Management Consulting Services

SIC 8742

Companies in this industry

Industry report:

This industry consists of establishments primarily engaged in furnishing operating counsel and assistance to management of private, nonprofit, and public organizations. These establishments generally perform a variety of activities, such as strategic and organizational planning; financial planning and budgeting; marketing objectives and policies; information systems planning, evaluation, and selection; human resource policies and practices planning; and production scheduling and control planning.

Industry Snapshot

In the late 2000s, management consulting was a $100 billion enterprise in the United States. According to Kennedy Information, the overall consulting industry was worth $158 billion in 2008, and Plunkett Research placed the global consulting industry at $300 billion. Nothing has funneled more money into the business world than information technology consulting, which boomed in the 1990s as companies groped for ways to harness the benefits of office automation, network computing, and e-commerce. Other important consulting specialties include general strategy, marketing and branding, leadership, logistics, human resources, and industry-specific practices. All told, one standard reference on the industry listed 118 distinct types of consulting services offered and 98 industries served.

In many ways, the industry has been propelled by what could be described as business fads--philosophies, events, and practices that ignite intense interest for a few years but gradually fade. One such example was the rise of reengineering, a form of organizational change dictated by management strategy of the early and mid-1990s. Later in the decade, however, corporate leaders set their gaze on challenges like e-commerce and employee satisfaction.

By the turn of the twenty-first century, the majority of management consultancies were offering Internet-related services to the hordes of businesses launching online ventures. Those who had resisted delving into the e-commerce arena were scrambling to make up for lost time. When the technology industry in North America crashed, fueling a more widespread economic malaise, management consultancies began to see their revenues slow. As a result, the industry was characterized by both fee reductions and layoffs in the early 2000s.

According to the U.S. Census Bureau in 2008, there were 101,900 establishments engaged in the management consulting services industry in the United States. These firms employed about 582,000 workers with an annual payroll of $43.3 billion. Annual revenues were $108.6 billion. About 60,000 of these firms operated in the administrative management consulting sector; 7,000 in human resources consulting; 23,000 in marketing consulting; 6,000 in process and logistics consulting; and 5,500 in other management consulting sectors.

Organization and Structure

Individual Firms.
The most common organizational structure for a management consulting firm is that of a corporation. A typical consulting firm might employ research associates at the lower level, with consultants and senior consultants at the next level. Managing consultants are next in the hierarchy. At this level, individuals typically have greater degrees of client interaction, as well as responsibility for the success of consulting projects. Finally, at the top of a typical firm's hierarchy are partners. In addition to running the operations of the organization, partners are generally responsible for bringing new business into the firm.

Management consulting firms usually operate in project teams. Depending upon the firm and assignment, consultants on project teams often spend more time at the site of the client's offices than they do at their own. There, they gather data and interact extensively with personnel from the client organization, make recommendations, and often work on implementing solutions. Often, client personnel will work as part of the consulting team for the duration of the project to ensure that the organization has input into the process. Client participation increases the likelihood that the solutions will be implemented effectively.

Management consulting firms generally operate on a project fee or hourly fee basis. Fees in the consulting industry tend to run very high, due to the significance of the problems that consultants help their clients to overcome.

Industry Structure.
Management consulting firms range in size from sole practitioners to large businesses. As far as areas of expertise, some firms are devoted to specific practice areas while others offer a broad range of services to varied clientele. For example, a consulting firm might specialize in providing clients with compensation and benefits packages, to the exclusion of all other services. Yet other firms might provide a broad range of advisory services--combining such varied forms of advice as consulting the chief executive officer on general business strategy and consulting a management information systems (MIS) executive on a new computer network. A major segment of the consulting market is occupied by consulting organizations that are part of Certified Public Accountant (CPA) firms. Such firms attempt to serve their tax and audit clients with management consulting services as well. Another type of consulting function is one that exists within a non-consulting organization. Such internal consultants provide specialized services for their corporations. An example is an internal human resources consulting department within a Fortune 500 corporation that serves the varied divisions of the organization as if they were external clients.

