Big consulting firms attract attention in business, the media, politics and academia. Whether cast as trusted advisors, servants of power or masters of the universe, they are seen as global players. Indeed, they have offices all over the world and serve most multi-national corporations and increasingly, many governments – capitalism’s commissars!
And yet the statistics tell a different story. Almost four fifths of consulting fees are accounted for by North America (48%) and the European Union (30%) (Source Global Research, 2016). And with nearly three-quarters of European consulting revenues stemming from only three countries (Germany, UK and France) (FEACO, 2017), this means that, along with the USA and Canada, around 70% of consultancy fees worldwide are generated in only 5 nations – over double these countries’ share of global GDP. Even among those countries with a strong consultancy habit, there is considerable variation. Germany, the UK and France for example generate revenues, respectively, of $44bn, $27bn and $12 bn (Marketline, 2015).
The question of why external management consulting use is relatively rare and localised was the focus of research published in November 2018 in the journal Management Learning by academics at the Universities of Bristol and Cardiff and featured in a recent Financial Times opinion piece. The study identified five interconnected drivers of consulting demand and supply (the economy, state, culture & ideology, education and organisational relationships) and showed how these are linked to different national contexts.
Of course, economic factors are crucial, not least in determining who can afford consultancy, but also in terms of patterns of economic growth or change and sector specialisms. But they by no means fully explain the variety in consulting use. Italy, for example, has a sizable and changing economy and yet makes up only 3% of the European market (Marketline, 2015). Also, what type of economy is not crucial – Germany and the UK for instance are the big buyers in Europe and yet represent very different forms of capitalism and economy.
The role of the state is also important. Firstly, as a user of external consultancy, the state can drive demand and attract new entrants. Again, this varies hugely, from 10% of the market in France and Italy to 25% in the UK (FEACO, 2017), which opened the door to consulting in the Harold Wilson years which has (mostly) remained open ever since. The state has also been influential historically in resisting (mostly) the regulation of consulting and in providing and regulating competing sources of external management expertise.
The economy and the state are linked to other traditional drivers of business activity such as culture and ideology. These are more difficult to disentangle, but it is no coincidence that consulting is based almost exclusively in the northern part of Europe. It can be connected to individualism too, in part, because this has been shown to correlate with openness to outsiders and their knowledge while collectivists are more likely to stick together. Compare Japan with the US and UK for instance, which have around twice the level of consulting use as a percentage of GDP.
The contrast between the USA and Japan can also be connected to the management education system in the two countries. A key factor here is the MBA. One might expect that consultancy is most commonly used in countries where there are fewest management (MBA) educated managers, but, if anything, the reverse is the case. MBAs and consultants tend to speak the same language and are therefore managers are more responsive to sales approaches. And this leads to the last driver of consulting supply and demand, focused on organisations and their networks.
Because consulting is a highly ambiguous business, there is a huge reliance on relationships – trust and/or reputation. Therefore, consulting is most common where it has already become established in countries and their business and elite networks – what technological innovation scholars call contagion. This is evident historically and currently, when multinational companies set up in new countries, they act as a bridge for their consulting firms to follow and establish a wider market for themselves.
So why does it matter that consultancy use varies and is not as global as some of us might have imagined? It alerts us to the fact that organisations can be run in different ways, using different sources of knowledge and expertise. External consulting is itself varied and has its place and value – for one-off projects needing rare expertise for example. However, it also limits our thinking on how things can be done and what change can be achieved. Alternative routes include, internal sources such as internal consulting, but also: wider employee-based approaches; think tanks; industry associations and networks of suppliers and competitors; government sponsored organisations; and other professional services.
A diversity of actors and of knowledge is especially important if one source of expertise becomes dominant and unaccountable. In the case of the large consulting firms especially, their models are also often standardised, commodified and tend to favour market-based approaches. After all, this is often what their clients request. But questions are already being asked if this and the large firm approach to consulting is sustainable in the current ‘disruptive’ climate. What our research shows is that most of the world already operates in different ways and that, at least in the crude terms of fee income, ‘global’ management consultancy is a minority activity.