Saying you’re unique is not enough: The importance of differentiation

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While we may have been told we were special little snowflakes when we were children, we have long since realized that the competition out there is tough! And when it comes to offering a unique value proposition (UVP) in the consultancy sector, it’s not what you think, but what your clients think that counts.

The uniqueness of your proposition is judged by your clients as they compare you with your competitors. This ranges from the low end, where your service is seen as a commodity (you are a ‘me too’ supplier), through varying levels of differentiation, up to an exclusive service which clients cannot get anywhere else. The uniqueness needs to be seen within the context of your chosen target market. For example, the use of lean techniques to redesign processes is less commoditized in the public healthcare sector than it is in, say, automotive manufacturing.

One way of thinking about the difference between a commoditized, a differentiated and a unique service, is to consider a Venn diagram of your services (or sector) compared with the competition. If the two circles of the diagram overlap completely, you have a commoditized service where the main reason for purchasing your services will be based upon price. If the circles have some overlap (less than 100%) then you have a differentiated service and the purchasing decision will be less price sensitive. If there is no overlap at all with your competitors then your service is unique and the purchasing decision will be the least price sensitive of all.

There are three areas that you can work on in order to increase your differentiation from competitors:

  • Develop expertise: Deep domain expertise is very valuable to clients and buyers alike, as shown in our research. Digital marketing is currently an extremely hot sector in the M&A world as it’s fast-moving and it takes time to develop these skills in house. This means buyers are more interested in acquiring consultancies with these skills and clients are more interested in buying consultants with this knowledge
  • Ensure you are seen as thought leaders: Quite simply, if your IP is better than anyone else’s then clients (and buyers) will choose you over anyone else.
  • Always describe what you do in terms of delivering client benefit: As is often said, people don’t buy products, they buy solutions. Rather than talking about your offer from your point of view, talk about the benefits it can deliver and the problems it can solve for clients

Differentiation from competitors can be challenging but it is worth spending time on to ensure that your consultancy doesn’t become a ‘me too’ brand, competing only on price. By establishing what your clients value and couching your offer in these terms, you have a much higher chance of carving out a niche in your sector.

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Consulting Sector M&A Deals for week beginning 17th August

businessman doing handstand on the beachAccenture (Ireland) has acquired Schlumberger Business Consulting (USA)
Deal Size: Undisclosed Industry: Management Consulting Date: August 2015
Accenture has acquired Schlumberger Business Consulting (SBC), the management consulting arm of Schlumberger, for an undisclosed amount. Over 250 consultants operating from nine offices worldwide will be integrated into Accenture’s Strategy business unit. Schlumberger Business Consulting (SBC) is a global player in the energy and utilities sector, with a particular focus on clients in the upstream oil and gas industry. The company provides consulting services in strategy, operations, people & transformation, capital projects and mergers & acquisitions. With the acquisition of Schlumberger Business Consulting, Accenture – according to Gartner one of the 10 largest management consulting firms of the globe – significantly bolsters its capabilities in the rapidly changing energy landscape. Partly driven by oil price volatility, but also by increased regulation and technology advances, the upstream oil and gas sector is undergoing a fundamental transformation. Energy companies are also under pressure to among others improve internal performance in delivering large capital projects, reduce production costs and extend into new areas, including renewables. Following completion of the acquisition – the deal is still subject to regulatory approval and other customary closing conditions – all of the Schlumberger Business Consulting (SBC) employees will join Accenture’s Strategy business unit. Mark Knickrehm, Chief Executive of Accenture Strategy, adds: “The acquisition will further strengthen Accenture Strategy’s ability to provide key strategic insights to clients in the upstream oil and gas industry. Our technology-driven business strategies and digital knowledge complement the core consulting strengths of the professionals who will join us through this acquisition.” (http://www.consultancy.uk)

Costain (UK) to acquire Rhead Group (UK)
Deal Size: £36 million Industry: Management Consulting Date: End of 2015
COSTAIN, the engineering solutions provider that helped to build the Channel Tunnel, has announced the acquisition of Rhead Group, a commercial management consultancy. Rhead Group will be fully integrated into Costain before the end of the current financial year. The group’s current senior management setup, including chief executive Nigel Curry, is expected to remain with the business. The takeover has cost Costain £36m, all of which will be paid for by the company’s existing cash and debt facilities. In the year ending July 2014, Rhead Group declared revenues of £63.5m, and earnings before interest, taxes, depreciation and amortisation (EBITDA) of £5.2m.The company’s client list contains a number of blue chip accounts, including National Grid, Wales & West Utilities and BAE Systems. (http://www.4-traders.com)  Continue reading