In addition to providing expertise or advice, many management consultants perform in the role of process consultant. This approach recognizes that the client firm already possesses knowledge of its own industry and internal corporate environment that exceeds the knowledge available to the consultant. Therefore, the role of the management consultant is one of facilitating the process of pulling solutions out from within the client organization and providing insight with an objective point of view.

Because the management consulting industry is unregulated, any individual or company that offers advice in exchange for compensation may be classified as a consultant. For this reason, the definition of a management consulting firm often varies, depending upon the source of information. Nonetheless, an understanding of the industry can be ascertained by separating consulting firms into distinct categories and contrasting the categories.

The following breakdown describes the most common and most widely recognized types of consulting organizations, first by organizational structure, then by consulting specialty (also known as "practice area" within the industry).

Large Consulting Firms.
This classification represents the largest players in the management consulting industry whose primary service is providing expertise and consultation to management. The broad heading of large consulting firms encompasses the larger of the generalist consulting firms and strategy consulting firms.

Big Five Accounting/Consulting Firms.
A handful of large public accounting and consulting firms lead the industry on an international scale. These included the so-called Big Five: Accenture (formerly Andersen Worldwide), PricewaterhouseCoopers, Ernst & Young, Deloitte Touche Tohmatsu, and KPMG International. Consulting divisions of the Big Five were especially strong in information technology (IT) and management information systems (MIS) consulting. These firms typically offer strategic or generalist management consulting services as well. By the late 1990s, though, the marriage of public accounting, particularly auditing services, and consulting was a troubled one; most of the top firms attempted to wall off their accounting and consulting practices to avoid appearing to have conflicts of interest.

Small Firms/Boutiques.
Small firms or boutiques often provide specialized services or offer expertise that focuses on one industry or a single business practice area. These firms tend to be small, lesser-known niche players that do not regularly compete directly with the larger consulting organizations. Many of these firms operate in a single, geographic region. Some small or boutique firms service only one client.

Sole Practitioners.
Perhaps the most difficult segment to define in the management consulting industry is that of the sole practitioner. This group encompasses many outplaced or retired executives and part-time consultants who offer expertise in areas where they have a great deal of experience. Sole practitioners are often engaged by smaller firms and even their previous employers. This classification of the consulting industry also includes university professors who provide consulting in their areas of teaching expertise.

Internal Consulting Organizations.
Large corporations may have recurring project work for which the expertise of external management consultants would be required on an ongoing basis. Many such firms have developed internal consulting staffs in order to deal with this demand in a more cost-effective manner. Such internal organizations may be generalists or may specialize in corporate strategy, human resources issues, information technology, or other areas that are critical to the company's operation.

The information technology segment is the largest segment of the consulting industry. The Big Five all provided expertise in this area and draw substantial revenue from it as well. Firms that specialize in information technology tackle business problems by applying technology to provide solutions. For example, a firm specializing in information technology might help a corporation to become more efficient in their order fulfillment operation by installing computers and equipment that automates the process.

Compensation/Benefits Consulting.
Compensation/benefits consulting firms represent the second largest independent segment of the industry in the United States. Firms that specialize in compensation/benefits consulting offer services related to human resource management with specific expertise in practices such as developing corporate grading and compensation schemes, titling plans, and benefits packages. Examples of firms that practice primarily in the compensation/benefits consulting practice area include the Hay Group and Hewitt Associates.

Generalist Consulting.
Generalist management consulting firms typically provide advice on strategy to their clients but may also have internal expertise in specific industries, such as banking or health care, or in particular practice areas, such as new product development or operations. Generalist consulting firms often provide consulting in IT/MIS and compensation/benefits as well. Examples of generalist firms include McKinsey & Company Inc.; Booz Allen Hamilton Inc.; and Arthur D. Little (ADL).

