Edito Janvier 2004

Gil Gidron, former President of Feaco and currently Partner of Accenture Spain, responsible for strategy in Europe, gives his viewpoint on the most recent evolution of the global consultancy market : Audit splitting, consolidation, fees fall... He talks about the facts we must know, the trends we have to adapt to and... a few more things we should think twice about.

The market looks grim but could reset in 2004. What might we think of current trends?

Gil Gidron: I would say there are three trends. The first is the economy as a whole: Industry is in picking up slowly around the world which lends to a demand in services to industry. The second trend results from structural problems: we grew very well with the different demand triggers. The Y2K, the advance in info and com technology, the internet bubble, the liberalization of state companies and public services and finally the advent of Euro currency. This contributed to a Consulting which was growing far above the economy. This has changed. Today consulting growth has slow down and it is going to take a while to get back to the growth of the late 90’s. And third, I would say the way consumers buy is changing and demand patterns are different. There appears the concept of « One Stop Shop »: design, implement, operate! This is really what they want. Not just advices.

Does this explain the recent merging and take over?

Gil Gidron: As I said the third trend relates to the necessity for the consultant to be able to give full services including implementation. This is why IBM merged with PWC, why EDS captured AT Kearney and Ernst & Young joined Cap Gemini ... etc, and people from the neighborhood are coming in because it is very profitable to give a client a comprehensive approach! IBM saw it as a complete opportunity. So consolidation is a consequence of the changes in demand and the implementation trend. Another trend is that consulting houses have to change their business model. This is where fees are involved. They need to invest and switch from traditional partnership to leverage the capital markets in order to create a strong financial structure. However entering the capital markets makes it necessary to split with audit. The key issue here is that due to independence, directives, etc, the market demanded separation. Audit is compulsory and independent. Consulting is voluntary and fee related. They must be separated business.

Any other trend to comment?

Gil Gidron: The market is becoming bipolar: on one side we have large multinationals but also sufficient room for important niche players such as risk analyzer or expert in industry automation ... My view is that on a two dimensional figure confronting Size to Specialization, consulting firms have just two choices: becoming a niche player (get back to the thing they do best) or merge! So consolidation should continue but there is room for Niche Players. About most local and small consultancies in emerging markets, big companies will come and acquire because there are only three possibilities: recruit people, being bought or make alliances But alliances are in general not stable.

Any other prospect ?

Gil Gidron: This is how the future looks like. Unfortunately there is no surprise or any major technology that would impact the industry in the short term. Yet a lot of small things: The mobile economy that would allow for specific consulting; The European enlargement; the liberalization, still continuing in energy and big utilities... So we will have an exciting future but much more complex and competitive. With competition from Off-shore activity which can develop IT on a much competitive scale than in Europe, with India and the Philippines.... It will be IT in the beginning but slowly go up the value chain: body shopping then design and implementation. To this end local players will be necessary

What about future players?

Gil Gidron: There was a time we had HR, Process, Management, Infrastructure, Outsourcing... each type was next to each other. Then IBM, EDS, etc bought large areas of the market frontiers disappear. It is the end of separation. Now the client is asking for transverse assignments. The one able to integrate the different practices will be the most successful in transforming the client. And Outsourcing is the key element. So from 2002 to 2012 the question will remain valid especially if we are going to be there and if we want to know what company is to survive. So consolidation is to continue and no doubt the big firms are to survive. There will be half a dozen successful no more. One in a leading position is IBM. Accenture has the same model but done organically, not by acquisition, except for the hardware which is a commodity.

But on a every day basis does it mean the consulting business is changing ?

Gil Gidron: The projects profile has changed. If you are a bank with 10.000 people the most difficult thing when you implement a new strategy or technology is to make the people understanding where you go. Computers you just buy but you must make change management through training. But for the entire project motivation making is the hardest area and will get the most of your effort to be successful.

Are HR the key issue to globalization?

Gil Gidron: Consulting is a global business. But you work local within your own country. European diversity makes consulting in Europe much more interesting with a bigger area of discipline to make it successful. Example: for a big multinational company located in a dozen European countries, buying a supply chain is not the problem but to cope with the diversity of the practices is. One additional thing is that in the USA there is an obsession for the bottom line and practitioners are very share holder oriented. In Europe stake holder panel is much more balanced. Last point, the Human aspect is different for the client and for the consultants: Competition is global but implementation is local with its local flavors. For that reason Europe is a challenging market.

This brings us to the question of Europe and its enlargement

Gil Gidron: The challenge for consulting firms will be to bring together international companies and small local players. And the challenge for FEACO will be to stay representative of the bigger and smaller ones and keep the network together. Today the federation is already representative of 23 countries that gather in working groups: multinational, European institution, small companies and regional blocks such as northern countries, German speaking countries and eastern countries. Hong Kong is joining and Africa as well as Latin America could come next. Also the enlargement of Europe is only an event in the whole globalization.

Will the enlargement give a solution to the fees fall?

Gil Gidron: We are facing an over capacity (worldwide?). This has imply some lay offs, a tremendous margin pressure and a price deflation. To cope with this set, several companies have modified their business model to answer a strategic question: what to compete for and how to compete? It has to be understood that the field is becoming more a buyer market. Hence to succeed, innovation, trust in commitment and investments are the keys. However to answer the issue of lowering fees we must look at the value of the intended projects. We need to give a « Value Proposal » to the client. The client value has become a top priority. Clients don’t engage consulting if they don’t see any value. It is a shifted mentality of the buyer. In a dipolar consulting market where big players are facing investors and clients asking for results, and where niche players are keepers of quality and know-how, the good news is that subcontracting might develop. But consulting companies will have to take decisions and will have to position themselves. They will have to apply their own consulting to themselves and remember the three things to sell: have a good proposal (something the client want to buy), have specific assets (knowledge, capability) and a good relationship and commitment. This last point is very important in the East and in Southern Countries.

Words collected by Bertrand Villeret
Chief Editor ConsultingNewsLine