Recession changes focus of management consulting

The management consultant business has a new industry in need of its assistance to see it through this recession: the management consultant business. This is a jolting experience for these glamorous companies, some of whom grew 35 percent a year in the 1970s. But for a business that prides itself on being able to help corporations with its expertise in product development, finance, marketing, management, and overall strategy, 1982 has been a challenge.

Billings by management consultants are off 25 percent this year, down to $2.5 billion, according to James Kennedy, publisher of Consultant's News. Mr. Kennedy projects 1983 will remain ''flat, at best.'' For the 1980s as a whole, the consensus of observers is, the business will expand at the slower pace of about 10 percent a year.

''Growth is harder to come by,'' said Ronald Goettinger, president of Sibson & Co., a compensation consulting firm, where growth has slowed by 25 percent. ''We have to write more proposals and fewer are accepted.''

While they write proposals, the consultants are contemplating a future that could leave their industry with a few very large firms, numerous small specialized ''boutiques,'' and very little in the middle. Many of their corporate clients, meanwhile, are starting to do some of their consulting themselves.

At the business schools, which have turned out the young masters in business administration hired at high salaries by the consultants, the recession has brought on another shift.

''The critical competitive weapon of the 1980s will be effective line management and operations,'' said Prof. David H. Maister of the Harvard Business School, who has noticed a shift in the courses students have been taking from strategy-oriented courses to ones focusing on operations. ''In the future, success will be determined not by the quality of analysis, but by how well you get things done.''

For the present, however, management consultants are analyzing the reasons for the slowdown in their industry. The recession has not hit all firms equally, points out Joseph J. Brady, president of ACME Inc., an association of management consulting firms.

The slowdown seems to depend on two factors, he said: the industry a consultant serves, and the functions it performs. If most of a firm's clients make automobiles, for instance, business is down. But firms specializing in productivity are faring better than executive recruiting firms, says Mr. Brady.

The recession has made client companies more discriminating with their consulting dollars; increasingly, they hire specialized firms with experts in a particular area.

''In the 1960s, if you had a Harvard MBA, a blue serge suit, and an air travel card, you were a consultant,'' quips Carl Sloane, president and chief executive officer of Temple, Barker & Sloane. ''But now the clients have their own bright MBAs, and you have to offer a range of specialized services.''

At many of consulting firms, these factors have led to a trend already familiar to many of their clients: layoffs and business failures. Hard evidence on layoffs or failures is hard to come by; a code of silence prevails over the industry, since all but a few firms (Arthur D. Little being the largest) are privately owned.

About 100 people have been asked to leave the Washington, D.C. office of Booz Allen Hamilton, says a consultant there.

When there's a lot of (consulting) work to be done, you need good mechanics who can fix problems for clients,'' said Stewart Washburn, an independent consultant specializing in industrial sales and marketing. ''But when times are bad, you need a salesman to go out and beat the bushes for new clients. Then you let the mechanics go.''

According to John F. Hartshorne, executive director of the Institute of Management Consultants, there have been ''surprisingly few'' cutbacks in consulting staff as a whole. ''But firms are just not hiring.''

As for failures, ''consulting firms tend not to fail, or at least to announce it,'' observes Mr. Kennedy. ''They just fade away, and reappear when times get better.''

''For a delightful period of 15 years,'' recalled Robert Hayes, president of Hayes-Hill Inc., a Chicago-based management consulting firm, rates were based on the consulting firm's costs, not on a price determined by the market. About four years ago, he continued, ''we started feeling a downward pressure on billing rates,'' as clients started basing their choices partly on price. Since then, salaries have risen about 50 percent, according to ACME. (The average starting salary for a fresh MBA at a large firm was $32,000 in 1981. At the more competitive glamour firms, MBAs begin at closer to $50,000.)

But if the recession can't be measured by layoffs or failures, it shows up in the number of new consultants and mergers.

''The only way to survive in this business is to get bigger,'' states Mr. Hayes. Hayes-Hill recently bought William Hill & Co., a Chicago-based consulting firm, and is looking for other acquisition candidates.

Over a dozen other mergers have occurred in the last few years. The largest is Towers, Perrin, Forster & Crosby, with billings of $135 million a year, acquiring Cresap, McCormick & Paget, with $15 million in billings.

Even now, the industry is fairly concentrated: Of the estimated $2.5 billion consulting market (excluding the ''big eight'' accounting firms), the top six firms get about $700 million, the next 40 firms bill about $500 million. The next ten thousand get the rest.

In five years, predicts Dr. Marvin Schiller, vice-president of A.T. Kearney, there will be perhaps 5 to 10 giants with between 200 and 1,000 professionals each; maybe 75 specialty boutiques with between 5 and 20 people; and ''not much in the middle. Those guys are going to be whipsawed.''

The key to surviving the shakeout, say those knowledgeable in this field, is not just size and specialization, but being able to predict the hot areas of expertise. According to many experts, the hot topics of the 1980s will be telecommunications; banking and insurance because of deregulation; data processing; implementation, that is, integrating overall corporate strategies into the manufacturing process; and human resources, as more organizational planning is used to determine a company's effectiveness.

In the end, the future of consulting will depend on innovation and creativity. But some think innovation is sorely lacking. Once-revered concepts, such as the experience curve, have proven insufficient tools for success, and, it is felt, consultants have come up with few viable replacements.

Others say creativity will take a new form - better ways to manufacture a product. They say consultants will shift their attention from executive suites to production lines, and advice will center on nuts and bolts rather than on five-year market strategies.

Already, says Dr. Schiller at A. T. Kearney, more clients are looking for ''the most cost-efficient way to make the most competitive products possible.'' The high growth, he predicts ''will be found in the reindustrialization of the US.''