Consulting Sector M&A Deals for week beginning 10th August

businessman doing handstand on the beachAricent (USA) has acquired SmartPlay (India)
Deal Size: $180million Industry: IT Consulting Date: August 2015
US product engineering firm Aricent has acquired Bengaluru-based chip design services company SmartPlay for $180 million, one of the biggest acquisitions in the semiconductor space in India. It’s also Aricent’s fifth and the biggest ever acquisition in the country. The acquisition follows France-based technology consulting firm Altran’s acquisition of India-based SiCon Design Technologies last month and the acquisition of Bengaluru-based Cosmic Circuits in 2013 by Cadence Design Systems of the US, and demonstrates India’s growing and deep strengths in semiconductor design. The SmartPlay acquisition will help Aricent accelerate its R&D efforts in embedded software (software that is embedded in hardware) and the emerging high-potential space of internet-of-things (IoT — the concept of connecting every kind of device, from pens and toasters to factory components, to the internet). (http://economictimes.indiatimes.com)

Cedar Management Consulting (Dubai) acquires IBS Publishing (UK)
Deal Size: Undisclosed Industry: Management Consulting Date: August 2015
Cedar Management Consulting has acquired IBS Publishing and its IBS Intelligence unit. IBS Intelligence provides uniquely researched news content on technology trends within the financial markets, as well as offering its own consulting practice. Through the acquisition of IBS, Cedar Management Consulting considerably strengthens its range of offerings to its worldwide clients in the area of knowledge in banking technology and wider trends. The deal is partly aimed at expanding within the Indian market, with the consulting knowledge and prowess acquired, to be leveraged for old and new clients in the Indian banking system. (http://www.consultancy.uk)  Continue reading

The world is now ‘on demand’, but why are so many back offices still living in the past?

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This week we have a guest blog from Mark Robinson, who has founded and sold several consultancies. His latest venture is professional services automation specialist, Kimble Applications, of which he is a co-founder.

Twenty or 30 years ago we organized our lives around how the world worked. We worked 9-5 because we had to be in the office to get work done, we sat down to watch a certain TV show at a certain time because that was the only chance we’d have to view it and we picked up a paper in the morning to get our news fix as that’s how we kept up with current events. That already seems like a long time ago now doesn’t it? These days we have flexible working, we can catch up on TV shows when and where it suits us and we can get a constant feed of news through our mobile phones. This has all been enabled through technology. But one area which has yet to embrace this new way of working is the back office.

Today, the back office is much the same as it’s been for decades. Invoicing is done at month end, as are payment runs and expenses, which are often physically uploaded, checked, approved and forwarded to finance. Resource planning is based on imperfect forecasting, often using a range of spreadsheets and a finger in the wind approach. Timesheets can take weeks to verify, leaving consultancy owners with little idea of how they are performing against budgets. This all adds up to challenges for any management team who wants to know how the business is doing at that exact point in time, as they have no idea how accurate or up to date the information they are using is. Imagine how much more quickly you could grow your consultancy if you had on demand information that showed you how the business was doing right then, allowing you to fix any problems much earlier and make decisions faster that improve your company performance.

That the back office is so behind is even more surprising given that we now accept that front offices need to function ‘on demand’. We know consultancies have to be responsive to clients’ requests and needs, so why are we leaving the back office wallowing in the past when they should be joined up with the front office and just as responsive?

The fact is that we now have the technology to make the back office on demand, which can bring huge benefits to consultancies. Rather than running a variety of untrustworthy spreadsheets or old fashioned packages, the correctly designed cloud application means that we can have a single, unifying system based around the processes the cloud enables into which we enter information as it happens and access from anywhere. This destroys the silos that previously existed between departments. From senior management, sales people, project managers, consultants and associates, every time anyone changed anything, the overall performance reporting would be updated across the system in real-time, so that whenever you looked at the information on the system, you know it’s completely accurate and a snapshot of where the business is at that time.

A client (or you, for that matter) wants to know what the status of a project is, how much time and money has been spent on it? They don’t have to wait until the next reporting run: you can tell them instantly. You’d be able to enter and approve expenses and timesheets from anywhere, at any time, and from any device. You’d know what capacity and skillsets you have on the bench at any given moment, and for how long, allowing better resource planning and pursuit of new business.

