Consulting Services
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Industry Overview
The US consulting services industry includes just over 250,000 companies with combined annual revenue of nearly $400 billion. Major companies include IBM, Accenture, McKinsey & Company, Deloitte, and Booz Allen. The industry is highly fragmented: the top 50 companies account for around 25 percent of total industry revenue. The average consulting firm has fewer than 10 employees and annual revenue under $1 million; 75 percent of consulting firms are one- or two-person operations.
Consulting services includes IT consulting, management consulting, and outsourced payroll services. The industry doesn't include companies that provide labor or staffing solutions to other companies, nor does it include corporations with an internal consulting division.
Competitive Landscape
Demand is driven by corporate profitability and the overall health of the US economy. The profitability of individual companies depends largely on the special expertise the firm provides to clients. Large firms have advantages in the range of services offered, which often span across all three major consulting disciplines. Small firms can compete effectively by specializing in new technologies or niche industries. The industry is labor-intensive, particularly for payroll services. Average annual revenue per employee is around $100,000 ($40,000 in the payroll services industry).
Products, Operations & Technology
Major services include computer systems consulting (20 percent of industry revenue); custom computer programming (15 percent); general management consulting (15 percent); and professional payroll services (10 percent). Other services include computer facilities management, executive recruiting, and marketing consulting.
Most consulting firms specialize in only one area of expertise or in a particular industry. Many of the largest IT consulting firms are offshoots of big accounting firms. About half of IT consulting revenue comes from the design and delivery of integrated "turnkey" computer systems for a client; the other half is from producing computer system design specifications, custom programming, computer system testing and maintenance, and sales of computer hardware and software.
General management consulting provides advice to senior and middle corporate managers about the operations or strategic direction of various functions in the client organization, including finance, marketing, HR, production, logistics, etc. Technical consultants provide expert assessments in environmental, legal, scientific, and other areas. Professional payroll services provide outsourced HR, payroll, and accounting services.
Most consulting jobs are project-oriented assignments, also called "engagements." Clients usually send a request for proposal (RFP) to several potential consultants; consulting firms respond with a proposal that specifies the approach the firm would take to address the task, the resources it would use, a timetable, the "deliverables" it would provide, and an estimated cost. In management and technical consulting, the major deliverable is usually a report or action plan. In IT consulting, the deliverable may be a complete computer system.
The work of consulting firms is highly labor-intensive. Although cost is a major factor for clients in deciding which consulting firm to choose, reputation and experience can be more important. Most consulting assignments involve a period of study or research, formulation of possible solutions, and the production of a report.
Technology plays an increasingly important role in consulting services. Annual revenue from computer consulting services is nearly twice that of management and scientific consulting. Firms often pitch and develop complex software solutions, including enterprise resource planning (ERP); customer relationship management (CRM); or sales force automation (SFA). Many general management consulting firms have a division or sister company that specializes in technological consulting; often, the two work off of one another to present an "end-to-end" solution for clients.