l7856 management consultants in australia industry report
TRANSCRIPT
2 About this Industry2 Industry Definition
2 Main Activities
2 Similar Industries
2 Additional Resources
3 Industry at a Glance
4 Industry Performance4 Executive Summary
4 Key External Drivers
5 Current Performance
8 Industry Outlook
11 Industry Life Cycle
13 Products & Markets13 Supply Chain
13 Products & Services
14 Demand Determinants
15 Major Markets
16 International Trade
17 Business Locations
20 Competitive Landscape20 Market Share Concentration
20 Key Success Factors
21 Cost Structure Benchmarks
22 Basis of Competition
23 Barriers to Entry
24 Industry Globalisation
26 Major Companies26 Accenture Australia Holdings Pty Ltd
28 Deloitte Touche Tohmatsu
28 Marsh Mercer Holdings (Australia) Pty Ltd
29 Boston Consulting Group Pty Ltd
32 Operating Conditions32 Structural Risk Index
32 Investment Requirements
34 Technology & Systems
34 Industry Volatility
35 Regulation & Policy
35 Industry Assistance
35 Taxation Issues
36 Key Statistics36 Industry Data
36 Annual Change
36 Key Ratios
37 Historical Performance
38 Jargon & Glossary
IBISWorld Industry Report L7856Management Consultants in AustraliaSeptember 2010 Sam Ellis
Ready for the bounce: After enduring cutbacks, the industry prepares to capitalise on the global economic recovery
www.ibisworld.com.au | (03) 9655 3881 | [email protected]
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This industry provides advice and assistance to businesses and other organisations on management issues, such as strategic and organisational planning, financial planning and budgeting, marketing objectives and
human resource policies. This industry does not contain information technology or computer consultancy and accounting firms, which significantly lowers revenue and establishment estimates from other sources.
The primary activities of this industry are
Management consultancy services
Business planning
Strategic planning services
Statistical analysis
Business research
General consultancy services
Industry definition
Main Activities
Similar Industries
Additional resources
The major products and services in this industry are
Financial business management services
General business management consulting services
Human resource management consulting services
Market research services
Marketing management consulting services
Other management consulting services
Production management
About this Industry
L7823 Engineering Consultancy Services in AustraliaFirms in this industry consult on the design and construction of new buildings or infrastructure.
L7834 Computer Consultancy Services in AustraliaIT consulting companies consult on computers and find themselves competing with management consultants.
L7861 Employment Placement Services in AustraliaCompanies in this industry provide permanent employment placement and human resources planning.
L7862 Temporary Staff Services in AustraliaTemporary staff services companies provide temporary and contract employment placement services.
For additional information on this industry
www.abs.gov.au Australian Bureau of Statistics
www.imc.org.au Australian Institute of Management Consultants
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Market ShareAccenture Australia Holdings Pty Ltd 4.9%
Marsh Mercer Holdings (Australia) Pty Ltd 3.6%
Deloitte Touche Tohmatsu 3.1%
Boston Consulting Group Pty Ltd 1.7%
Key External driversCapital expenditure by the private sectorPervasive outsourcing for financial functionsbusiness outsourcing in the public sectorGlobalisation of business management servicesNumber of businesses
Key Statistics Snapshot
Industry at a GlanceManagement Consultants in 2010
revenue
$7.1bnProfit
$708.1mwages
$3.9bnbusinesses
4,702
Annual Growth 11-16
4.8%Annual Growth 06-11
2.0%
Industry Structure Life Cycle Stage Mature
Revenue Volatility Low
Investment Requirements Low
Industry Assistance None
Concentration Level Low
Regulation Level Light
Technology Change Low
Barriers to Entry Low
Industry Globalisation Low
Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIx ON PAGE 36
% c
hang
e
18.0
0.0
4.5
9.0
13.5
1604 06 08 10 12 14Year
Capital expenditure by the private sector
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% c
hang
e
10
−2
0
2
4
6
8
1602 04 06 08 10 12 14Year
Revenue Employment
Revenue vs. employment growth
Business locations
37.7%NSW
3.8%ACT
28.2%VIC
1.2%TAS 0.5%
NT
13.9%QLD
9.3%WA
5.4%SA
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p. 4
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Key External drivers Capital expenditure by private sectorWhen capital expenditure by the private sector is considered a proxy for the general level of confidence among businesses, it serves as a key indicator of the performance of management consultants. As business confidence and profits rise, the capacity and desire to bring in external experts to advise on expansion or restructuring plans become greater.
Pervasive outsourcing for financial functionsAttempts by governments and businesses to concentrate on their core strengths and functions, and lower staff and associated overheads, has had them move towards outsourcing (or buying in) expertise from specialist firms. This can either replace or supplement some of the in-house resources and functions.
Executive Summary
The appeal of management consultants to the corporate world has been steadily increasing for some time. The cost-saving benefits of bringing in outside expertise to advise on and oversee change in a company are widely known, and are now widely recognised. The success of many of the industry’s biggest names has only added to an already impressive reputation.
However, the ongoing turmoil on global financial markets and the prospect of global recession is causing trauma for many industries, and consultancies are not immune. Major professional organisations are shying away from large investments, as they attempt to limit the damage they may face as the world economy slows.
The industry’s greatest strength is its in-built stability. When the economy is booming, customers are flush with profit and are looking to invest in advisory services to increase margins further. When things take a turn for the worse, many clients look for help in minimising any potential damage.
Certainly, in the Australian market, consultants have performed better than their international counterparts, as the financial sector – the industry’s largest client – experienced a catastrophic decline. Early hesitancy led to sluggish growth, but the recovery is expected to be characterised by a sharp increase in
outsourcing. The challenge for management consultants is to capitalise on this.
As such, management consultants are expected to post average revenue growth of 2.0% per year for the five years through 2010-11. This includes growth in 2009-10 of 1.2%, bucking an adverse trend being experienced in other white-collar industries. This comes, however, hard on the heels of a contraction of 0.2% in 2008-09, as business spending on non-core services contracted. That the contraction was not more severe is testimony to the resilience of consultants during a downturn, and the corporate world’s increased reliance on them for advice.
Smaller consultancies with a focus on niche service provision are more likely to suffer over the short term than are the industry’s biggest players. More common consultancy practices are expected to continue, while highly specialised services are expected to be deferred until more optimistic economic times. During this time, the bigger firms are expected to consolidate aggressively, buying out smaller competitors who were unable to weather the economic storm.
After this period of uncertainty, the industry is set to rebound strongly, as clients attempt to put procedures and systems in place to prevent their exposure to future downturns of this nature. Growth is set to be 4.8% per year to 2015-16, as a surge in outsourced advising from 2011 to 2013 drives the industry even further forward.
Industry PerformanceExecutive Summary | Key External drivers | Current Performance Industry Outlook | Life Cycle Stage
The recovery is expected to be characterised by a sharp increase in business outsourcing
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Industry Performance
Still standing The industry’s robust profit margins in the past offered a substantial buffer against the slowdown experienced as clients tightened their budgets. The industry has routinely exhibited double-digit profit margins, and these were cut to around 8.0% of revenue in 2009. Many consultancies adjusted their
offerings to more simplified services for struggling clients in 2009, after spending many years providing more complicated business solutions to aid in growth. The cost of retaining skilled employees whose skills may not have translated to a recession environment also ate into margins.
Current Performance
Throughout the international economic downturn, nervous corporate players demonstrated a profound unwillingness to spend money. As financial markets collapsed and the resulting credit tightening filtered through to turn into a general economic malaise, companies cut costs and protected bottom lines more fiercely. While management consultants are protected from this by virtue of their
advisory nature – they can advise on cost-cutting, for instance – they certainly did not emerge unscathed. While Australia’s management consultants outperformed their US and European counterparts, the industry still experienced its first contraction since the early 1990s, experiencing a 0.2% drop in 2008-09, when business confidence was at its worst.
Key External driverscontinued
Business outsourcing in the public sectorGovernment is an increasingly common user of outsourced services – any sporadic work conducted by government offices can be limited by bringing in contracted staff. In the case of management consultants, government policy- and decision-making is made easier if relevant research has been conducted by an impartial third party. Also, internal reviews of operations and procedures are regularly outsourced to consultants, as their impartiality is aimed
at ensuring greater efficiency
Globalisation of business management servicesGlobal operation of major corporations has led to a demand for globally linked companies in this industry.
Number of businessesThe number of businesses, and particularly new medium and large ones, increases the demand for consultancy services, much of which has now been outsourced.
% c
hang
e
6.75
0.75
1.75
2.75
3.75
4.75
5.75
1503 05 07 09 11 13Year
Number of businesses
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% c
hang
e
18.0
0.0
4.5
9.0
13.5
1604 06 08 10 12 14Year
Capital expenditure by the private sector
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Industry Performance
Still standingcontinued
Over the five years through 2010-11, real industry revenue is expected to increase to $7.08 billion, at an average real rate of 2.0% per year. While the previous two years were weak due to a decrease in business spending, this appears to be only a momentary blip as stronger growth is set to resume in the coming year. Business confidence, while not surging, is set to grow steadily as economic signs become more positive. Larger firms were able to weather the downturn by tailoring their services to clients’ needs, however small consultancies (due to their niche operating nature) were without the necessary skills to assist with downsizing
strategy planningHowever, while the big firms have
been strong over the past few years, the number of small firms in the industry has increased. Many consultancies have trimmed staff, or focused on employing consultants with expertise in change management, meaning many specialists found themselves unemployed. It appears that many of these consultants started their own small firms (using existing contacts) as a means to ride out the current downturn. Despite slow revenue growth the number of consultancies in the industry is estimated to have increased by 2.6% in 2008-09 and 2.4% in 2009-10.
Consulting consolidation
Talented staff are getting lured overseas by higher wages and greater opportunities and the industry has responded by increasing salaries to retain quality employees. As the number of smaller industry players falls (many of which are founded by highly experienced former employees of medium to large firms), many of the founders are returning to the firms that originally employed them or to their competitors. This is likely to raise wages for the industry.
