demands become more complex SURVEY - FT DIRECTOR: Demands become more complex: NICHE CONSULTANCY by Alison Maitland There continues to be a place for the niche firms, but to meet customers' changing expectations and demands for a broader spread of expertise they are increasingly having to form alliances Financial Times; Mar 30, 2001 By ALISON MAITLAND Niche consultancies have typically thrived by being the best at their specialism. For many of them, this will no longer be enough. Corporate clients increasingly require consultants to provide them with complete, seamless solutions to problems. This means that specialist firms are having to broaden their services, whether by learning new skills in-house or bringing in outside expertise through an alliance. "The profile of projects has changed. They are more complex," says Gil Gidron, chairman of Feaco, the European Federation of Management Consulting Associations, which represents the industry in 23 countries. "The barriers between one niche and another are not as clear. IT is part of everything. You have a marketing problem and you use IT as the basis of a solution." The US-based Kennedy Information Research Group, which studies the global consulting industry, points to a large increase in alliances and partnerships over the past year, for example between specialised strategy firms and software consultants working in the same area. "When they hire consultants to do strategy, a lot of clients want to see them be able to implement the solution, to help install new software, to do the training and get the results from start to finish, rather than bringing in others to do the operational management or the human resources side," says Alden Cushman, vice-president. The risks in failing to grasp these new expectations from clients have been demonstrated starkly by the rise and fall of many specialist internet consultancies over the past 18 months. While the fortunes of these e-consultancies have been tied to market valuations of dotcom companies, they have also been hit by concerns that they did not have the staff, skills or experience to respond to global customers' needs and had not integrated acquisitions well. Firms such as Razorfish and MarchFirst in the US, Pixelpark in Germany and Framfab in Sweden all rose to prominence, only to run into difficulties as demand for their internet consulting services slowed. Some e-business consultancies have joined forces to broaden the expertise they can offer to multinational clients. Diamond Technology Partners of the US, for example, bought Cluster Consulting, a European rival, giving the combined group more than 900 consultants. While the dramas in internet consulting have been extreme, the issues of growth and internationalisation are particularly difficult for niche firms generally. "The motorway is littered with consulting companies that tried to take their industry or client-serving knowledge (from their home base) to Europe or Latin America, only to discover that their experience had almost no relevance to the new geography," says Mr Cushman. To avoid costly mistakes, specialist consultancies need to harness knowledge of the local culture into which they want to move, says Peter Brown, president and chief executive of Kurt Salmon Associates, a US-based international consultancy that specialises in retailing, healthcare and consumer industries. Not that all niche firms want to expand rapidly or globally. Some small partnerships are happy to remain that way. Although precise data are scarce, Kennedy estimates that specialist firms account for 25-30 per cent of the global consulting market, which was worth Dollars 114bn last year. The top 50 international groups represent 60 per cent of the market, with mid-tier firms accounting for the rest. "There probably will be more consolidation, with more integration at the top end and then smaller firms that are very focused and best at what they do," says Mr Cushman. "The mid-market will be most affected. They can either become big and integrated or scale back and follow the 'best-of-breed' approach, but not be 'sort of this and sort of that'." Because the industry remains highly fragmented, there are thousands of niche operators. These range from sole practitioners to firms with several hundred consultants. Being a single operator is becoming harder, however. "It's asking quite a lot for one person to have the credibility and back-up that three to five people do," says Will White, deputy director of the UK's Management Consultancies Association. He says that in the 1990s niche consultancies were often launched by corporate executives who had been made redundant or wanted control of their own business. Today this is a less common route. "More recently it's been hive-offs from big consultancies," he says. A typical growth path for a niche firm would be for it to make a name for itself, expand quickly and then be swallowed up by a bigger consultancy. The growth in the consultancy business has made many specialist areas fertile ground for niche firms. Mr Gidron, who is also a managing partner with Accenture in Europe, says these areas can be categorised by function, for example sales and marketing, by sector, such as tourism or telecommunications, and by geography. There are small consultancies confined to one German Land, for example, or working only in the Catalonia region of Spain. Some consultancies have thrived by specialising in one function for one sector, for example IT for the financial industry. Fast-growing niche firms in this area include CWB, based in London and New York, and the Capital Markets Company, which has grown to more than 800 consultants in just over two years. Consultants who help companies get closer to their customers - customer relationship management - are in high demand, as are experts in human resources issues such as leadership development and training, benefits and compensation, and change management. Sectors undergoing radical change, such as utilities, where deregulation has led to a spate of mergers and acquisitions, can provide lucrative work. Environmental and risk management, and corporate social responsibility, also appear to be promising niches. Mr Gidron warns, however, that the marketplace has become tougher for "opportunistic" consultancies, set up by people who spot a niche and enter it, only to disappear back into organisational life after a couple of years. "There's room for niche consultancies if they understand how to position themselves, if they invest in the right way and if they work to give the clients the best solutions, even if that means forming short-term alliances," he says. Copyright: The Financial Times Limited Human resource management trends (may 2001) Always be ready for a change of cheese (april 2001) Change management a corporate challenge (april 2001)