES Introduction The strategy management consulting industry has a wider area of focus in the modern strategy management sector and is particularly significant in the process of strategic management of operations at both inter-firm and intra-firm levels. Management consultancy industry in general and strategic management consultancy industry in particular have followed a growth trajectory that has little or no parallel during the current decade. The strategic environment in which these highly-placed firms operate is characterized by a dynamic set of uncertainties both in the markets and among relations between market-players. Market imperfections such as information asymmetry and buyer-power surpass those of scale economies and tacit collusion that are usually witnessed in an oligopoly market structure of this nature. The parametric growth process of this industry has evolved through a highly complex, volatile and strategically important space-time dimension. In this context, the survival of the average firm in a chaotic environment depends on both known and unknown macrocosmic and microcosmic factors or variables (e.g. Porter’s five forces) which in turn have to be determined to make a reasonable assessment of the outcomes. Thus it necessitates a paradigm construct to delineate all its leveraged phases of growth. 1.1. The strategic external environment Strategic management consultancy industry is a service-based industry with a range of functional level deliverables made available through process control systems, interfaces, seamless integration techniques and end-user product deliveries. Thus its scope and depth require a highly sophisticated technological environment for communication and encryption. For instance Accenture is a global strategic management consultancy firm with braches in a number of countries. Its clientele includes such global giants as Siemens Networks, Pfizer, Vodafone and Best Buy. Its service focus includes management strategy, supply chain management, finance & performance management, customer relationship management, process & innovation performance and talent & organization performance (www.accentrue.com). The range of services delivered mostly through internet is not only versatile but also technically sophisticated. Accenture operates on a multilevel platform of management service architecture and strategic orientation constructs as a provider of custom-made performance solutions. This operational parameter requires it to position itself against similar competitors in the industry at all levels of operations. The strategic external environment here poses a series of threats (or challenges) and opportunities to the service provider. It’s this strategic competitive environment that needs an in-depth evaluation here. The external environment consists of specific international events, technological change, demographic trends, legal and political conditions, economic climate and cultural trends. The global management consultancy industry’s exposure to the above elements can be measured against the backdrop of a single thread that runs through the whole industry, viz. standards. World Trade Organization (WTO) requires member countries to adopt compliance measures which includes compliance with such standards as embodied in ISO 9000, ISO 9001 and so on. Technological change inevitably follows as in the case of management software development processes being undertaken by Tata and Wipro. Probably demographic trends have favored this industry much more than any other element. International migration patterns of skilled labor have completely redefined the contours of demographic shift with a constant flow of skilled labor from India and China to North America and Europe. Legal and political climate has not been conducive for the free development of this industry, and much less its international stature has been affected by regulatory efforts by individual governments and trading blocs. The run up to the presidential election in America has been colored by many issues but Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) have acquired a very significant place in debates and other forums here. In fact the very strategic environment in which management consultancy industry operates is vitiated by political debate on immigration policy in the developed world. Recent economic developments specially the global financial crisis, have forced governments to rethink policy and strategy. The extent to which global management consultancy industry has been affected by these developments will be known only after some time. Right now the industry has particularly been affected by rising costs and an uncontrollable skills exodus. Cultural environment in which this industry operates is a multifarious internationalist one that imposes many limits on the firm and its strategic operational freedom. Value chain management techniques show how far the industry has been able to benefit from growth drivers such as outsourcing, cost-cutting and diversifying 1. 