And alongside all of this, everyone in the business would have the same level or clarity meaning every employee understands how their actions can impact the business, empowering them to make a real difference to the growth of the consultancy.

And professional services automation (PSA) tools make a huge difference to the bottom line too. Invoices can be produced more quickly and are error-free, meaning they get paid more quickly, improving the company’s cashflow. Because much of the work is now automated, this frees up the back office to concentrate on more added-value work, meaning companies can grow without having to increase the headcount of non-revenue generating staff. Service Performance Insight is a global research, consulting and training organization dedicated to helping professional service organizations make quantum improvements in productivity and profit. Its last benchmark found that firms using PSA software saw more than a 6% increase in their billable resource utilization. On average, firms using PSA earned an extra $11,000 of revenue per consultant than those that have yet to adopt it and enjoy nearly 75% stronger profit margins as measured by EBITDA.

This technology is with us now. It’s time for consultancies to move their back offices from the past and into the on demand present. Just because it’s the way we’ve always done it, it doesn’t mean it’s the way we should continue to work.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access. 

Consulting Sector M&A Deals for week beginning 3rd August

businessman doing handstand on the beachRegions Insurance Inc. (USA) acquired The A.I. Group Inc. (USA)
Deal Size: Undisclosed Industry: HR consulting Date: To close end of the year
Memphis, Tennessee-based insurance broker Regions Insurance Inc. said Monday that it has acquired Atlanta-based The A.I. Group Inc. The A.I. Group provides employee benefits consulting and insurance brokerage services for mid-size and large employers in the United States. Co-founders and Managing Partners Dan Murphy and Dave Woodruff, along with The A.I. Group’s 39 employees have joined Regions Insurance. Messrs. Murphy and Woodruff will continue to play a key role in the employee benefits consulting firm, Regions Insurance said in a statement. The A.I. Group will operate under the name Regions Insurance. The employee benefits consulting firm will make the transition by the end of the year, according to a Regions Insurance spokeswoman. “The A.I. Group has many years of experience providing large group employee benefits expertise to companies nationwide in a customized and strategic manner,” said Curren Coco, CEO of Regions Insurance Group. (http://www.businessinsurance.com)

General Employment Enterprises Inc. (USA) acquired Agile Resources Inc. (USA)
Deal Size: Undisclosed Industry: IT consulting Date: July 2015
General Employment Enterprises Inc. has acquired Agile Resources Inc., an Atlanta-based IT staffing and consulting services provider. The acquisition adds service capabilities and extends General Employment’s footprint into the greater Atlanta area. The transaction closed July 31. General Employment acquired all of Agile’s common stock for consideration including cash, stock and seller financing. Additional terms were not disclosed. Agile is now a wholly owned subsidiary of General Employment. Agile provides IT staffing professionals with expertise in the areas of .Net, sharepoint, enterprise resource planning, software engineering, database support (Microsoft SQL, Oracle, Sybase & Informix), legacy systems support, data analytics, cloud migration, big data, cyber-security, health IT, network and help-desk support and mobile applications. “The acquisition of Agile brings to General Employment a highly profitable and fast growth IT staff augmentation and consulting organization that provides outstanding client service and is led by a dynamic individual and growth-oriented executive,” said General Employment Chairman and CEO Derek Dewan. (http://www.staffingindustry.com)  Continue reading

Equiteq’s Global M&A report 2015 – Who’s buying?

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For those aiming to one day sell their consultancy, who is buying is naturally of great interest. This week we’ll be delving into our Global Consulting M&A Report to see where the buyers are coming from.

In 2014, 2,274 targets were bought by 1,722 different buyers, meaning buyers in 2014 acquired, on average, 1.32 targets each. This is broadly consistent with a similar ratio of 1.29 in 2013, illustrating that the overall market is steady – neither consolidating, nor fragmenting – as the ratio of new buyers and new sellers entering the M&A market has remained consistent.

Looking at the most prolific buyers of consulting firms in 2014, the top of the list was dominated by the communications and marketing agencies. WPP, one of the world’s largest communications services group, acquired 52 companies in 2014, of which 23 were consulting businesses. They were also a leading buyer in 2013 with 22 acquisitions in the consulting sector during that year.

The second most prolific buyer was Publicis Groupe SA, who provides a range of advertising and communications services worldwide and was also the second most prolific buyer in 2013.