Strategy Consulting.
Strategy consulting firms specialize in providing advice on corporate strategy to senior executives--answering such questions as, "How can our firm improve profitability?" Strategy firms compete with generalist firms for strategic engagements but do not provide the nonstrategy services of the broader, generalist firms. However, the larger strategy firms, as they have expanded their lines of business, have become more difficult to distinguish from the generalist firms. Examples of firms that have traditionally been regarded as strategy firms include the Boston Consulting Group and Bain & Company.

Specialty Consulting Practice Areas.
This segment is by far the most difficult to define, for it encompasses so many different possible practice areas. Specialty consulting firms are often boutiques or small to medium size organizations that service a niche in the consulting market.

Marketing Consulting Firms.
These firms provide marketing research, product test markets, target market selection, and other services directly related to the marketing of client products or services. One of the best-known marketing consulting firms is The Future Company, created when U.K.-based Henley Centre HeadlightVision and U.S.-based Yankelovich merged in 2008.

Business Reengineering/Organizational Effectiveness.
This specialty in management consulting refers to the radical redesigning and rebuilding of the processes and functions of a business to recreate the company as a highly effective, cohesive whole that performs optimally. The concept of "business reengineering" was originated by the Index Group (now CSC/Index Inc.). Increasingly, other consulting firms are also developing this line of business--most notably, Accenture.

Environmental Consulting Firms.
With increased public attention on the environment, and increased governmental concern over hazardous waste, environmental consulting firms have seen increased demand for their services in recent years.

Health Care Consulting.
There are two primary specialties that fall under the heading of health care consulting. The first practice area is providing general advisory services such as strategy consultation or cost-containment studies for health service agencies (e.g., Health Maintenance Organizations) and hospitals. The second practice area is in helping corporations to select employee health benefit plans that minimize costs and provide the best health care coverage for the organization.

As health care costs continue to rise in the United States and concern for health coverage increases, this consulting specialty has been experiencing growth as well. In addition to specialty firms that provide health care consulting, many of the larger consulting organizations also service this industry.

Changes in the economy can affect firms in different ways. For instance, if the economy slows and businesses become more concerned with the bottom line, they may put off decisions such as automating. This negatively impacts the information technology segment of management consulting. At the same time, however, executives of corporations in hard times might be more prone to call upon a consulting firm that can help them to find ways to increase their revenues, contain their costs, or reduce their head count.

For consulting firms, approximately 20 percent of their costs are consumed in new business development. Costs for marketing activities include the production and distribution of promotional materials, salaries of partners who are responsible for client development and new business, and association memberships. The area in which firms may expend the greatest amount of resources, however, is in the competitive bidding process, also known in the industry as the "bake-off."

A bake-off occurs when a client with a problem approaches several consulting firms. These firms each spend time and money becoming acquainted with the client's organization, attempting to develop internal champions for their firm. The bake-off often involves several personnel from each consulting firm, all dedicating their time, without pay, at the site of the potential client in order to gather a better understanding of the problem. At the end of the competitive bidding process, the client chooses one of the firms, or none, and the remainder have invested resources without remuneration.

Because of the expense involved in acquiring new clients, consulting firms try to become the "house consultants" for their existing clients. In doing so, the firm may become so trusted by the client that it can bypass the competitive bake-off and be engaged directly by client management. This is an enviable position for a consulting firm to be in, as it can minimize business development costs and ensure a more steady flow of income.

Industry Associations and Accreditation.
There is no central licensing agency for management consultants, nor are there any industry guidelines or regulations as standards for operating practices. The only form of acknowledgement for consulting expertise is the Certified Management Consultant designation that is granted by the trade association, the Institute of Management Consultants. Another primary industry association is the Association of Management Consulting Firms (AMCF; formerly Association of Management Consulting Engineers). Other industry associations include the Institute of Management Consultants, Society of Professional Consultants, and the Association of Internal Management Consultants.

