Business consulting is an industry and its history will be explored in this module. The situation of the industry will also be considered and its direction for the future. According to IBISWorld (2021) [^1], “The business consulting industry is experiencing a growth rate of 2-4% per year. This trend will likely to continue for at least the next five years”.
The consulting industry is considered a component of the gig economy, a term originating from the music industry, referring to time-limited, project-based work defined by specific outcomes (Mills & Clayton, 2019) [^2]. The designation “business consultants” is somewhat ambiguous; however, these professionals are typically experts in their field and can fulfil various roles within an organisation. Their responsibilities may encompass providing advice on management, operations, or other aspects of business to facilitate growth, enable change, and implement new technologies.
The demand for business consultants has grown due to the specialised skills available in today’s marketplace, particularly in areas such as digital transformation, big data, technology, and more recently, artificial intelligence. As businesses adopt increased flexibility, they can engage consultants as temporary specialists in specific fields to complete projects within designated timeframes. This trend has created opportunities for baby boomers or retired individuals to establish small consulting firms, capitalising on their acquired skills and experience (Biech, 2019a) [^3].
Although business consulting experiences fluctuations, my observations suggest that consultants can remain profitable in both prosperous and challenging economic conditions. During favourable economic periods, businesses seek innovation, product development, technological advancement, and market expansion to maintain a sustainable competitive advantage. Conversely, in downturns, they require assistance in cost reduction, refinancing, management improvement, and exploring alternative business directions.
As a business consultant, capitalising on these market cycles necessitates appropriate business structuring and identification of opportunities. It could be argued that market disruption, change, and transformation are advantageous for consultants who remain informed and offer clients the benefits of their experience and expertise.
Historically, business consultants have been generalists focusing on management or financial consulting and occasionally operational or technological aspects. However, contemporary consultants increasingly specialise in niche areas such as artificial intelligence, marketing, information technology, and digital transformation, where demand for their expertise remains consistently high.
The video below involves a discussion on business consulting from one practitioner’s perspective.
This next video discusses three broad areas of consulting which include Management, Financial and Operational.
History of Business Consulting
Kubr (2002) [^4] provides a comprehensive account of the historical development of business consulting, which can be traced back to the 1870s. This period laid the foundation for modern business consulting practices. Over time, the industry has evolved in response to emerging business sectors, new challenges, and changing service offerings.
In the 1920s, financial and marketing consulting emerged, followed by the establishment of McKinsey Consulting Firm in 1926 by James McKinsey. This firm is arguably one of the most renowned and largest consulting firms globally. The history of business consulting appears to be heavily influenced by technological advancements, industrial changes, and general shifts in business practices. These factors have prompted businesses to seek external expertise to facilitate growth and navigate transitions.
As we progress through the 21st century, the advent of artificial intelligence (AI) is likely to instigate a significant revolution within the consulting industry. The integration of AI into various sectors will undoubtedly shape the landscape of business consulting in the foreseeable future.
In the contemporary global context, the consulting industry demands an international perspective before examining specific landscapes such as Australia. The global consulting sector appears promising, driven by the gig economy, with considerable growth and confidence in Asia, Africa, South America, and Eastern Europe. The industry encompasses a wide array of services that are increasingly specialised, further complicating the landscape.
Clients seek particular expertise in sectors such as agribusiness, mining, and education for their consulting projects. Many organisations outsource these projects to acquire specific skills and expertise for a limited period. Although generalist and specialist consultants exist, their appeal varies depending on client needs. Some specialists work as generalists due to the value of interdisciplinary skills and broader experience despite having a specific focus.
As the global economy recovers from the COVID-19 pandemic and new waves of investment and expansion emerge, businesses are increasingly recognising the need to incorporate artificial intelligence to maintain a competitive advantage. Consequently, they engage consultants for advice on various issues including profitability, strategy, organisational structure, operations, and human resources when undertaking new ventures or directions (Biech 2019b [^5]; Kubr 2002 [^4] ). According to Forrester’s global business survey, 58% of global services are increasing their expenditure on business consultants by approximately 5% (Cecere 2016) [^6].
The role of consultants has undergone significant changes, primarily due to the transition to digital technology in the digital age. Biech (2019) [^5] and Kubr (2002)[^4] assert that business consulting firms have broadened their service offerings to encompass new expertise, mitigating risks for both themselves and their clients. Consequently, industry revenues are anticipated to increase by approximately 3.7% per annum over the forthcoming five years.