This shift to fragmentation and then back to concentration is currently underway. However, in the meantime wages have taken a severe hit. The downturn has seen contractions in average establishment size in terms of employees, the average wage has fallen commensurately and small low-earning firms have become more common. The longer-term trend for the industry, however, is one of ongoing consolidation. The effort to attract market share in a highly competitive environment is pushing large consultancies to offer a broader array of specialities and offer implementation and oversight services rather than traditional advisory services. This has resulted in the acquisition of small boutique consultancies
The number of individuals employed
in the industry is lower than the number of consultants thought to be operating in Australia. This is primarily due to many of these consultants being engaged in other forms of consultancy, such as recruitment, public relations and information technology. There is also a large number of consultants in the industry employed by groups that require consultancy on a regular basis. The most obvious of these is political parties and politicians, who employ full-time advisors and consultants.
It is also likely that firms will establish strategic alliances with other firms in order to gain access to specialist skills as they are needed, rather than trying to have all of these skills in-house. One of the largest changes in the industry over the past five years has been the re-emergence of the Big Four auditors in the consulting sector. In 2000 and 2001, in the wake of the Enron collapse and Arthur Anderson’s near-demise, many major auditors divested themselves of their consulting arms.
Industry salaries have increased to stop staff from leaving for overseas jobs
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Industry Performance
Consulting consolidationcontinued
KPMG sold its consulting operations (which was renamed Bearing Point), Ernst & Young signed a non-compete agreement with French firm Capgemini and PricewaterhouseCoopers’ consulting work was absorbed into IBM’s global operations. Deloitte was the only firm to remain in the industry and has established itself as a market leader. The three other firms are facing a highly competitive marketplace. Arthur Anderson (now rebadged as Accenture) has developed a strong foothold in the industry, with its greater focus on IT solutions.
This is the other great shift to occur in the industry in recent years. At one point, IT consultancy and management consultancy were distinctly different business propositions. However, today it is increasingly apparent that IT skills are critical in implementing strategic or change-management processes. As management consulting firms have
become more interested in providing start-to-finish assistance, the need to have IT skills has grown.
Correspondingly, IT consultancies have become interested in developing the strategies they once helped to implement. As such, IT consultants and management consultants are finding themselves more often in competition with each other. Many of the major players in these industries have become so intertwined that they struggle to differentiate their various consulting operations.
This trend has emerged during the past five years and is likely to be exacerbated by the current downturn. Companies will look to increase economies of scale by offering a full service for clients including assessment, advising, implementation and post-payment assistance. This will mean that a greater meshing of IT and management consulting activities will be required.
Fierce competition Increasing competition from other industries providing consultancy services has led to reductions in fees in recent years, causing some minor reduction in revenue. Also, during the earlier part of the past five years, consultancies focused on developing proprietary methods of evaluating and advising on change
strategy and risk management. As the economy has turned down, the level of differentiation has dropped markedly. Today, companies offer similar services centred on aiding cost-cutting activities. As such, competition is based on price comparisons, driven by cost-conscious clients.
redundant consultants get competitive
Mergers, buy-outs and acquisitions by larger industry participants have minimised any increase in establishment numbers. Low barriers to entry are encouraging smaller players to enter, but the increasingly competitive environment, with major players slowly gaining greater market share of crucial corporate spending, is ensuring establishment growth remains comparatively low next to revenue growth.
In this industry, as with any industry employing highly skilled specialists
exhibiting low barriers to entry, restructuring by large players can actually have the effect of increasing the number of small companies in the short-term. Consultants that are made redundant by firms cost-cutting advisory services often decide to begin their own consultancies focusing on their area of specialisation. This has the effect of driving wages down, and reducing productivity. The industry’s average wage is set to fall by 0.8% over the five years through 2010-11, to $114,200.
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Industry Performance
redundant consultants get competitivecontinued
Industry Outlook
The reliance on outsourced consultants that the business world has developed over the past decade is unlikely to abate due to the brief economic downturn. Companies are expected to embrace consultants with renewed vigour after the Australian economy begins to recover, with growth reaching a high of 6.7% in 2012-13. Over the five years through 2015-16, real industry revenue is expected to increase at an average annual rate of 4.8%, to $8.96
billion and the primary driver of this will be a resurgent economy and its associated boost in business confidence and outsourcing. As key economic indicators begin to recover, consumer spending grows and company profits rebound, firms will once again be inclined to invest in expansionary activities. Management consultants thrive in this environment as they can offer highly differentiated services, priced at a premium rate.
Consulting becomes more popular
Since the late 1990s, businesses and governments have outsourced numerous operations and have employed an increasing number of consultants. Outsourcing advisory services and other sporadically required work has become a recognised means of cutting costs and stimulating growth, and is certain to continue its growth in popularity as the economy recovers.
Continuing strong competition from other industries – including the accountants, IT consultants, and to a lesser degree the environmental and technical consultants – will ensure continued innovation in service offerings, as well as greater investment by firms in consulting services. This greater acceptance of the value of consultants is necessary for industry growth.
PWC, KPMG and Ernst & Young (from
the Accountancy Services industry) have recently indicated that they are preparing to re-enter the management consultancy business and re-establish these operations in-house, which will inject significant revenue into the industry. It will also contribute to the growing similarities between many industries offering advice to clients. Accounting and financial advice will likely become another service offered by management consultants.
On the whole, it is expected that
The meshing of different forms of consultancy will encourage more new firms to enter the industry
Ratio
8.0
6.2
6.5
6.8
7.1
7.4
7.7
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Employees per establishment
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% c
hang
e12.50
−12.50
−6.25
0.00
6.25
1602 04 06 08 10 12 14Year
Profit Wages
Profit vs. wages
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Industry Performance
Consulting becomes more popularcontinued
stronger economic growth over the next five years will increase industry activity, demand, revenue, and external competition. Furthermore, consultants
are likely to take an active role in the development and implementation of the national broadband network, which will place millions of dollars into the industry.
Hitting the bottom line
In terms of the management consultancy component, the major growth areas are currently in training and productivity improvement; skills audits; enterprise bargaining implementation; right-sizing of businesses and building on core activities and competitive strengths; total quality management; advising on and implementing world’s best practices; and to a lesser extent on information technology strategies.
Other important areas for management consultants are in providing information system; financial and administrative services; and strategic, corporate and business planning. As part of the industrial structural adjustment occurring in Australia, many companies are seeking advice on investment opportunities in Australia and internationally, and in implementing world’s best practice techniques in their companies to ensure long-term financial viability.
Increasingly, consultants are being asked to assist in implementing their recommendations and to monitor and evaluate the progress of that implementation. The emphasis therefore is not only to offer solutions but also to assist the client in their implementation. In some cases this has involved helping clients find finance for new or expansion ventures. Emphasis is on providing quality service and helping clients to implement the recommendations.
However, helping clients to implement recommendations, which from the perspective of the consulting firm may be seen as work with low return and high input, is increasingly being seen as
important and in many cases a key reason behind a company’s choice of management consultant firm. The balance of work in the consulting area has tended to shift more towards technical consulting (and implementation) and away from management and strategic consulting.
This shift towards a more holistic service offering is indicative of an industry that is beginning to run out of new markets. Without new potential clients the competition is peaking in the form of denying competitors as much market share as possible. This will be most notable in the major players’ balance sheets. Offering wide-ranging services across varying industries and skill sets is a costly enterprise, and these firms will be willing to eat into their own margins to hamper competitors’ growth. Profit margins have historically been as high as 20% industry wide, and have hovered around 16% for much of the past two decades. This trend appears to be at an end due to the cost-cutting of the global downturn.
In 2010-11, profit is expected to be only 10% of revenue and while this is expected to pick up again as corporate spending lifts, the high cost of doing business in the new market will ensure that the new average profit level will be lower. Figures closer to the low teens are expected as increasing competition from IT Consultants and Managed Service providers, whose computing expertise threatens one of the industry’s growth sectors, couples with the existing competitive industry pressures.
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Industry Performance
Competition for talent
Due to the nature of the work done by management consulting firms, many have, and will continue to have, problems in both attracting and then holding onto their employees. However, this has been less of a problem recently due to the less attractive environment now offered by businesses in the IT and e-commerce areas after many high-tech company collapses.
Over the next five years, there is still expected to be pressure on what management consultants can charge, based on continuing price competition within the industry and from continuing restraints on clients’ consultancy budgets. Historically, management consultants have gained a reputation of being a high-charging industry, as staff are often highly skilled, trained and educated, while senior consultants routinely possess first-hand knowledge of working in an industry for which they now consult.
As a result firms have often competed on skills and experience rather than price. However, increasing competition, particularly if the large accountancy firms re-enter the market, is likely to increase price pressure and could possibly force down charges and profits.
Smaller consultancies will continue to form alliances with other small specialised firms to undertake consulting work in well-defined areas, rather than carrying the significant overhead costs associated with full-time staff.
The current leading management
consultancy operators are expected to increasingly dominate the industry, however there is still room for small specialist and professional consultants to provide quality service, expertise and results in niche areas.
These smaller niche management consultants must have good contacts, personal networks and low overheads. Most importantly, they must be able to develop a reputation for providing quality and timely service, results and implementation expertise to clients.
This increasing meshing of different forms of consultancy, along with low barriers to entry, will encourage more new firms to enter compared to the last five years. Increasing differentiation of service offerings and greater focus on access to top talent will ensure the average wage also grows. This focus on securing the best analysts will drive up demand for their service, internally to the industry and externally to clients. This means that pay is set to increase notably to an industry average of $124,000 in 2015-16, representing an average annual increase of 1.6% and adding another contributor to constrained profit levels.
Increasing competition will likely increase price pressure and force down charges and profits
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Industry PerformanceWhile the industry may be growing internationally, the Australian industry is in its maturity
Increasing globalisation has led to a broader geographic spread internationally, but is leading to moderate growth in Australia
External competition is increasing, and is expected to continue to become more prominent
Competition is increasingly based on price, particularly among smaller players, leading to lower revenue growth
Life Cycle Stage
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30
25
20
15
10
5
0
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–10–10 100 20–5 155 25 30
% G
row
th o
f pro
fi t/G
dP
% Growth of establishments
declineCrash or Grow?