Background and Development

The practice of consulting began in the late 1880s. At that time, Frank Gilbreth was conducting time-and-motion studies to improve bricklaying techniques. At about the same time, Frank W. Taylor was applying time studies to improve the steel industry. In 1886, Arthur D. Little founded the consultancy that bears his name and is now one of the largest consulting firms in the world. Little began working in 1881 to bring scientific ideas to management practices. The next industry event was the introduction of a quality aspect to time and motion. In the 1920s, Charles Bedaux enabled his clients to make tremendous leaps in productivity by improving quality.

In the 1950s and 1960s, small firms began to proliferate as former sole practitioners expanded their business. Then, in 1963, the Boston Consulting Group was founded on the notion of giving strategic advice to clients. Management consultancy recognized this event as critical in changing the role that management consultants played. During the 1960s, CPA firms entered the fold and made the formal transition from offering advice related to their accounting activities to charging clients for business advice in a traditional consulting manner.

Consulting revenues in the United States grew steadily throughout the 1970s and 1980s and more rapidly in the 1990s, rising from $28.9 billion in 1990 to $70.7 billion in 1998, according to estimates by the Census Bureau. Separate calculations by the Kennedy Information Research Group, which publishes newsletters, periodicals, and research reports on the industry, placed the global value of consulting services at $100 billion as of 1999. Information technology services, reported Kennedy Information, represented fully 60 percent of the industry's revenue. Based on estimates of 1998 consulting revenues, the top ten firms alone had more than $33 billion in consulting receipts.

E-commerce consulting was perhaps the most important trend of the late 1990s and early 2000s. A natural fit with the industry's well-developed IT consulting practices, e-commerce advice and implementation typically involved steering conventional businesses toward a successful Internet strategy. There was, of course, also a market for consultants within pure-play Internet firms that were trying to break into the business. Leading consulting firms like Andersen and Deloitte found e-commerce such a potent consulting formula that they raced to set up separate e-commerce units to cater to this market.

Consolidation had a major impact on management consulting in the late 1990s, particularly among top-tier firms. Whereas observers used to speak of the Big Six or even the Big Eight, by the late 1990s consolidation had brought the top echelon down to five members. One of the most prominent mergers was between two members of the then-Big Six: Price Waterhouse and Coopers & Lybrand, which merged in 1998 to form PricewaterhouseCoopers. And in 2000, one of the remaining five, Ernst & Young, sold its consulting business to France-based Cap Gemini Group, effectively removing the Ernst & Young accounting practice from the consulting business.

The U.S. management consulting industry was marked by an unprecedented level of cutbacks and layoffs early in the twenty-first century. The rise of Internet startup consultancies such as Scient and Viant in the late 1990s had presented a new form of competition to traditional consultancies, which were forced to compete both for new clients seeking to incorporate Internet technology into their business practices and for a rapidly shrinking pool of qualified employees. As a result, many firms began boosting their compensation packages to retain existing employees as well as to attract new help. When the Internet market began to falter in 2000, weakening the U.S. economy, many consultancies were left overloaded with highly paid help. As revenues began to wane in the early 2000s, many firms reduced headcount in an effort to bolster earnings.

Attrition at two of the industry's leading firms, Accenture and McKinsey, fell from 20 percent in 2000 to 12 percent in 2001. Accenture laid off 4 percent of its workforce and asked hundreds of employees to take a leave of absence that year. PricewaterhouseCoopers also lightened its workforce and reduced pay to all U.S. consulting employees by 7 percent. Similarly, Ernst & Young cut 4 percent of its global workforce, and KPMG laid off 7 percent of its staff. Consequently, between October of 2000 and October of 2001 the worldwide consulting industry saw its ranks fall by nearly 5 percent from a total of 600,000 employees to 572,000 employees. Along with reducing their ranks, many consultancies trimmed their fees in an effort to remain competitive.