The global demand for consulting services continues to rise, in tandem with increased globalisation and businesses, particularly in the international sphere, seeking local expertise for market entry and expansion. This is particularly true in areas where business consultants possess specialised knowledge. Historically, business consulting has been rather lucrative due to its diverse clientele and time-limited contracts, akin to casual rates. However, the evolving market has led clients to seek specific types of consultants, such as specialists or generalists.
Consequently, consulting firms are adapting to meet the demands of industry and commerce. The heightened competition and market presence stems from a significant growth in the information technology and digital sectors, where companies must adjust to rapid changes. It is likely that the digital transformation market will continue to drive future alterations within the consulting domain.
Cecere (2016 p. 2-3), contends that the specific consequences that are likely to result from this move to digital include the following:
- Clients’ expectations of greater speed of delivery.
- Clients’ need for consultants to understand their customers.
- An increasing number of complex global transformations.
- Greater effects of regularity change.
Forecasts for the consulting sector’s expansion in the forthcoming five years exhibit an optimistic trend, with an approximate rate of 2.8%. The pandemic has significantly impacted the global economy, including the consulting sector. Due to COVID-19, organisations have swiftly adopted digital solutions and technologies for remote working, necessitating consultation with business experts to determine optimal practices.
Digital transformation and artificial intelligence (AI) are increasingly affecting consultants’ operations and will continue to do so as AI technology advances. Nonetheless, it is crucial for consulting firms and industries to maintain a focus on the human element of work. Remote working has had varied effects on individuals; some have embraced the independence and flexibility, while others have faced heightened loneliness and mental health concerns.
COVID-19’s substantial impact on leadership teams, particularly in sectors such as aged care, has presented significant challenges. Consequently, organisations are seeking expertise, innovative ideas, and novel thinking to reposition themselves in the market and adapt their businesses to future requirements. Thus, consultants who demonstrate innovation, resourcefulness, and originality should be in high demand.
The Australian Context
The Australian consulting sector mirrors the international and global landscape, continually expanding as consultants seek to broaden their businesses due to increased interaction with Asia and the Pacific region. In Australia, as in other economies, the demand for consultancy services is closely linked to economic factors, hinging on discretionary expenditures available to businesses and the public sector. Thus, business confidence, profitability, and government investment in various areas and projects can significantly impact the industry.
The graph below demonstrates the segmentation of consulting services in various markets. It is notable that the industry is expected to increase its annual growth in the next five years.
Figure 1: Major Market Segmentation
In the governmental sector, business consultants are required to demonstrate that their services will yield a return on investment due to significant budget constraints and the necessity to account for taxpayers’ inquiries regarding expenditure. The demand for business consultant services fluctuates with economic activity; during downturns, governments lessen their spending on projects that necessitate consultants. Recently, consulting has become a contentious issue owing to situations involving PwC and KPMG accountants and the services provided by these organisations.
Nonetheless, the Australian business consulting industry exhibits growth and is projected to expand in the next five years. It is imperative to note that the Australian economy relies not only on local economic factors but also on its connections with Chinese and Asian/Pacific countries, which may influence the demand for consultants. This dependence on Chinese and Asian/Pacific economies presents opportunities for business consulting firms.
Furthermore, emerging products and markets should benefit business consultants in the coming years. The advent of artificial intelligence enables consultants to utilise advanced analytics and knowledge collaboration for information gathering and enhancing business practices. Analytical software and artificial intelligence are predicted to gain prominence in the future, providing improved forecasts for various types of strategic business planning. Consultants proficient in employing this technology will undoubtedly be advantageous to prospective clients.
A business ecosystem in the consulting industry refers to collaboration with others to produce a broader service base, additional expertise and greater value. All of this leads to greater sustainability. It fits well with the gig economy aspect because a consulting firm would engage other specialists for specific projects that would also be time limited. Such arrangements have benefits for both parties in combining their expertise.
Hayes (2021) [^7] defines a business ecosystem as:
A business ecosystem is the network of organisations—including suppliers, distributors, customers, competitors, government agencies, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.