Potential Hidden GemsFuture Industries
Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets
Time wastersHobby Industries
MaturityCompany consolidation;level of economic importance stable
Shakeout
Shakeout
Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change
Key Features of a Mature Industry
Revenue grows at same pace as economyCompany numbers stabilise; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalisation of low margin products & brands
Engineering Consultancy Services
Mining
Computer and related Equipment Mfg
Computer Consultancy Services
Consumer Goods retail
Management Consultants
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Industry Performance
Industry Life Cycle The increasing globalisation of the economy in terms of imports, exports and investment by companies has increased the need for access to professional advice. However, international firms are becoming increasingly prominent in the Australian industry and multinational clients may be inclined to employ consultants from overseas to consult for their Australian operations.
Over the past decade, the industry has enjoyed consistent expansion through greater adoption of outsourced advice from clients and a broadening of service offerings by players. This incorporation of wholesale service, from advice to implementation and assessment, has led to increased revenue, greater wages and improved profits.
Continuing outsourcing of many business management services, including management consulting and strategic planning, by businesses and governments is tending to prop up any reductions in growth due to economic downturns. The industry has, in the past, benefited from the outsourcing of management consulting functions and from the downsizing of some internal advisory and strategy functions by businesses and government.
However, some large clients may now consider bringing aspects of this function back in-house, due to relative cost considerations and some recent significant failures and cancellations of large federal government contracts.
Innovation and complexityThe external operating environment is increasing in complexity due to companies and governments striving for better practice and a more strategic approach to its operations.
Management consultants have experienced growth in revenue and value added beyond that of GDP during the last five years, and are expected to continue to do so over the coming five years. Prior to the economic downturn in 2001-2002, the industry exhibited growth rates more closely equivalent to that of a growing life
cycle stage.The ease with which new players can
enter the industry is ensuring that the rate of establishment growth remains positive. Many new companies are not successful, as evidenced by slower growth in revenue among small firms and sole traders compares to their larger competitors.
The Management Consultants industry can become highly price competitive during times of economic uncertainty. During these times smaller players in the market often have to compete with negative margins to attract a client base and can therefore be forced out of the market altogether.
Competition is coming from more sectors than in the past, as management consultancies broaden their focus to incorporate implementation of advice alongside simply assessing and analysing. As a result, IT consultancies, banking and finance strategists, and insurance consultants are increasingly competing with industry players, reducing the likelihood that they will remain profitable.
The industry as a whole is competing in an environment where it has to indicate real, tangible and measurable results over time to clients that are in line with its report recommendations. It also has to provide value for money outcomes. There are a number of other industries that compete directly with this management consultants for projects. This increasing competition, particularly from external sources, such as IT consultancies, has placed price pressure on the industry, driving revenue levels down slightly.
Over the coming five years, the industry faces a substantial threat from alternative consulting providers, particularly in the IT and management services sector. However, the aggressive adoption of similar services by management consultants is likely to mitigate this in the medium-term, although competition between the two industries – and other consulting providers – will remain fierce.
This industry is Mature
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Products & Services Specialist management consultancy services have grown significantly over the past decade. Major players now tend to bring in the services from other companies, when required, in areas such as human resources and finance for advisory and implementation assistance – particularly for sporadically required services. There is also significant competition in certain areas coming from other industries including accountancy and employment agencies.
As the Australian economy has slowed, there has been a notable shift in the offerings of most consultancies. While general consultancy services once mainly covered activities such as change management and strategic advice, the growing emphasis, in the short term at least, is on assisting firms with cutting costs.
The move from proprietary methods of evaluating and advising companies on growth and expansion strategies to more simplistic advice on where to make cutbacks, and the most efficient and effective way of implementing these cuts, is having only a minor effect on the industry’s service offering. The industry’s client mix has not changed, and many consultants who were involved in growth management are equally qualified to assist in downsizing.
In some areas, management consultancy firms directly compete with corporations in other industries that specialise in these areas such as IT, human resources and business planning consulting. However, many large firms have recognised that evaluating an organisation’s structure, personnel, systems and technology is part of the corporate review process and these services should be offered. Conversely, some firms (particularly Accenture) have broadened into management and IT consultancies, offering a variety of services across both fields.
Greater integrationIncreasingly, larger clients have requested that management consultancy firms assist in implementing their recommendations and that they also carry some of the risk (and share in the success). Part of this process may involve a success fee basis, with payments staggered over time. This new process is used particularly when clients need cost reduction services or productivity and profit-driven initiatives. Strategic alliances between management consultants and other specialist consultancy firms are also occurring to offer a broader range of services to clients without increasing overheads.
KEy buyING INduSTrIES
b Mining in Australia The resources boom is creating greater demand from the mining sector as they attempt to streamline administrative procedures.
G5000 Consumer Goods retail in Australia The retail sector has numerous structural concerns, particularly in light of the sale of Myer and the redevelopment of the Coles Group.
L Property and business Services in Australia There is demand from the corporate sector for outsourced business advice, planning and implementation from management consultants
KEy SELLING INduSTrIES
C2841 Computer and related Equipment Manufacturing in Australia Computer equipment is essential to the provision of industry services.
L7713 Office Property Operators in Australia Major consulting firms require prestigious office locations in order to maintain a reputation for excellence.
Products & MarketsSupply Chain | Products & Services | demand determinants Major Markets | International Trade | business Locations
Supply Chain
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Products & Markets
demanddeterminants
The demand for management consulting services is thought to be closely linked to the economic cycle. It is particularly sensitive to business and government activity levels, in areas such as mergers, acquisitions, de-mergers, exports, business and financial planning, feasibility studies, human resources planning, strategic planning, and policy and planning issues.
Companies’ expenditure on outsourced consultancy is widely considered to be a discretionary cost, and can be deferred or cancelled during periods of economic uncertainty. However, the need to institute changes to maximise profits when revenue is falling encourages companies to continue making use of outsourced consultancy.
Outsourcing continues to growMany firms are increasingly outsourcing because the expertise of external analysts is often widely respected and can be invaluable when operating in difficult regulatory regimes, or when expanding a
company, domestically or internationally.Expenditure on government
consultants, however, is coming under fire as being unnecessary. Governments are increasingly willing to bring in consultants from the private sector to streamline processes and implement structural change, and these costs are viewed with some scepticism by the public. In countries with less transparent public services than those in Western countries, this check on government expenses is far less comprehensive, and is therefore less likely to mitigate government spending.
While some firms will employ consultants to protect them against
Products & Servicescontinued
Over the last five years, there has been minimal change in the product segmentation in the industry, and IBISWorld expects no significant changes over the next five years. Growing competition from external sources, such as information technology consultants
(like Accenture), will likely increase the presence of IT consulting services, possibly resulting in a minor increase in the revenue share of the general business management consulting services segment, which is already the industry’s primary product.
Products and services segmentation (2011)
Total $7.1bn
43.7%General business management
consulting services
3.4%Market research
services
19%Other management consulting services
3.1%Production
management
15.7%Human resource management
consulting services
8.7%Marketing management
consulting services
6.4%Financial business
management services
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Strong growth in the finance sector has driven demand for management consultancies
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Products & Markets
Major Markets The industry mainly obtains its revenue from the business and government sectors as part of their consulting budgets. IBISWorld estimates that around 77.4% of the revenue is derived from the business sector, 60% of which is derived from the banking, finance and insurance industry (which equates to 46.4% of total industry revenue), and the remainder from government at all levels, primarily state and federal.
Demand from the business sector has fluctuated in line with economic conditions and business confidence. However, demand has been increasing in areas associated with business re-engineering, increasing labour productivity and skills. Globalisation has also spurred demand – in terms of import competition, export development and investment, mergers and acquisitions, technology use, access and transfer and achieving overall world’s
best practice.This sector segment of the industry’s
market is falling as governments and other industries become more inclined to outsource assistance in management decision making and implementation. It is still the largest segment in the industry, at 46.4% of revenue, and is almost certain to remain so for the foreseeable future. However, as the acceptance of management consulting economy-wide grows, it is likely to assume a slightly diminished role as the dominant market segment.
Historically, the management consulting industry has relied heavily on firms in the finance and insurance sector for income, but companies across all sectors are increasingly becoming inclined to invest more heavily in consulting services such as supply chain management, customer relationship management, human performance
demanddeterminantscontinued
potential future losses, the employment of consultants is predominantly viewed as a cost incurred when a company is performing well, and looking to expand service offerings, or is looking to deal with the difficulties inherent in expansion. As such, growing business profits routinely influence growth in the industry.
The Banking, Finance and Insurance
sector is the industry’s largest client base. As such, the strong growth that that sector has experienced has been instrumental in driving growth among management consultancies. Other sectors that drive industry growth include Federal and State Governments and the Retail sector, which increasingly looks to consultants to aid in supply chain management.
Major market segmentation (2011)
Total $7.1bn
46.4%Finance, Banking
and Insurance Sector
31%All other
private businesses
15.8%Federal Government
6.8%State Governments
SOURCE: WWW.IBISWORLD.COM.AU
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 16
Products & Markets
International Trade While the industry is experiencing a surge in the level of globalisation, operations in management consultancy are almost exclusively conducted domestically by local firms, or local branches of major international firms. One of the largest drivers of greater globalisation has been the introduction of major international firms (outside the US) in the wake of the sale of the Big Four’s consulting services.
However, the industry’s major players do conduct operations internationally
with offices established in countries where their services are required. Any exporting of services is not performed by Australian firms or Australian branches of global firms.
Major Marketscontinued
management, strategy, and finance and performance management. This segment has thus increased in prevalence in its share of industry spending, up to 31.0%, from 25.2% five years ago.
Over recent years, state governments have increased their expenditure on consultancy outsourcing, both on policy
decisions and management of the public service. IBISWorld expects this to continue over the five years through 2015-16, moderately increasing its share of industry revenue generation, most likely at the expense of the banking, finance and insurance sector, which may reduce consulting costs as the economy slows.