The industry continued to face an absence of mandatory certification requirements and lack of enforceable industry standards at the turn of the twenty-first century. One potential conflict of interest involved the growing number of alliances between management consultancies and information technology suppliers, which some analysts believed influenced a consultant's recommendations about information technology products. Also of concern was the conflict inherent in an accounting firm that conducts auditing activities as well as management consulting activities. In the late 1990s, the U.S. Securities and Exchange Commission (SEC) began investigating Big Five auditors to ensure their independence from their consulting clients. Eventually, the SEC accused KPMG of violating federal securities law by auditing a company managed by a KPMG employee. This litigation prompted PricewaterhouseCoopers to put its information technology consulting operations up for sale. It also fostered Cap Gemini's $11 billion acquisition of the consulting arm of Ernst & Young in 2000 and KPMG's decision to spin off its consulting operations into a publicly traded company in 2001. In a similar move, Accenture (formerly Andersen Consulting) also separated from its accounting business, although this had more to do with the desire of Andersen consultants to separate from the firm's slow growth accounting operations.

Current Conditions

In 2009, over 190,000 management consulting firms operted in the United States. These firms employed 1.1 million people and generated annual revenues of $135 billon. In 2008, the Bureau of Labor Statistics cited management, scientific, and information technology consulting services as one of the fastest growing industries in the United States, as well as one of the highest paying.

The report Worldwide and U.S. IT Consulting 2006-2011 Forecast agreed, predicting that information technology consulting would ultimately climb 5.2 percent between 2006 and 2110. Bo Di Muccio, program manager for consulting services at International Data Corp, stated, "After a somewhat prolonged period of stagnation, the IT consulting services market has clearly seen a return to many positive trends." IDC's results were supported by "an increase in average utilization rates, moderate stabilization in project/contract size, sharply rejuvenated hiring activity, and an increase in corporate focus on core services--a key driver of external IT services spending."

Industry Leaders

The Big Five.
Accenture Ltd., formerly known as Andersen Consulting, was the world's largest management consulting firm in the late 2000s. Under its parent company Andersen Worldwide, Andersen Consulting had been an offshoot of one of the Big Five accounting firms and had offered some form of consulting services since at least the 1920s. The two Andersen segments epitomized the struggle between the older accounting side of the business and the new consulting side. The original Arthur Andersen & Co. accounting firm dates to 1918. The consulting wing had grown to match the accounting business in terms of revenues in the late 1990s, with big banks and communications companies as some of its largest clients. In 1998, Andersen Consulting voted to split completely from Andersen Worldwide, which, in addition to its accounting and auditing work, was a competitor in the management consulting industry. Wanting to separate itself from what it viewed as the less lucrative auditing industry, the consultancy earned full autonomy from Andersen Worldwide in 2000; it was then that Anderson Consulting completed its name change to Accenture. The firm conducted its initial public offering in 2001. Accenture, which is located in Bermuda but had headquarters in New York, had 200 locations in 50 countries in the late 2000s. Revenues for 2009 reached $23.1 billion with 177,00 employees.

One of the largest consulting firms in the world and based in New York, PricewaterhouseCoopers (PwC) was created by the high-profile 1998 merger of Big Six rivals Price Waterhouse and Coopers & Lybrand. Founded in London in the late nineteenth century, Price Waterhouse was one of the world's oldest and most prestigious accounting firms, and by the 1990s, it was a massive international management services purveyor. Coopers & Lybrand was a prominent accounting firm in its own right, dating to a 1957 merger of two multinational accounting concerns. In the late 2000s PwC had nearly 156,000 employees in 770 offices in more than 150 countries. Revenues for 2008 exceeded $28.1 billion.

Ernst & Young Global, based in London, is a worldwide management consulting firm with fully integrated capabilities in strategy, operations, people, and information management. Ernst & Young LLP, the American branch of the firm, is headquartered in New York and has about 100 offices in the United States. Ernst & Young Global employed 135,000 employees in more than 700 offices in 140 countries in the late 2000s. The firm recorded revenues of $24.5 billion in 2008.

