The operational improvement consulting market was worth just under US$30bn1 globally in 2021, equivalent to around 15% of the total consulting market. It’s a broad market, ranging from target operating models to benchmarking, and from sales force effectiveness to procurement.
Prior to the crisis, growth was solid but not exceptional, more around the 6-7% mark against a global average in the region of 7-8%. Performance in 2020 was mixed, with some areas—notably supply chain management, which represents more than 10% of the operations consulting market—growing at twice their previous rate, while others tanked.
Estimates for our finalised 2021 numbers suggest that demand for supply management consulting continued to grow, but at a less frenetic rate as clients sought to internalise the learnings of the last two years. Alongside this, we are also seeing faster growth in operational reviews, process design, and cost-cutting. This heralds a transition from an environment in which the greatest operational threat to business comes, not from supply chain disruption in the almost-aftermath of the pandemic, but from high inflation—and this has implications for consulting firms. Our latest research, completed at the very end of 2021, shows that productivity improvement is top of corporate agenda. This in itself is not new—it’s been the area in which clients are most likely to make significant investment for at least the last five years. But the fact that this year productivity improvement has also become the area where clients are most likely to use consulting support does matter: Last year, it was transformation. Transformation still comes up in almost all the interviews we carry out with senior buyers of consulting services as part of our on-going research, but it’s explicitly linked to scalable growth and protecting the bottom line.
There are, we think, three points to note here. The first is that the current generation of senior managers has limited experience of running businesses in a high-inflation environment. With inflation running at a 30-year high in some parts of the world, leadership teams will need to be in their late 50s to have seen the impact of high inflation in action, and they’d have been in their 20s at the time, so hardly likely to have the scope and scale of responsibilities they have now. Senior executives, when they encounter something new, turn to consulting firms for advice and support—it’s one of the most important underlying drivers of growth in the consulting industry and is likely to play a major role in keeping demand high as the most egregious challenges of the pandemic recede. However—and this is our second point—most consultants haven’t experience of managing in a high-inflation environment either. We can safely assume that a lot of investment is currently going on behind the scenes to develop propositions and to train people in this area. But the danger this brings is that consulting firms aim low and focus on developing approaches to cutting costs. This would be a mistake. Clients don’t need advice in this field: Stripping out costs from a business isn’t rocket science, but it does depend on deep knowledge of a client’s sector and unique business. As a result, cost-cutting has been one of the lowest growth areas of consulting in the past decade; consultants are more likely to be a cost to be cut. Genuine, sustainable productivity improvement is far more difficult to achieve. Which takes us to our final point: The prospect of rising inflation is already starting to shape client needs, but the ability of consulting firms to leverage this opportunity will require innovation, investment in new tools, and methodologies that address the specific productivity challenges of the next five years.
Because the opportunity is immediate and because consulting firms lack experts in this area, we’re likely to see a wave of transactions in this space, with larger consulting firms targeting small specialists with clear, distinctive intellectual property. And because productivity improvements are now umbilically linked to technology change, what starts with clients responding to the unfamiliar challenges of high inflation becomes an opportunity for technology firms to take a bigger share of this important consulting market.