International companies establish Australian offices to conduct business
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 17
Products & Markets
SOURCE: WWW.IBISWORLD.COM.AU
TAS0.7
wA10.1
QLd8.9
VIC31.0
NSw40.3
NT0.5
SA2.8
ACT5.7
revenue (%)
Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
business Locations 2011
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 18
Products & Markets
business Locations The industry is centred on the major commercial cities of Melbourne and Sydney, predominantly due to the greater access to clients (such as banks and insurers) in those areas. As such, New South Wales has 37.7% of industry establishments and only 33.7% of Australia’s population – a 4 percentage point discrepancy.
While New South Wales exhibits a disparity between establishments and population of 4 percentage points, its share of revenue is markedly larger, at 40.3%, or 6.7 percentage points greater than its share of population. This suggests that the bulk of the nation’s major players, who achieve substantially larger revenues per establishment than smaller firms, dominate these regions, while having minimal comparative involvement in other states (with the notable exception of Victoria). The establishments in these regions have high revenue-earning capacity because they have larger populations and also because the bulk of firms in the Finance, Banking and Insurance sector base themselves in these areas.
High-performing statesOther states to have a significantly greater share of establishments than population are Victoria, with a 3.2 percentage point discrepancy (25% of national population and 28.2% of establishments) and the Australian Capital Territory (1.6% of population and 3.8% of establishments). While Victoria (particularly Melbourne) has a high level of industry activity for similar reasons to those of New South Wales, the Australian Capital Territory has a high proportion of industry establishments due to the close proximity to federal government, which is the largest single user of management consultancies in Australia.
Victoria also shares a disproportionate share of revenue, with 31% of national income, 6 percentage points greater than population share and 2.8 percentage points greater than establishment share. New South Wales and Victoria also exhibit a high proportion of national
employment due to the presence of the industry’s major players, who have greater employee numbers than the smaller industry participants.
The Australian Capital Territory is the only other region to have a greater share of establishments than population, but only has a small share of revenue considering the amount of money spent on consulting services by the federal government. The bulk of contracts won by major players are handled by offices and consultants in Melbourne and Sydney, while smaller firms competing for niche contracts from the government tend to have offices in the Australian Capital Territory to better access those with a prominent role in the political process. An increasing part of consulting involves maintaining contacts and networks with those who have the capacity to enact changes to assist certain industries. In this way, consultancies are beginning to build closer relationships with PR firms.
Western Australia and QueenslandAnother state with an unusual discrepancy is Western Australia. While not having a disproportionate number of establishments to population (9.3% of establishments, 9.8% of population), the state generates 10.1% of industry revenue, suggesting high productivity amongst establishments in the region. This can most likely be attributed to the rapid growth currently being experienced in WA as a result of the commodities boom being generated by high demand for natural resources in China and India, with mining companies requiring greater levels of logistical and managerial coordination.
The only state to exhibit a disproportionately small number of
Improving technology and increasing globalisation will cause the industry to become decentralised
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 19
Products & Markets
business Locationscontinued
industry representatives on a per capita basis is Queensland, which has a 4.7 percentage point discrepancy between establishment numbers and population (18.6% of population and 13.9% of establishments). The likely reason for this is the low level of business penetration in Queensland, due to its predominantly rural nature.
The exception in this region is Brisbane, which contains the vast bulk of the Queensland population, and tends to be more urban and corporate than the more rural Queensland as a whole. However, IBISWorld expects the Queensland region is to exhibit some growth over next five years (as it has been displaying growth over the last five years), due to the increasing levels of consultancy provided to the mining industry, which exists in remote Queensland locations such as Mount Isa.
OutlookIBISWorld estimates that Western Australia will continue to grow as a revenue-raising state over the next five years. Whether this will be sustainable depends on the long-term success of the state’s mining industries. Queensland, however, has had steady growth across many industries over the past decade.
This trend has slowed in recent years, however. IBISWorld expects revenue growth to continue in Queensland, bringing its share more in line with population. This growth will most likely take place at the expense of New South Wales and Victoria, as improving technology and increasing globalisation and nationalisation (i.e. major firms may be inclined to set up offices in smaller centres such as Adelaide and Perth) will likely lead to a mild decentralisation across the industry.
Perc
enta
ge
50
0
10
20
30
40
WA
ACT
NSW N
T
QLD SA TA
S
VIC
RevenueEstablishments
Distribution of revenue vs. establishments
SOURCE: WWW.IBISWORLD.COM.AU
Perc
enta
ge
50
0
10
20
30
40
WA
ACT
NSW N
T
QLD SA TA
S
VIC
RevenuePopulation
Distribution of revenue vs. population
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 20
Key Success Factors Provision of development programs for personnelA key component of being part of a skill and knowledge intensive industry is the ability to devote considerable resources to on-going staff training.
Use of production techniques that add value to base product(s)Companies must be able to develop specialist and value added services at higher charge out for rates that are highly valued by clients.
Willingness to outsource when appropriateCompanies should have access to consultants with specialist skills to offer a broader range of services to clients and assist in containing overhead costs.
Possession of accurate informationIt is important that companies have access to a national and international information data base, or reports and data, with ease of access and transfer.
Market Share Concentration
While there are numerous widely-known and reputable management consultancies operating in Australia, the industry is highly fragmented due to the sheer volume of small firms operating on a highly specific skill or regional basis. The ease with which a consultancy can be started means that any individual with the requisite skills can enter the industry at a moment’s notice. As the industry has broadened its services – specialising in individual industries as opposed to broad strategic skills – individuals with skills in certain industries may enter as well. For example, a former telecommunications executive may act as a subcontractor to many telecommunications companies. The recession in 2009 saw many skilled workers losing their jobs, and for many, consulting acts as an effective interim step.
As a result, the industry’s major players account for less than 15% of industry revenue. Competition between these players is fierce, but the divide between major players and smaller firms is stark. The largest firms, while controlling 15% of revenue, only represent 8.0% of establishments, indicating that the average size of offices for the large firms is markedly greater.
Recession boosts small firmsThe industry has two extremes, one being that 98.4% of establishments expect to have 19 or fewer employees. These small groups engage in intense competition at
the lower end of the industry for local government and small- to medium-sized business contracts. The ease with which small players can enter the market, and the high capacity for providing niche services are prime drivers of such a fragmented industry. Another 1,408 establishments have 20 or more employees, including 83 with more than 200 staff, which highlights the divide between large and small firms.
In 2008-09 and 2009-10, it is likely that the industry will see brief spike in the number of sole proprietors and partnerships, as consultants made redundant during restructuring look to establish their own firms. This will cause a small increase in industry fragmentation, however, it is likely to be short lived, as other small firms may be acquired by larger consultancies during their restructuring.
Over the five years through 2015-16, the level of concentration in the Management Consultants industry will continue to increase, as major corporations increase their emphasis on mergers and acquisitions. The sale of the major accounting firms’ consulting arms to existing consulting firms is a prime example of this tendency to increase concentration. Despite low barriers to entry, the rate at which small players enter the industry is expected to slow as the market becomes saturated to the point that there is insufficient clientele for prospective consultants.
Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure benchmarks basis of Competition | barriers to Entry | Industry Globalisation
Level Concentration in this industry is Low
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 21
Competitive Landscape
Cost Structure benchmarks
After furious cost-cutting in 2009, margins in the industry will benefit in 2010-11, expanding to 10% of revenue. Low levels of capital input and operating expenses mean that once project fees cover the wages of consultants being employed, much of the remainder is considered profit. Depreciation, quite low at 3.0% of revenue, reflects the low capital expenditure the industry incurs. Beyond standard office equipment and computers there are no compulsory capital costs.
In general, labour costs are the industry’s predominant cost, at 55% of
revenue, demonstrating the industry’s labour intensive nature. Work performed by the industry, while beginning to focus more on the implementation of recommendations, still primarily revolves around the provision of advice, for which the cost of expert labour remains pre-eminent. Among the industry’s major firms, wage pressures are often not as high, as effective management of staff and project assignments, coupled with greater economies of scale, can improve staff efficiency.
Beyond ordinary wages, the industry is beginning to invest more in outside
Key Success Factorscontinued
Access to the latest available and most efficient technology and techniquesAccess to the latest and appropriate computer software and hardware, maximum labour productivity and to have support as a key success factor is needed to be successful in this industry.
Ability to effectively communicate and negotiateTo have strong presentation skills in relation to client report presentations and for tenders is a key success factor for companies in this industry.
Industry Costs and Average Sector Costs■ Profi t■ rent■ utilities■ depreciation■ Other■ wages■ Purchases
Industry Costs (2011)
Average Costs of all Industries in sector (2011)
0 100%
10.0Profit
11.055.014.03.02.0
5.0
18.2Profit
11.434.526.42.81.9
5.0
INduSTry COdE ANd TITLE 2005-2010 2011-2015
C2841 Computer and related Equipment Manufacturing − −L7713 Offi ce Property Operators − −Costs for operators in the Management Consultants industry are affected by the price of goods and services from supplier industries. IBISWorld has estimated the trends of key input prices over the previous fi ve years and for the coming fi ve years. − is good news for this industry as IBISWorld expects the price of key inputs to fall; • shows where this industry is negatively affected as IBISWorld expects the price of key inputs to rise; - means price changes will not be a key issue for the industry.
SOURCE: WWW.IBISWORLD.COM.AU
SOURCE: WWW.IBISWORLD.COM.AU
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 22
Competitive Landscape
basis of Competition This industry is very competitive, with a high number of firms ranging from large, internationalised entities to small, non-employing, area-specific companies. Over the past decade, the industry has become increasingly competitive between existing consultancies and external companies looking to eat into their market share. During periods of economic difficulty, this competition tends to focus increasingly on price and service offerings become more homogenised – that is, assisting with cost cutting and redundancies rather than growth strategies.
Reputation is essential for a consultancy to operate effectively. This is most often built on quality performance and the word-of-mouth promotion it generates. The high fees charged by players in the industry serve to demand a high quality of performance, which a good reputation infers.