1. Porter’s Five Forces and Strategic management services industry Global management services industry has tripartite characteristics – system-centric, economy-centric and technology centric. These characteristics are persistently relevant to big players like Accenture and Deloitte. The significance of Porter’s Five Forces can be examined against this background. Porter’s Five Forces model (Porter, 1980, p.344). Supplier power Buyer power Competitive rivalry Threat of substitutes Threat of new entrants Figure: 1.1: Porter’s Five Forces Model Source: www.foodandblogretail.blogspot.com Supplier power, according to Porter, is a deterministic force which involves such things as quality, service and brand reputation, customer relations, pricing strategies, supplier market structure (e.g. oligopoly or monopoly), economies of scale and payment methods, including trade discounts. Management consultancies like Accenture depend on suppliers in the market for various inputs such as labor, equipment and services. These suppliers have their own organizational and market structures in which they operate either as individual entities like firms or membership-oriented organizations like trade unions. In either case they have some established rules within which they act to maximize their benefits or profits. Professional trade unions such as IT related ones have a tendency to limit supply and thus ensure higher pay levels for their members. Even when IT professionals offer their services as individuals they demand higher salaries depending on the demand elasticity and the supply elasticity. These firms have to compete against other management consultancies in the market in order to get the best at the lowest possible wage rate. However when other firms bid for better qualified labor wage rates rise and labor becomes expensive. Buyer power is the other side of the coin. For example Accenture is both a buyer (in the supplier’s market) and a seller (in the seller’s market). When it sells other firms and governments buy from it. It’s this buyer power which Porter discussed. It involves the number and geographical expanse of the buyers’ base, choices, product loyalty, volumes generated, cost or frequency of switching sellers and price, income and cross elasticities of demand. Accenture operates in a very competitive international market where buyer power is determined by the ease with which buyers have access to international service providers at a relatively cheaper price. Competitive rivalry intensifies when a large number of firms in the industry compete away above average profits. However, the global management consultancy industry is an oligopoly where a few multinationals like Accenture, Deloitte, Tata and PricewaterhouseCoopers with varying degrees of specialization in different but related fields operate. Accenture is the biggest firm in the field according to revenue earned in 1999, i.e. $8.94 billion (Biswas and Twitchell, 2002, p.21). While brand loyalty plays a big role here product differentiation is an expensive business, for such differentiation entails continuous product/service support. With high fixed costs characterizing the entry, very few new entrants come into the industry. The industry has extensive capacity for growth but barriers against new entrants are many. While goods can have identical characteristics incorporated into them by manufacturers such as four wheel drive or low carbon emissions in motor cars, it’s difficult to differentiate between services of the same type. Therefore in the management consultancy industry the threat of substitutes comes from BPO and KPO. These consultancies are located thousands of miles away from the market where the service is consumed. In other words it’s an open field of competition. Finally Porter’s threat of new entrants plays a pivotal role in the global management consultancy industry by way of raising barriers to entry by new entrants. The existing firms have a marked tendency to make use of scale economies and pricing strategy to prevent new entrants. However, with BPO and KPO the so called cost advantage has been transformed into a cost disadvantage for those operating within the country because BPO and KPO allow consultancy firms located in markets where skilled labor, the main input, is cheaper. Government policy specially, fiscal and migration can have an impact on the industry. The US government for instance has come under pressure to curtail BPO contracts to solve worsening unemployment problem. Accenture for instance has physically moved its operations to many parts of the world including India. Thus it has entered the very turf of competitors to evenly spread the costs. Conclusion The global management consultancy industry is entering a new phase right now with an ever increasing effort by governments to impose and regulate industry standards. Strategic management services have acquired a new dimension too, i.e. they are provided in packages so that the client has no need to look for secondary sources. The associated benefits have a sense of compulsion for the client to stick with the service provider. Strategically the industry has leveraged new quantum heights both in the sphere of quality and bold initiatives but revenues are falling (The Economist, Sept. 25, 2008). Figure 1.2. Falling revenues of global management consulting industry Source: www.economist.com. REFERENCES 1. Biswas, S and Twitchell, D (2002), Management Consulting: A complete Guide to the Industry, New York, John Wiley & Sons, Inc. 2. Porter, M.E (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, The Free Press.. 3. Giving Advice in Adversity ( Sept. 25, 2008), The Economist, retrieved on Oct. 14, 2008 from www.economist.com. Read More