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  Our management consultancy columnist, Mick James, this week makes his predictions for the management consulting industry in 2007 and says that we have an exciting year ahead of us.
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What will be the competitive edge in 2007?

Travelling for most of December and early January robbed me of the opportunity to review the past year and preview the coming one in a timely manner. To be honest I’m glad to have put this off, because the crystal ball has been clouded for some time now by the fact that I don’t really understand the current situation, which tends to hamper the predictive faculty. Here we have a world more than usually blighted by war, terrorism, natural disasters and soaring energy costs, but the world economy is in rude good health. Can this be the same world economy that pretty much collapsed a few years ago because people weren’t as keen on buying pet food off the internet as we thought they would be?

Consultants have reacted to this situation with what I can only describe as “bemused bullishness”. Of course the economy is nonsense propped up on stilts. Of course Gordon Brown is going to put away the public sector cheque book any day now. In the mean time, we’d like to hire 14 principals, 27 senior consultants and lease another 12,000 sq ft in the City.

In the absence of any clear prognosis for the future, all one can do is look for signs, an early event that may set the tone for the future. Last year we saw a steady trickle of niche acquisitions, notably by Accenture but also by smaller firms. What was interesting about these was that we saw even the largest firms using acquisition to get into what are often very detailed niches. Whatever you may think of consultants as individuals, big consultancy firms are hungry feeders who will move into any nutrient risk environments. The last couple of years have seen a remarkable explosion in small, rapidly growing firms, which may think they are below the radar of the big boys, even if they occasionally snatch a fish from their jaws. Think again. I suspect that 2007 may be crunch time for a lot of young consultancies, who will need to take a very hard look at the long term sustainability of their business models. It may be a hard decision emotionally, but for many of these firms a move into a larger entity may well be the safest bet—particularly if their nearest rivals are also acquisition targets.

At the other end of the scale we saw Capgemini’s billion-dollar plus acquisition of Kanbay, which brought it a more solid base in India and a renewed presence in North America. Oddly enough, I find I predicted such a move back in September, though I unaccountably forgot to remortgage the house and put my money where my mouth was.

As I said at the time, mergers and acquisitions at this level are highly risky, but I expect to see a few more. Everyone seems to agree that Capgemini’s move makes sense, and if, as I think, they have anticipated the rush, they can hope that me-too moves by their rivals will make less and less sense as the year progresses.

What does this add up to? The first conclusion is that from now on it is no longer possible to hire yourself in or out of any situation. That doesn’t mean that the industry’s voracious appetite for people will abate, or that those involved in the consultancy people-traffic will not continue to make obscene amounts of money. But it will no longer be possible to deliver a growth strategy by faxing over a shopping list of bodies to a recruiter.

My second thought is that there is no longer anywhere to hide. The thought that “Accenture/IBM/Capgemini have got that whole SI/Indian/CRM thing sewn up but we can concentrate on x” is no longer valid. If you don’t believe me, try contacting the procurement side of a big firm and asking for a list of companies they’d want to include in a non-compete agreement. You’ll receive a list of everybody and anybody which stops just short of the horoscope page of the Daily Mail.

The Americans have a phrase for this—it’s called “multi-sphere dominance”. That it’s not working terribly well in the foreign policy arena shouldn’t be held against it—most of the people who should be running America are probably working for consultancy firms anyway. A less pompous term might be “Tesco-ization” which (for now) will probably only have resonance for UK readers. What impresses me about Tesco’s dominance of the UK retail market is their combination of scale and detail. At one end they can create the retail equivalent of the neutron bomb, a massive out-of-town shed which will sell you everything from a turnip to a telephone line. But they’re equally interested in putting your corner shop out of business with their downsized urban outlets.

If the big consultancies can successfully operate like this, then we are entering a tough competitive environment, and I suspect it will be particularly tough for the renascent Big Four. It’s in the mainstream consultancy firm’s interests to nip their growth in the bud before these powerful brands become re-established. If, as I suspect, acquisition is to become a key competitive weapon, the mainstream firms have the edge with substantial cash balances and the fall-back option of share issues to give them the edge. The tangled history of the two groups of firms no doubt adds a personal edge to the rivalry—we could be in for an exciting year.

All views expressed in this article are those of Mick James and do not necessarily reflect the views of and

Contact Mick with your views or suggestions at: [email protected]
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