The industry has a significant number of operators and the barriers to entry are low. Clients are also increasingly
becoming more demanding and seeking further work from business management services companies for the same budget (or even a reduced budget).
More importantly, clients are becoming more results oriented, are seeking quantifiable targets and more direct results for their money. They are also demanding consultants be more involved in actually implementing their recommendations, particularly in the IT area, and also in access and delivery of financial resources to implement any agreed strategy.
Strategic alliances between companies in this industry and those in the IT and finance areas are continuing to be important in terms of implementing and delivering recommended strategic directions. During periods of low profit growth competition can become increasingly price-based, particularly among smaller firms that do not have the luxury of pre-existing branding or reputation to attract clients.
Also, larger players tend to promote
Cost Structure benchmarkscontinued
labour. As the skills required of a consultancy broaden, it becomes more economical to share skilled staff on secondment. Mid-size firms, which cannot afford to keep a broad variety of skilled staff on its payroll, tend to rent its staff to other firms, which return the favour with its own talent. This pushes total industry spending up toward 60% of revenue. However, this increase in outsourced labour does not represent an increase in wage costs over time. In the late 1990s, total wages – including a much smaller subcontracting cost – absorbed more than 60% of revenue.
The average wage in the industry is expected to be quite high at an estimated $114,200, due to the high quality of many consultants. Consultants often possess substantial tertiary education, along with experience in the industry or sector in which they perform their consultancies. Consultancies often charge high fees for the services of their consultants, and this
is reflected in the wage they command.Purchase costs, at a low 11% of
revenue, centre on the purchase of specific equipment required to assist in a certain consultancy project. The greatest purchase cost is the cost of accessing information to aid decision making. Access to market research reports can be quite expensive, and as the industry’s success is predicated on the performance of analysts and consultants, high quality information is considered crucial as a decision-making tool.
Other costs, at 10% of total industry revenue, represents expenses such as marketing costs (including advertising and establishing a presence at conferences and seminars), insurance costs, employee benefits and other retention programs (such as bonuses or company cars) and recruiting, along with the transportation and accommodation of consultants when conducting projects for clients in interstate or remote areas.
Level & Trend Competition in this industry is High and the trend is Increasing
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 23
Competitive Landscape
barriers to Entry The prominence of small one- or two-person operations (particularly in the US) is evidence of the ability of new industry entrants to access the requisite capital to establish a new company. Capital costs are minimal, as basic computing equipment is all that is required, and business may still be conducted without this, while regulations governing the industry are minimal. Some industries require licensing, or membership of a particular industry group. Without this type of official ratification, business can be difficult to obtain.
Service SpecialisationNew companies can exploit specialist knowledge (often acquired while working
for larger management consultancies) of a particular industry, skill or geographic region (intimate knowledge of Chinese culture and the Chinese economy is particularly valuable in the current economic climate), while targeting clients with interests in these industries, skills or regions. However, new entrants to the industry often possess skills and expertise relevant to their service offering, which is often the primary motivation for starting a firm, and as such, absence of specialty skills is mostly limited to new players looking to offer broad advice on non-specific issues.
Major players in the industry have sufficient staff with varied skills to allow conducting multiple projects at lower cost
basis of Competitioncontinued
themselves on their expertise in specific areas of management, or a variety of industries they posses specialists in. The Boston Consulting Group, for example, provides a list of experts on their websites and the field of expertise they consult in. A reputation for excellence overall and in specific fields can be a major selling point. Niche offerings are an invaluable means of helping smaller firms to compete, as broad, generic services can be acquired by the major players, which benefit from greater exposure.
External competitionConsultancies attempt to provide a broad-based and vertically integrated service offering, in terms of providing consultancy and assistance with implementing the advice from the analysis conducted. This is leading the industry into conflict with other industries that overlap with new services offered.
This is particularly the case with Chartered Accountancy, IT, Finance and Employment/Human Resources firms. The sales of the consulting segments of the Big Four accountancy firms during the early 2000s has created new IT, business and management consulting groups, which have worldwide representation and experience.
This included Ernst & Young reaching an agreement with Capgemini, the sale of KPMG’s Australian consulting arm into the USA as Bearing Point and PricewaterhouseCoopers’ sale of its consulting arm to IBM. Deloitte Touche Tohmatsu, however, restructured its consulting activities and kept it in-house, operating as a subsidiary of Deloitte.
OutlookIBISWorld expects continued convergence between operations in this industry and those of players in the IT Consultancy industry, meaning that there will be increasing competition from players such as IBM, EDS and CSC. However, these groups will most likely refrain from entering the industry in a wholesale manner and the points of differentiation between those companies and existing players will ensure that the level of competition is unlikely to change markedly.
Niche offerings are an invaluable means of helping small firms to compete on a large scale
Level & Trend Barriers to Entry in this industry are Low and Steady
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 24
Competitive Landscape
Industry Globalisation
While Australia does not have any domestically-based major players, there are many global firms, and their international reach is increasing.
According to IBISWorld estimates, the 10 largest management consulting firms in the industry only account for 10% to 11% of global revenue, however this is continually increasing, as large firms continue to expand into international markets where they consider there to be a vacuum in the industry.
The largest industry players are continuing to expand globally, through establishing branch offices in the Asia Pacific and Middle East regions, China and other similar emerging economies and regions. Therefore, the overall level of industry globalisation is estimated to be low but is increasing gradually. The majority of operators in this industry are regarded as having a low level of globalisation due to being US owned and are earning the bulk of their sales from
domestic activity.IBISWorld analysis indicates that
there are few major operators in this industry based outside of the US, although firms such as Capgemini (Paris) indicate the growth of major firms in Europe. Major players are overwhelmingly located in North America and Europe, as the skills required to perform in this industry are generally acquired in Western education institutions, and those who attend said institutions are highly likely to remain based in the US.
Another explanation for the low level of globalisation in the industry is the location
barriers to Entrycontinued
per project than smaller competitors. As such, new entrants need to compete with one another, rather than with the majors.
The industry is not a heavy advertiser, and reputation and having a network of existing clients willing to continually utilise services can be crucial to success. Many startup management consultancies, however, are created by consultants with existing experience and connections, most often developed during tenure with a large consultancy firm.
IBISWorld expects the industry to maintain a low level of barriers to entry over the outlook period, as initial outlay is minimal and there are few specialised management consultants in the Australian market when compared with the US, which has a $130 billion industry. However, larger players in the industry are quite dominant, and the economies of scale they posses make it difficult for smaller companies to compete effectively.
Also, in an attempt to gain market share and establish a foothold in
emerging Asian markets, larger industry firms have in recent years become highly acquisitive, particular attention has been paid to entities in emerging markets with an established client base. Meanwhile, growing horizontal integration by larger firms in an effort to prevent clients going elsewhere for implementation services has led to an increasing challenge to smaller firms to match that service provision offered by large firms exploiting economies of scale.
barriers to entry checklist Level
Competition HighConcentration LowLife cycle stage MatureInvestment requirements LowTechnology change LowRegulation & policy LightIndustry assistance None
SOURCE: WWW.IBISWORLD.COM.AU
Level & Trend Globalisation in this industry is Low and the trend is Increasing
The 10 largest management consulting firms account for a small, but growing, share of global revenue
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 25
Competitive Landscape
Industry Globalisationcontinued
of the bulk of the major players’ head offices. With the exception of Capgemini, which itself purchased the consulting arm of accounting firm Ernst & Young in 2000, all major players are based in the US. While these firms all conduct international operations, their origins in the United States have necessitated a recent move into international markets and are subsequently increasing the industry’s level of globalisation.
IBISWorld expects the industry to remain at a low level of globalisation over the five years through 2015-16, as smaller players in specific geographic regions, particularly Europe and North Asia gain a foothold. Also, large clients will increasingly utilise the services of multiple consultancies as a risk management strategy that is most likely against the recommendations of their current consultants.
Specialisation and connectivityIncreasing connectivity between developed economies is allowing large industry players to broaden their international approach by conducting consulting projects across international borders, increasing industry globalisation.
Clients of firms in this industry demand a high level of customisation of services and personal attention, which minimises the ability of firms to offer internationally homogeneous services that many service-based industries can afford to do. Client firms often require advice tailored to the business culture of the geographic region in which they operate, ensuring that while the level of globalisation in the industry is increasing, the predominance of large multinationals will be mitigated by the specialist requirements that can be offered by local niche competitors.
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 26
Player Performance Accenture is one of the world’s leading management consulting, technology services and outsourcing organisations, with approximately 140,000 employees; offices and operations in more than 150 cities in 49 countries; and revenues before reimbursements of US$23.39 billion for fiscal 2008.
Accenture grew from the collapse of Arthur Anderson Consulting in the wake of the Enron collapse and associated concerns regarding auditors and consultants involved in the process. Increasingly, Accenture’s focus is on providing IT assistance, and as a result, the company’s IT consulting revenue is of growing importance to the company’s total revenue. IBISWorld estimates that around 48% of Accenture’s revenue falls under the purview of the IBISWorld definition of management consulting, hence for 2008, global revenue was estimated to be around US$11.1 billion.
HistoryAccenture originated as the consulting division of Arthur Andersen which was founded in 1913 by Arthur Andersen and Clarence DeLany and was named Andersen, DeLany & Co.
In 1989, the consulting division split from Arthur Andersen (AA) and began using the name Andersen Consulting (AC). Both Arthur Andersen and Andersen Consulting consisted of groups of locally-owned independent partnerships and other entities around the world, each in a contractual agreement with Andersen Worldwide SocieteCooperative (AWSC), a Swiss administrative entity.
Through the 1990s there was increasing tension between Andersen Consulting and
Arthur Andersen. Andersen Consulting was upset that it was paying Arthur Andersen up to 15% of its profits each year (a condition of the 1989 split was that the more profitable unit – AA or AC – paid the other this sum), while at the same time Arthur Andersen was competing with Andersen Consulting through its own newly established business consulting service line.
