Risk: Who will own the intellectual high ground?

We estimate that financial management and risk consulting, including all the work that’s done around regulation, accounted for around 23% of the global consulting industry in 2015. Of this, the risk and regulation part was the faster growing: 8%, compared to 6% for financial management. And of course some areas of risk, notably cybersecurity consulting, are growing at 2-3 times that rate. More than its past performance, though, risk consulting is important for its future potential, which is huge. In the course of the last 10 years, risk has gone from being a specialist topic to something that sits squarely in the middle of the boardroom table: an area of concern to senior executives right across the business.

Risk work has long been seen as the Big Four’s bailiwick, but its rapid growth and even greater promise hasn’t escaped the notice of the big strategy firms, particularly McKinsey. More importantly, the latter can also see an opportunity to create a distinctive positioning, rather than attack the incumbents head on, by driving a wedge through the market, separating traditional and now fairly commoditised risk management work from a more—well, strategic—role. Key to this has been to focus on a broader definition of risk, likely to appeal to a wider, but still very senior audience, while the Big Four continue to be associated with risk in the context of finance and financial services regulation.

Our data on clients’ perceptions suggest mixed success for the strategy firms so far: A survey of several thousand clients we carried out earlier this year put them towards the bottom in terms of quality, still some way behind the Big Four. However, the proportion of people who were positive about strategy firms’ services in this area wasn’t actually significantly lower; instead they lagged behind the Big Four because more people held negative views, implying inconsistent delivery. Broadening and deepening their risk capabilities is the key challenge for strategy firms, and the irony here is that the best way they can do this will be to attract the real stars out of the Big Four, something which strategy firms can do because they tend to pay higher salaries. The challenge for the Big Four is that they may well get squeezed from both a demand and supply point of view.

There’s clearly a strategic story clients want to hear in the risk market, but it may not be the Big Four telling it.