Barriers to Entry and Opportunities
There aren’t many barriers to entering the business consulting industry. For a small one or two-person business, all that’s required is an office, telephone, internet connection, computer, and of course, the necessary expertise. Certain industries necessitate membership in specific organisations, possession of qualifications, and potentially certificates. The absence of these prerequisites can impede entry into and servicing of these particular markets. According to IBISWorld (2021), barriers to entering the consulting industry are expected to rise. This trend aligns with previous anecdotal perceptions where barriers were heightened to enable incumbent players to consolidate their market share and hinder new entrants. As an example, the increasing level of qualification to practice as an accountant over the last 30 years.
In relation to the Asia-Pacific markets and China, larger firms have adopted a strategy of acquiring other organisations to augment their market share and enhance penetration into these markets. This approach also impacts the development of expertise and skills ecosystems within their organisations. Furthermore, larger firms have pursued horizontal integration with smaller enterprises to limit clients’ choice of consultants, thereby reducing competition and securing their client base.
New consultants may benefit from possessing specialist knowledge, such as language proficiency in Chinese or other languages, and cultural understanding pertaining to specific regions. Such expertise can be advantageous when securing work from organisations seeking expansion into new regions.
Key Requirements for entering the industry
Initiating a business consultancy necessitates, at minimum, a network of prospective clients to ensure consistent work, as well as connections within the business ecosystem to capitalise on their expertise and forge strategic alliances. This will enhance the range of offerings and services provided by the consultancy. As reported by IBISWorld in January 2021, globalisation within the consulting industry remains relatively low, but an upward trend is anticipated.
The four largest consulting firms, which are the prominent accounting organisations, contribute to less than 15% of the total global consulting revenue. Nevertheless, it is projected that their market share will expand as they venture into emerging markets. This expansion is facilitated through establishing branches in the Asia-Pacific region, China, and other economies with growth potential and opportunities for market penetration.
Context mapping refers to a method for discerning one’s position within the business consulting landscape. In this section, we shall examine the context canvas, a contemporary framework employed by businesses when engaging with clients. It is an updated approach to PESTEL analysis. Lokitz et al. (2016) [^8] regard context mapping as an industry-level analysis, necessitating an external examination of factors impacting the business. Consequently, the business serves as the focal point, with external aspects assessed through the context map.
This first module has been an introduction to the business consulting landscape. Consideration has been given to both the international and local level. The notes provide some two key pieces of information. Firstly, that the business consulting industry is regarded as being quite profitable. Secondly, it is identified as being a part of the gig economy, which is understandable given the time limited nature of the projects. This would explain why such work is quite profitable also as it is one off, time limited work.
[^1]: IBISWorld January 2021, Global management consultants report L6712-GL
[^2]: Mills, J & Jan, C 2019, ’The Gig Economy structure, measurements and opportunities APSCo Australia Discussion Paper. [^3]: Biech, E 2019ba _The New Consultant’s Quick Start Guide: An Action Plan for Your First Year in Business, John Wiley & Sons, Incorporated, Newark, UNITED STATES, viewed 27 August 2023, http://ebookcentral.proquest.com/lib/aibus/detail.action?docID=5764121.
[^4]: Kubr, M 2002, Management Consulting: A Guide to the Profession, International Labour Office, Washington, SWITZERLAND, viewed 27 August 2023, http://ebookcentral.proquest.com/lib/aibus/detail.action?docID=529940.
[^5]: Biech, E 2019b, The New Business of Consulting: The Basics and Beyond, John Wiley & Sons, Incorporated, Newark, UNITED STATES, viewed 27 August 2023, http://ebookcentral.proquest.com/lib/aibus/detail.action?docID=5764120.
[^6]: Cecere, M 2016, The Future Of Consulting Through 2020 | Forrester, viewed 27 August 2023, https://www.forrester.com/report/The-Future-Of-Consulting-Through-2020/RES129429.
[^7]: Hayes, A 2021, What Is a Business Ecosystem and How Does It Work?, Investopedia, viewed 29 August 2023, https://www.investopedia.com/terms/b/business-ecosystem.asp.
[^8]: Lokitz, J, Solomon, LK, Van Der Pijl, P, Van der Pluijm, E, & van Lieshout, M 2016, Design a Better Business: New Tools, Skills, and Mindset for Strategy and Innovation | Wiley, viewed 29 August 2023, https://www.wiley.com/en-au/Design+a+Better+Business:+New+Tools,+Skills,+and+Mindset+for+Strategy+and+Innovation-p-9781119272113.