This dispute came to a head in 1998 when Andersen Consulting claimed breach of contract against AWSC and Arthur Andersen. In August 2000, Andersen Consulting broke all contractual ties with AWSC and Arthur Andersen. As part of the arbitration settlement, Andersen Consulting was required to change its name, resulting in the entity being renamed Accenture.
Its organisational structure includes divisions based on client industry types and employee workforces. Industry divisions, referred to as operating groups, include Products (e.g. consumer packaged goods or industrial equipment), Communications High Technology and Media (CHT), Financial Services (e.g. banking and insurance), Resources (e.g. utilities, chemicals and energy), and Government. The employee workforce divisions are respectively titled Consulting, Services, Enterprise and Solutions.
Accenture’s business is structured around these five operating groups, which together comprise 17 industry groups serving clients in major industries around the world.
PerformanceAccenture has exhibited strong growth across all sectors over the five years through 2010-11 (see revenue tables) and
Major CompaniesAccenture Australia Holdings Pty Ltd | Marsh Mercer Holdings (Australia) Pty Ltddeloitte Touche Tohmatsu | boston Consulting Group Pty Ltd | Other
Major players(Market share)
86.7%Other
Accenture Australia Holdings Pty Ltd 4.9%
Marsh Mercer Holdings (Australia) Pty Ltd 3.6%
deloitte Touche Tohmatsu 3.1%
boston Consulting Group Pty Ltd 1.7%
SOURCE: WWW.IBISWORLD.COM.AU
Accenture Australia Holdings Pty Ltd Market share: 4.9%
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 27
Major Companies
Player Performancecontinued
overall company revenues have grown at an annualised rate of 16% over the last ten years. In recent years, growth in the Asia Pacific region has encouraged further incursions into that region, particularly growth in the EMEA (Europe, Middle East and Asia) region has been well below the US and Asia over the same period.
Accenture maintained its place as Australia’s largest consulting firm over 2009-10, with a market share of around 5% of revenue, or $340 million. The increasing collaboration between management consulting and IT consulting arms of major firms has left Accenture ideally placed, as they were among the first to adopt an IT consulting strategy in the wake of the Arthur Anderson collapse. In 2008, the company actually saw a drop in revenue, which bucked not only the long-term trend but also the company’s international performance. The reduction in revenue is likely to be only a momentary hiccup as demand for consulting services was very strong going into 2010.
In 2007, collaboration with Macquarie Bank to consolidate their global human resources functions led to a marked increase in revenue beyond the normal organic growth the company has been experiencing. Also, organic growth in IT consulting as well as the acquisition of numerous small IT systems design firms contributed to the 78.1% increase in revenue. However, little of this revenue falls under the banner of management consulting and thus Accenture’s market share remained more stagnant.
For Accenture’s Australian operations, revenue fell in 2003 as the result of a shift to new, international accounting standards. Since then, revenue growth has been strong, increasing by 19.6% in 2005 and 16.5% in 2006. IBISWorld estimates that around 48% of total revenue is generated by activities in management consulting, rather than IT consulting services, and as such, revenue in 2009-10 was expected to be around $340 million, which equates to approximately 5.0% of total revenue.
Accenture Australia Holdings – fi nancial performance
year*revenue
($ million) (% change)Net income ($ million)
2003-04 379.0 N/C -3.7
2004-05 453.4 19.6 -15.1
2005-06 528.4 16.5 13.5
2006-07 941.3 78.1 70.2
2007-08 923.6 -1.9 20.6
2008-09 998.7 8.1 N/A
*year end AugustSOURCE: IBISWORLD
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 28
Major Companies
Player Performance Marsh Mercer Holdings (Australia) Pty Ltd, incorporated in 2001, is the Australian proprietary company owned by foreign entity Marsh & McLennan Companies Inc. Like Marsh Mercer Holdings, there are other subsidiaries of Marsh & McLennan worldwide, providing personnel, organisational, risk-management and many more types of consultancy services.
Marsh Mercer Holdings provides services for risk management and insurance, and the company segments its operations. The company’s risk management segment includes insurance and reinsurance broking. The consulting services segment conducts risk evaluation
and reduction, actuarial services and more. In 2009, the company reported revenue of $568 million and employed 2,365 people.
Despite the industry’s poor performance globally in 2008 and 2009, Mercer’s global operations, via Marsh & McLennan, managed 3.6% growth in 2009. However, despite this comparatively buoyant growth, the company posted a loss of US$75 million, down from a profit of more than US$2.0 billion a year earlier. The company’s Australian operations are likely to have suffered a poorer fate – much of the growth came from branches of the business operating in developing economies like China and India.
Marsh Mercer Holdings – fi nancial performance
year*revenue
($ million) (% change)NPAT
($ million)
2004 448.5 N/C 66.0
2005 444.1 -1.0 49.8
2006 494.4 11.3 50.3
2007 536.8 8.6 59.1
2008 560.9 4.5 58.8
2009 568.0 1.3 62.2
year end decemberSOURCE: IBISWORLD
Marsh Mercer Holdings (Australia) Pty Ltd Market share: 3.6%
Player Performance Deloitte Consulting, the only remaining consultancy of the Big Four auditors, has established a substantial foothold in the industry based on taking substantial business from its former competitors. The parent company, Deloitte Touche Tohmatsu, has also experienced substantial growth in its broader operations, which has been mirrored by the consulting arm. In 2007-08, total Australian revenue was $772 million, of which 18.5% was consulting revenue, representing estimated 2008-09 market share of around 2.6%.
Internationally, Deloitte is established
deloitte Australian (consulting segment) -- fi nancial performance
year* revenue (% change)
2005-06 523 N/C
2006-07 618 18.2
2007-08 772 24.9
2008-09 852 10.4
2009-10 820 -3.8
*year end MaySOURCE: ANNUAL REPORT AND IBISWORLD
deloitte Touche Tohmatsu Market share: 3.1%
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Major Companies
as one of the world’s two largest consultancies (along with Accenture), with operations in 140 countries, and total DTT revenue reaching US$27.4 billion in 2008. Global consulting revenue was $6.3 billion in 2008, or 22% of total global revenue. Asia Pacific growth in 2008 was the fastest of any region, increasing at 30.3%, although much of this growth took place in China, India and Vietnam. Aggregate revenue of Deloitte member firms for the year ending 31 May 2008 was US$27.4 billion, an increase of 18.6% in U.S. dollars over the previous year. It was the highest in
six consecutive years of double-digit revenue growth from continuing operations. Revenue growth was 13% when measured in local currencies.
Deloitte faces increasing competition in the form of the return of the other Big Four firms – Ernst &Young, PricewaterhouseCoopers and KPMG. However, these companies re-enter the market at a distinct disadvantage, having lost significant market share to Deloitte and Accenture over the seven years since they exited the industry, while also surrendering older clients to the firms that were established in the wake of their exits.
Player Performancecontinued
Player Performance The Boston Consulting Group (formerly Pappas Carter Evans and Koop), was established in 1979 and has always placed an emphasis on the necessity of companies to watch their overhead structure and associated costs. Most of its senior consultants have worked with leading consultancies in the US or UK and competitor analysis has been an important aspect of their work.
The Boston Consulting Group (BCG) is an international company and has offices in 18 cities across the globe such as London, Milan New York and Paris.
BCG seeks to establish an on-going and long-term relationship with its clients and, like most others, guarantees to maintain an uncompromising policy of client confidentiality. The company indicates that its success can be shown in
that 80% of its largest 50 clients that engaged BCG over the last five years are continuing to use their services.
Its activities include the areas of business strategy, marketing and sales strategy, strategy audit, industrial policy, organisation structure, time-based competition, new product development, portfolio strategy, international development, optimising equity value, diversification, financial policy, product positioning and information technology. Its clients have included Pacific Dunlop, Rheem, Castlemaine Tooheys, Macquarie Bank and more.
It has recently assisted an airline to respond to changes in its competitive environment, assessing the performance of various business units for a bank, undertaking a strategic review for an
boston Consulting Group – fi nancial performance
year*revenue
($ million) (% change)NPAT
($ million)
2004 84.6 N/C 3.1
2005 83.2 -1.7 2.1
2006 75.5 -9.3 -7.2
2007 97.9 29.7 5.3
2008 84.9 -13.3 4.3
2009 109.8 29.3 5.8
*year end decemberSOURCE: IBISWORLD
boston Consulting Group Pty Ltd Market share: 1.7%
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 30
Major Companies
insurance company, assisting an international petrol retailer with its Australian retail strategy and reviewing the pricing structure for a building products manufacturer.
For 2009 the company reported 29.3% revenue growth, which followed 2008’s 13.3% decline. Total revenue as of 31 December 2009 was $109 million, with net profit after tax at $5.8 million.
BCG tends to operate as a large boutique that offers highly-skilled staff who specialise in specific industries or areas of expertise. This has been a disadvantage, as larger firms continue to expand their operations to cover a broad range of concerns. The new one-stop shop method of consulting is becoming more popular as it can save on costs and fees.
Player Performancecontinued
Other Companies Beyond the industry’s largest players, the industry includes many smaller operations specialising in niche services. This is best evidenced by the 81.6% of firms that are sole traders or partnerships.
McKinsey Australia New Zealand Estimated market share: 1.8%McKinsey’s local operation is a subsidiary of the McKinsey in the US located in Seattle with the local agent for the company is Dabserv Corporate Services Pty Ltd, which is located in Sydney. It is estimated that McKinsey generated around $110 million in Australian revenue in 2007-08, representing around 1.8% of market share.
McKinsey usually commands fees in excess of $5,000 per day, although its philosophy is that it is not selling time but techniques. It has 100 consultants in Australia (and 120 overall, including support staff) and has expanded rapidly in Asia, with offices in Seoul, Taipei, Hong Kong, Tokyo and Osaka. These were initially supplied with some staff from Sydney and Melbourne.
McKinsey’s Australian operations received a significant boost when it was announced that they, in conjunction with KPMG, would advise on the development and implementation of the national broadband network, first announced in 2007. The contract was originally worth $25 million and is likely to be extended as the broadband operation continues.