Deloitte Touche Tohmatsu of New York is divided into four business segments: audit, tax, consulting, and financial advisory services. It also provides human resources and IT services. About 150 independent firms operate in 140 countries; Deloitte & Touche is the U.S. accounting branch. With 165,000 employees, Deloitte Touche Tohmatsu posted sales of $27.4 billion in 2008.

KPMG International, based in the Netherlands, is a cooperative that operates in three classified regions: the Americas; Australia and Asia/Pacific; and Europe, Middle East, South Asia, and Africa. KPMG's focus includes helping businesses in the financial services and consumer products industries, as well as government entities. Sales in 2008 were $22.6 billion with about 137,000 employees.

Other Industry Leaders.
Booz Allen Hamilton Inc., another generalist consulting firm, was founded in 1914. Booz Allen employed consultants through offices worldwide in the late 2000s. The firm is organized around industry groups such as advanced technology, applied sciences, energy and chemicals, financial services, information and strategic systems, and marketing-intensive industries. Revenues in 2008 reached $4.7 billion with 18,000 employees.

A. T. Kearney Inc. was founded in 1926 as a production and engineering consulting firm that served manufacturing clients. Over the years, A. T. Kearney has grown into a full service, generalist consulting firm employing more than 5,000 professionals, half of whom operate as consultants. In 1995, the firm was bought by Electronic Data Systems Corp., a large systems integration and technology service provider. A.T. Kearney's management team purchased the company from Electronic Data Systems (EDS) in January of 2006. In 2008, A.T. Kearney operated in 35 countries and posted revenues of $785 million.

McKinsey & Company Inc., a generalist consulting firm, is one of the best known of the generalist management consulting organizations. Founded in 1926, McKinsey experienced tremendous growth in the 1980s and 1990s, expanding to more than 11,000 professionals and a total of 84 offices by 2001. Most of this growth for McKinsey came from international expansion. McKinsey provides consulting services that address top management issues for large organizations. The majority of its work is in the area of strategy and organization. The remainder is conducted in specialized practice areas such as marketing, manufacturing, and technology. McKinsey & Company had estimated revenues of $3.8 billion in 2005. By 2008, sales had reached $5.3 billion, with 90 offices in 50 countries and 16,000 employees.


For the most part, large management consulting firms hire people with MBAs from top business schools as entry level consultants. For higher level positions, specialists may be recruited directly from the competition or from the industry. The latter is particularly true if an individual can offer industry expertise that would assist the consulting firm in expanding or servings its existing client base. Depending on the industry and the needs of the particular firm, individuals with more advanced degrees or degrees in technical specialties (such as economics or computer science) may be selected as well. Some consulting firms will take academically strong candidates from top undergraduate schools as lower entry level consultants or analysts/researchers.

Overall, consultants in medium-to-large generalist or strategy firms are analytically oriented, well-educated individuals. In the past, management consultants in the United States were typically white males. Like other industries, consulting firms have been diversifying, especially as these firms increase their exposure in foreign markets.

The industry also comprises small firms, boutiques, and sole proprietorships that are composed of technical specialists such as information technologists or marketing consultants. These individuals may be displaced corporate professionals or individuals who have left larger consulting firms to start their own practices. It is also common for sole practitioners to perform consulting work on the side, in addition to their full-time positions with other companies.

Another segment of the consulting industry is that of university professors who consult to complement their full-time positions in teaching. These professors typically hold advanced degrees and are specialists in a particular field of research. This segment of the consulting population is self-regulating via the Academy of Management, Division of Managerial Consultation, which provides a code of ethics for its 800 members. The fastest growing segment of this market is systems analysis and administrative services managers.

Research and Technology

The application of technology is a significant tool of the consulting industry. Many of the largest firms in the industry generate their revenue by applying technology solutions to business problems. An example of this is redesigning a distribution operation and inventory tracking system to automate the entire process with robotics, computers, scanners, and advanced software to control the system. Still other firms specialize in training corporate personnel to use technology.

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