In third place, with 14 acquisitions in the consulting sector, is Japanese telecommunications company Nippon Telegraph and Telephone Corporation (NTT Corporation). They are a keen acquirer of IT consulting and services businesses.

The ‘Big 4’ and Grant Thornton are typically the most prolific buyers. Deloitte have had consistently high levels of acquisition activity per year, although KPMG was the most acquisitive in 2014.

Private equity (PE) is increasingly attracted to the consulting sector for investments and 2014 was a record year for PE acquisitions.

Roughly 85% of buyers are categorized as ‘trade’ or ‘strategic’, where the buyers seeks some form of synergistic benefit from the acquisition. And approximately 15% are ‘financial’ or ‘investment’ focused, buying in the consulting sector for a straight return on their capital. PE groups can be attracted to consulting businesses because they consume very little of the high profits they generate on fixed or working capital. The free cash flow that is generated in many consulting firms can be used to pay back the interest and capital on the loans that are an integral part of PE investments.

If you are selling a firm in Europe, there is a 26% chance that your buyer will be foreign, whereas in the USA it is most likely (88%) that your buyer will be internal. The number of cross-border deals in 2014 is slightly higher than 2013, increasing by 3%. Seventy-five per cent of deals done worldwide were completed by only five countries: USA, UK, Australia, France and Canada.

If you’re interested in a more detailed analysis on any of these areas, more information can be found in our full report. To download a copy you need to be a member of Equiteq Edge – registration takes only moments here.

Does your consultancy have a real value proposition?

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A consultancy’s value proposition is a crucial component of its success. Are you selling only on the basis of your technical expertise or on the value you drive for your clients? The proposition describes the services you offer, such as IT implementation, strategy development or engineering design, for example. The value describes the results and benefits which clients obtain from using the services.

During our Equity Growth Accelerator (EGA) diagnostic we identify where a consultancy lies on the value-based proposition scale. At the lower end, there are resource-based propositions. These are offered and priced on the basis of the number of consultants deployed on the project. So called ‘time and materials’ projects are resource-based.

In the middle are value-based propositions, which are offered and priced on the basis of the predicted benefit to the client: the greater the value to the client, the higher the fee. Normally these propositions are fixed price and are not hard-wired to actual consulting effort.

At the upper end of the scale are gain-share propositions. These put some or all of the fees at risk, depending upon the delivery of agreed outcomes, and are structured in order to generate higher levels of fees than either resource-based or value-based. The element of risk associated with these propositions increases the unpredictability of the fees as well as the potential fee level. A typical gain share would see a proportion of savings, delivered by the project, being taken in fees by the consultancy.

Consider a supply chain consultancy working for a client to design and implement a new inventory management system. A resource-based approach would simply provide a number of consultants on an agreed day rate (or rates) and the fees would equate to the total number of days billed multiplied by the rates per day. A value-based approach would charge a fixed fee which the consultancy would price in proportion to the benefits they believed they would deliver which, in this case, could be the reduction in inventory costs that their client would enjoy at the end of the project. A gain-share approach would charge a lower fixed fee than the resource-based approach, plus a proportion of, say, the inventory savings that the project would deliver. Overall, the total fee for gain-share should be the highest of the three options.

There are benefits and drawbacks for each approach. When charging based on resource the consultancy is never ‘out of pocket’ as all days spent on the project will be billed. But its offering is more likely to be seen as a commodity and fees will consequently be lower and can come under even more pressure if rates can be readily compared with competitors. Furthermore, engagements may be easier to terminate by the client as the service is seen as paid for by the day (or hour). A resource-based approach may incur additional administrative costs if the client wishes to track – and possibly challenge – the time spent on the project.

Value-based charging can attract higher overall fees than resource-based and is light on administration. It enhances the status of the consultancy in the client’s view and provides longer term certainty of fees compared with both resource-based and gain-share. However, margins can be eroded if projects consume more consulting resource than estimated

Charging using the gain-share approach provides the opportunity for earning the highest possible fees and is easier to sell as the engagement represents a very low risk to the client. It also aligns the client and consulting goals. However, gain-share propositions carry with them the highest level of risk that the consultancy might lose money on programmes of work. Unless the benefits are very strongly linked to quantifiable metrics, and unless the criteria for benefit calculations are completely transparent, disputes over payments can easily arise.

If you can mitigate the risks of gain-share programmes then you will have the strongest propositions of all and the opportunity to really drive up revenues.

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