The company has invested in video conferencing facilities and both Australian offices are linked as part of their world network. This offers the
benefits of less travel time and cost as well as giving access by clients to their world wide group of consultants. About 40 of McKinsey’s consultants are involved in consulting in the telecommunications, electronics and media industries in the Asia-Pacific region. A specialty has involved advising on the process and implementation of skill building, monitoring progress against world’s best practices and on defining a company’s theoretical limits.
McKinsey’s consulting tasks usually average between $1 million and $2 million each. It became involved in the (then) fast growing IT consulting area. Like many other high-profile consulting firms to early 2000, it was experiencing problems holding onto staff, with competition coming from start-up IT and dot com businesses. It has a deliberate corporate policy of not being involved in assisting its clients to implement its report recommendations. This goes against the industry-wide trend of increasing integration between consulting, advising, overseeing implementation and execution, then assessing the success or failure of a contract. This company policy is intended to give a greater perceived level of independence for McKinsey from its clients.
McKinsey indicates that some of the current major issues facing Australian companies are innovation, balancing increasing shareholder value with wider social responsibilities, performance management while recognising the value of cultural capital (including skills and
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 31
Major Companies
knowledge) and possibly re-engaging with the Asia-Pacific region for expansion.
Booz & Co.Booz Allen Hamilton (BAH) has long been a presence in the Australian management consulting scene. In early 2009, however, the company decided to split in two, with Booz & Co., the original consulting firm formed in 1914, re-emerging as the global consulting player, while BAH retained its focus exclusively on US Government Consulting jobs.
While the parent company was established in 1914, Booz Allen has been operating throughout Australia, New Zealand and South East Asia (ANZSEA) since 1987. With over two hundred employees across seven offices in three countries, Booz Allen ANZSEA has been experiencing strong year on year growth, while maintaining its regional headquarters in Sydney, through which it manages all operations across ANZSEA, under one management structure for the entire region.
Global revenue growth has been strong over recent years, increasing from $2.2
billion in 2002 to $4.1 billion in 2007, as continuing major contracts have arrived as the business community and government have become increasingly willing to outsource management advice and decision-making assistance. Employment growth has mirrored increases in revenue, going from 11,300 staff in 2002 to around 21,000 in 2007.
IBM and Bearing Point Estimated market share: 0.5%IBM, after purchasing the consulting arm of PWC in 2001, has increasingly taken its focus away from management consulting services in favour of IT consultancy and systems design, which is more in line with the company’s core business.
Meanwhile, Bearing Point, which KPMG’s consulting services segment became in 1997 and spun off as an independent entity in 2001, has also increased its focus on technology consulting. With international revenue of $3.46 billion, IBISWorld estimates Australian Management Consulting revenue is around $85 million, or 0.8% of total industry revenue.
Other Companiescontinued
booz Allen Hamilton – fi nancial performance
yearrevenue
($ million) (% change) Employees
2003 2,300 4.5 14,0002004 2,700 17.4 16,0002005 3,300 22.2 17,3002006 3,700 12.1 19,0002007 4,100 10.8 21,0002008 4,000 -2.4 N/C
SOURCE: ANNUAL REPORT
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Investmentrequirements
The consultation process is highly dependent on the consultant conducting work and top consultants are in extremely high demand. Labour costs are a reflection of the experience, qualifications and skills of individual consultants, along with high demand for consultants who specialise in a certain industry or sector.
Over the past five years, the level of capital investment compared to labour costs has remained relatively static. The minimal level of capital required to operate a consultancy means that the ratio between labour and capital is somewhat constant.
Some assistance in increasing labour productivity is available in areas such as IT (hardware and software) communications, (mobile and video-conferencing and by e-mail) and in the delivery of reports using digital means. Like most service industries,
operators in this industry have to offer high levels of customer service, often on a face-to-face basis.
Therefor the industry is labour intensive, particularly in the knowledge and skills areas. Overtime most
Operating ConditionsStructural risk Index | Investment requirements | Technology & SystemsIndustry Volatility | regulation & Policy | Industry Assistance | Taxation Issues
IBISWorld has scored key elements of industry structure on a scale of 1 to 9 – the higher the figure, the greater the risks to businesses operating in the industry.
Operating conditions in the Management Consultants industry are more risky than in other industries in the
Property and Business Services division. The industry structural risk index totals 54.0 points compared to 47.6 points for the Property and Business Services division as a whole (100 points equates to extremely poor operating conditions).
Management Consultants Property and business Services
Re
venu
e Vola
tility
Barriers to Entry Com
petition Exports
Life Cycle Stage Levels of Assistance Imports
SOURCE: WWW.IBISWORLD.COM.AU
Structural risk Index
Industry relax PointsExportsImportsrevenue Volatility
Industry Pressure Pointsbarriers to EntryCompetitionLevels of Assistance
47.6Score
Re
venu
e Vola
tility
Barriers to Entry Com
petition Exports
Life Cycle Stage Levels of Assistance Imports
54.0Score
Level The level of investment required is Low
Capital intensity
0.60
0.00
0.10
0.20
0.30
0.40
0.50
SOURCE: WWW.IBISWORLD.COM.AUDotted line shows a high level of capital intensity
Capital units per labour unit
Management Consultants
Property and Business Services
Economy
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Operating Conditions
Investmentrequirementscontinued
consultants have acquired a database of information, knowledge and expertise in certain niche or specialist areas. Most areas of operation require a high degree of direct labour input, from liaising with clients and undertaking any necessary consultations and seminars, to data gathering and analysis.
Historically, the industry has experienced strong growth amongst non-employers. The primary explanation for this is the tendency for experienced consultants from large- to medium-sized industry players to attempt to establish their own consultancies and taking existing clients along with them. In order to prevent this, firms have been steadily increasing wages. However recently the average wage has fallen as newly redundant consultants take pay cuts to
work at smaller firms.Capital costs in the industry are
minimal as there are few, if any, compulsory costs in regards to capital equipment for performing consulting work. Basic computing equipment is used, but the work performed is based on personal interaction and utilising the skills and expertise of the consultant in question rather than any reliance on equipment or technology.
As management consultants continue to widen their service offerings, attempting to create an integrated consultancy process where the consulting, advising and implementation of any recommendations is overseen, the need to increase capital expenditure will grow, particularly as they branch into competitors’ services such as IT consultancy.
Tools of the Trade: Growth Strategies for Success
SOURCE: WWW.IBISWORLD.COM.AU
Labo
ur In
tens
ive Capital Intensive
Change in Share of the Economy
New Age Economy
recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation.
Traditional Service Economy
wholesale and retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.
Old Economy
Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.
Investment Economy
Information, Communications, Mining, Finance and real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Engineering Consultancy Services
Mining
Computer and related Equipment Manufacturing
Computer Consultancy ServicesConsumer Goods retail
Management Consultants
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Operating Conditions
revenue Volatility The industry has a high reliance on government and business consultancy budgets. Many strategic and other consultancy functions have been outsourced. Some companies consider outsourced consultancy to be a discretionary expense, and as a result it is often the first expense cut when revenue falls. This tends to affect smaller firms more so than major players. Volatility is moderately reduced as firms use consultants to improve during downturns and increase profits during boom periods.
The industry’s counter-cyclical tendencies protect it somewhat from major downturns, as clients often retain advisory services to assist with cost cutting and redundancy packages. Also, the industry has a great deal of flexibility to adjust to difficult periods due to its high profits, wide variety of clients, skill offerings and staff. Profit can be more volatile however, as shifting skill focuses often involves changing staff levels and this can be an expensive proposition that eats into bottom lines.
Technology& Systems
The industry is labour intensive and heavily dependent on an educated and professional individual (or team), as opposed to any technological innovation. Technology in this industry primarily refers to computing and online innovations, allowing greater speed and connectivity between offices of a firm and between consultants and their clients.
Office technology has changed greatly, and will continue to do so. The main uses of technology in this industry revolve around the area of office equipment (computers, printers, photocopiers etc.) and communication technology including mobile communications and e-mail. However, the bulk of companies are rapidly increasing their web presence. That said, the essence of performing consulting work is dependent upon face-to-face contact.
It is also necessary in the industry to have a web page. Some major firms have invested in a global intranet system which includes reports, techniques and knowledge gained from consultancy work which may be of use to employees in similar circumstances. A significant cost also relates to the purchase of information, data base and
library materials, including accessing online services.
Strategic alliances with specialist firms in areas such as IT and corporate finance, are becoming more common. This is a result of the industry’s greater focus on offering services from beginning to end of the consultative process. While most firms would favour taking all consulting and implementation tasks in-house, the costs can be prohibitive, and transfer of staff to other industries is common.
For major companies in this industry the major changes relate to knowledge, including the development of strategic and proprietary business theories, models and practices that clients purchase. This becomes less relevant during an economic downturn as clients’ focus on cost-cutting. However, during a boom the availability of proprietary knowledge can be extremely valuable.
Level The level of Technology Change is Low
The industry depends heavily on an educated team as opposed to technology changes
Level The level of Volatility is Low
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 35
Operating Conditions
Taxation Issues The industry is not subject to any special taxes. The Federal Government introduced a GST at a rate of 10%, with only a few basic food exemptions, since 1 July 2000. GST, however, does not apply to goods exported from Australia or
services performed outside of Australia for a non-resident. Credits for GST paid on inputs can now be deducted against the GST payable by businesses on goods and services sold or invoiced in each monthly or quarterly period.
Industry Assistance The industry is not affected by tariffs, protection or assistance.
regulation & Policy The industry is largely self-regulated. In terms of the management consultancy component, the Institute of Management Consultants in Australia is the main professional body. The institute, which was founded in the late 1960s, is restricted to practicing consultants, where there are strict entry conditions regarding qualifications and work
experience. Members are required to observe a code of professional conduct. The main objective of the institute is to enhance the image of the profession in the community. It is designed for individual consultants and within it the College of Principals exists for the principals of the larger management consulting firms.
revenue Volatilitycontinued
SOURCE: WWW.IBISWORLD.COM.AU
Volatility vs Growth
reve
nue
vola
tility
* (%
)
1000
100
10
1
0.1
Five year annualised revenue growth (%)–30 –10 10 30 50 70
Hazardous
Stagnant
rollercoaster
blue Chip
* Axis is in logarithmic scale
Management Consultants
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.
