Consulting Services
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Industry Overview
Just over 100,000 consulting firms in the US generate combined annual revenue of about $125 billion. Large companies include IBM, Accenture, McKinsey, and Booz Allen. The industry is highly fragmented: about 75 percent of consulting firms are one- or two-consultant operations. The average consulting firm has fewer than 10 employees and annual revenue under $1 million.
Competitive Landscape
Demand for consulting services is closely tied to the health of the US economy. The profitability of firms depends largely on the special expertise they provide to clients. Large firms can offer a variety of services to big customers. Small firms can easily coexist with large ones if they have expertise in a highly specialized area or industry. Although the industry is labor-intensive, the high value of the work produces annual revenue per employee close to $200,000.
Large offices may have annual revenue of $10 million. The ratio of professionals to administrative staff may be 2:1 in a small firm, 9:1 in a large one. Most consulting firms are privately held.
Products, Operations & Technology
Most consulting firms specialize in only one area of expertise, or in a particular industry. IT consulting accounts for 45 percent of industry revenues; general management for 25 percent; HR for 10 percent; marketing for 7 percent; and process, logistics, and various types of technical and scientific consulting for the rest.
Many of the largest IT consulting firms today are offshoots of big accounting firms. About half of IT consulting revenue comes from the design and delivery of integrated "turnkey" computer systems for a client; the other half is from producing computer system design specifications, custom programming, computer system testing and maintenance, and sales of computer hardware and software.
General management consulting provides advice to senior and middle corporate managers about the operations or strategic direction of various functions in the client organization, including finance, marketing, HR, production, logistics, etc. Technical consultants provide expert assessments in environmental, legal, scientific, and other areas.
Most consulting jobs are project-oriented assignments or "engagements." Clients usually send a request for proposal (RFP) to several potential consultants outlining the requested task. Consulting firms respond with a proposal that specifies the approach the firm would take to address the task, the resources it would use, a timetable, the "deliverables" it would provide, and an estimated cost. In management and technical consulting, the major deliverable is usually a report or action plan. In IT consulting, the deliverable may be a complete computer system.
The work of consulting firms is highly labor-intensive. Although cost is a major factor for clients in deciding which consulting firm to choose, reputation and experience can be more important. Most consulting assignments involve a period of study or research, then formulation of possible solutions, and finally the production of a report.