When a fi rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.
Level & Trend The level of Regulation is Light and the trend is Steady
Level The level of Tax Burden is Low
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 36
Key Statisticsrevenue
($m)
Industry Value Added
($m) Establishments EnterprisesEmployment
(People) Exports Importswages ($m)
domestic demand
2001-02 4,903.9 3,255.6 3,965 3,363 25,260 -- -- 2,751.9 N/A2002-03 5,064.5 3,355.9 3,984 3,409 25,799 -- -- 2,836.6 N/A2003-04 5,520.7 3,595.3 4,046 3,429 27,433 -- -- 3,124 N/A2004-05 5,970 3,692.4 4,062 3,384 28,687 -- -- 3,300.9 N/A2005-06 6,428.6 3,760.2 4,154 3,433 30,080 -- -- 3,571.7 N/A2006-07 6,686 3,664.8 4,224 3,458 31,456 -- -- 3,673.1 N/A2007-08 6,813.3 3,371.3 4,372 3,582 32,126 -- -- 3,802.6 N/A2008-09 6,802.5 3,072.5 4,484 3,673 32,804 -- -- 3,766.1 N/A2009-10 6,883 3,148.8 4,592 3,732 33,427 -- -- 3,818.2 N/A2010-11 7,080.8 3,261.3 4,702 3,808 34,062 -- -- 3,889.9 N/A2011-12 7,427.8 3,558.1 4,857 3,958 35,595 -- -- 4,061 N/A2012-13 7,925.5 3,860.6 4,920 3,951 36,521 -- -- 4,268.1 N/A2013-14 8,250.4 4,188.7 4,994 3,940 37,908 -- -- 4,528.5 N/A2014-15 8,539.2 4,389.8 5,154 4,159 39,311 -- -- 4,850 N/A2015-16 8,957.6 4,670.7 5,324 4,232 41,080 -- -- 5,097.3 N/ASector rank 12/33 13/33 17/33 17/33 14/33 N/A N/A 8/33 N/AEconomy rank 137/501 95/501 116/501 105/489 96/501 N/A N/A 48/496 N/A
IVA/revenue (%)
Imports/demand (%)
Exports/revenue (%)
revenue per Employee
($’000)wages/revenue
(%)Employees
per Est.Average wage
($)
Share of the Economy
(%)2001-02 66.39 N/A N/A 194.14 56.12 6.37 108,942.99 0.342002-03 66.26 N/A N/A 196.31 56.01 6.48 109,950.00 0.342003-04 65.12 N/A N/A 201.24 56.59 6.78 113,877.45 0.352004-05 61.85 N/A N/A 208.11 55.29 7.06 115,066.06 0.352005-06 58.49 N/A N/A 213.72 55.56 7.24 118,740.03 0.342006-07 54.81 N/A N/A 212.55 54.94 7.45 116,769.46 0.322007-08 49.48 N/A N/A 212.08 55.81 7.35 118,365.19 0.292008-09 45.17 N/A N/A 207.37 55.36 7.32 114,806.12 0.262009-10 45.75 N/A N/A 205.91 55.47 7.28 114,225.03 0.262010-11 46.06 N/A N/A 207.88 54.94 7.24 114,200.58 0.262011-12 47.90 N/A N/A 208.68 54.67 7.33 114,089.06 0.272012-13 48.71 N/A N/A 217.01 53.85 7.42 116,867.01 0.282013-14 50.77 N/A N/A 217.64 54.89 7.59 119,460.27 0.302014-15 51.41 N/A N/A 217.22 56.80 7.63 123,375.14 0.302015-16 52.14 N/A N/A 218.05 56.90 7.72 124,082.28 0.31Sector rank 19/33 N/A N/A 13/33 3/33 14/33 1/33 13/33Economy rank 124/501 N/A N/A 330/501 24/496 280/501 27/496 95/501
Figures are inflation-adjusted 2011 dollars. Rank refers to 2011 data.
revenue (%)
Industry Value Added
(%)Establishments
(%)Enterprises
(%)Employment
(%)Exports
(%)Imports
(%)wages
(%)
domestic demand
(%)2002-03 3.3 3.1 0.5 1.4 2.1 N/A N/A 3.1 N/A2003-04 9.0 7.1 1.6 0.6 6.3 N/A N/A 10.1 N/A2004-05 8.1 2.7 0.4 -1.3 4.6 N/A N/A 5.7 N/A2005-06 7.7 1.8 2.3 1.4 4.9 N/A N/A 8.2 N/A2006-07 4.0 -2.5 1.7 0.7 4.6 N/A N/A 2.8 N/A2007-08 1.9 -8.0 3.5 3.6 2.1 N/A N/A 3.5 N/A2008-09 -0.2 -8.9 2.6 2.5 2.1 N/A N/A -1.0 N/A2009-10 1.2 2.5 2.4 1.6 1.9 N/A N/A 1.4 N/A2010-11 2.9 3.6 2.4 2.0 1.9 N/A N/A 1.9 N/A2011-12 4.9 9.1 3.3 3.9 4.5 N/A N/A 4.4 N/A2012-13 6.7 8.5 1.3 -0.2 2.6 N/A N/A 5.1 N/A2013-14 4.1 8.5 1.5 -0.3 3.8 N/A N/A 6.1 N/A2014-15 3.5 4.8 3.2 5.6 3.7 N/A N/A 7.1 N/A2015-16 4.9 6.4 3.3 1.8 4.5 N/A N/A 5.1 N/ASector rank 21/33 15/33 7/33 7/33 17/33 N/A N/A 20/33 N/AEconomy rank 240/501 178/501 73/501 73/489 172/501 N/A N/A 233/496 N/A
Annual Change
Key ratios
Industry data
SOURCE: WWW.IBISWORLD.COM.AU
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 37
Key Statistics
HistoricalPerformance
The Management Consultancy industry had its beginnings in Australia in the late 1930s, with the formation of W.D. Scott & Co by Sir Walter Scott, a cost accountant. The industry developed slowly until the 1960s when it became more acceptable to Australian business to make use of management consultants. Since then numerous consultants and consultancy firms have entered the market.
The consolidation of Australian industry that occurred throughout the early to mid-1990s, due to mergers, takeovers and general restructuring, resulted in many retrenched executives establishing themselves as consultants. However, it was estimated that the average life in consulting for many was just over 12 months.
During the early 1990s recession, the industry was affected by the numerous corporate collapses which occurred, coupled with the significant number of companies that were placed in receivership and the associated decline in consumer confidence (particularly with the collapse of companies in the financial services sector). According to industry sources, this led to an increased level of funds being allocated to consultancies by many major clients as companies slashed all of their general and discretionary consultancy expenditures. This resulted in reduced consulting work and increased fee-based competition, as firms sought to at least cover their short term cashflow requirements.
Due to the slow economic growth there was also a tendency for clients to turn to consultancies that were highly regarded and specialists in their area of need, although price was still an important factor. Competition also increased, especially for government sector consultancies, which was estimated by industry sources to have accounted for around one-third of industry revenue.
However, past the recession, industry surveys indicated that major management consultancy firms had experienced significant revenue growth from areas such as assisting clients to achieve world’s best practice. Growth also resulted from
legislative changes (including tax law changes), IT consulting (including e-commerce) and from general review of management practices (in areas such as staff downsizing, export growth, takeovers and mergers).
In the early 2000s, the slower economic growth and its resultant effect on business confidence was estimated to have led to a real decline in industry revenue, as budgets were reduced for consulting and related consulting activities. The uncertainty and complexity initially associated with the GST also led to many firms largely concentrating on its implementation and ensuring that the systems were in place and operating effectively. Business also slowed around the period of the Sydney Olympics in September 2000, as domestic and international attention was focused on this world event.
One of the other major effects on industry operators resulted from the effect of the high-technology stocks correction that flowed into 2000-01 and created both uncertainty and a re-evaluation of expenditure. This led to reduced expenditure on many internet- and web-based plans and strategies by business and governments. This was confirmed by an Australian Financial Review survey of firms on their use of consultants in this year, which found that more than 20% had reduced their spending on consulting.
In 2001-02 many clients reduced their consultancy budgets across most areas, which included strategic advice, IT and web page design. A survey by the Australian Financial Review on the intended use of consultants in this year found that 32% of firms intended to reduce expenditure on consultants. Also, while 82% of firms had used a consultant in 2000-01, only 77% intended to do so in 2001-02. The main areas consultants were to be used were in the IT, human resources, mergers and acquisitions, e-commerce, strategic planning and business process and best practice areas. IBISWorld estimated that real industry revenue decreased by about 0.9%.
www.IbISwOrLd.COM.Au Management Consultants in Australia September 2010 38
Jargon & Glossary
bArrIErS TO ENTry Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.
CAPITAL/LAbOur INTENSITy An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.
dOMESTIC dEMANd The use of goods and services within Australia; the sum of imports and domestic production minus exports.
EMPLOyMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.
ENTErPrISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.
ESTAbLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.
EXPOrTS The total sales and transfers of goods produced by an industry that are exported.
IMPOrTS The value of goods and services imported with the amount payable to non-residents.
INduSTry CONCENTrATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.
INduSTry rEVENuE The total sales revenue of the industry, including sales (exclusive of excise and sales
tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.
INduSTry VALuE AddEd The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).
INTErNATIONAL TrAdE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%.
LIFE CyCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.
NON-EMPLOyING ESTAbLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.
VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.
wAGES The gross total wages and salaries of all employees of the establishment.
Industry Jargon
IbISworld Glossary
CHANGE MANAGEMENT Consultants are brought in to oversee structural changes to a company’s operation.
HuMAN rESOurCES CONSuLTING The development of policies designed to ensure staff are adequately provided for and their productivity is maximised.
STrATEGIC CONSuLTING Consultants can be contracted to advise on long-term planning, with an eye to minimise costs growth and maintain profits. Often this involves the development of new products and services.
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