Competing for Investors: Strategy Consulting’s Winners and Losers

Business is all About Competitiveness

In my view the whole purpose of business is competing. And therefore the whole of every business should be competitive.

The basic premise of my competitive analysis is that all companies operate in four competitive arenas: customers, staff, partners and investors. I’ve developed a series of competitive analytics tools to measure competitiveness. What I’m revealing here, to some extent, is my COSAWs© methodology (Competitive Strengths and Weaknesses), which uses financial proxies to identify and track competitiveness.

The subject of this particular COSAWs © analysis is UK strategy consultants – the reasons for this focus are outlined in the introductory article ‘22 UK Strategy Consultants – 2 Big Questions’.

This article is one of a series and should be read in conjunction with previous articles covering customers, staff and partners.  The companies analysed are: A T Kearney, Bain and Company, Bearing Point, Booz Allen Hamilton, Boston Consulting Group, Corporate Executive Board, Collinson Grant, Everystone Group (WPP), LEK Partnership, Marakon, McKinsey, Mars and Company, Mercer (Marsh McClennan), Monitor Group, KAE, PRTM, Quest Worldwide, Roland Berger, SDG Europe, Spectrum (pre-merger) and ZS Associates.

Measuring Competitiveness For Investors

The proxies used reflect any company’s ability to compete for capital in two forms – shareholders funds (the net worth of the business) and loans. Loans are important in gaining funding to gear up activity or to deal with cash flow issues. The stronger a company’s asset base the lower the risk to the lender and the cheaper the cost of capital to the business.

Even if a company is not public its ability to return value to shareholders can be measured. It’s been suggested that this may not be valid in a partnership structure, but I’ve found little evidence in support. In any case, I have assessed the value propositions of 28 strategy consultants and value creation features heavily as a main purpose for their existence. So let’s see how they stack up in delivering value for themselves…

Winners and Losers For Returns to Shareholders/Value Creation

The figures below are indexed against the returns for the whole peer group. The companies in green are the winners. Those in red the losers:

895          L.E.K Partnership

347          Boston Consulting Group

214          Everystone (WPP)

151          KAE

150          PRTM

121          ZS Associates 

 87           McKinsey

 74           Corporate Executive Board

 72           Mars and Co

 61           SDG Europe

 16           Collinson Grant

-23           Mercer (Marsh McClennan)

-54           Spectrum (now merged with Value Partners)

-102         OC&C

-128         Bain and Company

-280         Booz Allen Hamilton       

© Luke 4:23 Source: Luke 4:23 and Company Watch. Full year 04/05 figures. 

The performance of LEK in delivering return on net worth is so competitive that everyone else looks poor in comparison. They are 9x more competitive than the average. This is the essence of a CPI – Competitive Performance Indicator- your own performance is judged entirely on its competitive comparison. This is the future I am looking to deliver using these benchmarking techniques.

Where Are the Missing Companies?

6 companies could not be indexed because they have negative net worth. Their liabilities are greater than their assets:

ATKearney, BearingPoint, Marakon, Monitor, Roland Berger and Quest Worldwide.

An important distinction needs to be made between companies in this position. They could be in dire financial circumstances OR they could have been successful in securing new business in huge quantities – their obligation to provide contracted services is listed on the balance sheet as a liability. Take a read of my previous articles and I think you can make an informed decision as to which is which.

It is worth reiterating that these have been very good times for strategy consultants with market growth nearing 20% in the time period analysed. COSAWs© is ruthless in exposing deficiencies.

Winners and Losers Competing for Loan Capital

Again; winners in green and losers in red.

233          Mars and Co

166          Collinson Grant

158          ATKearney

143         Mercer (Marsh McClennan)

143         ZS Associates

136         SDG Europe

121         Everystone (WPP)

121         KAE

113        Spectrum

105         Boston Consulting Group

105         PRTM

98          Bain and Company 

98          Corporate Executive Board 

90          L.E.K Partnership 

90          McKinsey 

83          Booz Allen Hamilton

75          Monitor Group 

68          OC&C 

30          BearingPoint 

23          Marakon 

15          Quest Worldwide 

15          Roland Berger

© Luke 4:23 Source: Luke 4:23 and Company Watch. Full year 04/05 figures indexed. 

In theory each company would have a stronger competitive negotiating position for loan capital than those below it, and weaker than those above. This could have a significant effect on profitability.

Competing For Investors: Winners and Losers Benchmark Ranking

Now let’s combine the analyses, ranking the winners and losers in competing for investors:

1.            Everystone (WPP)

2.            ZS Associates

3.            Mars and Co

4.            KAE

5.            Boston Consulting Group

6.            Collinson Grant

7.            L.E.K Partnership

8.            PRTM

9.            SDG Europe

10.          Mercer (Marsh McClennan)

11.          McKinsey

12.          Corporate Executive Board

13.          ATKearney

14.          Spectrum

15.          Bain and Company

16.          OC&C

17.          Booz Allen Hamilton

18.          Monitor Group

19.          BearingPoint

20.          Marakon

21=          Quest Worldwide

21=          Roland Berger

Conclusions

This COSAWs© analysis has exposed some serious fault lines in a business that makes significant claims to deliver economic and shareholder value. This is a good example of competitive transparency –part of the new era when wishful brand communications are unsustainable in the face of widely available evidence.

The next article will aggregate the results of the four competitive arenas to give you a definitive run down of the best and worst competitors in strategy consulting in the UK.

In the meantime you might want to investigate which of the companies looked at in this article claims to be ‘a world leader in value creation’. For their UK business at least this claim seems absurd in the face of the evidence (not just from the investor point of view) and unsustainable if their competitors pick up on it.

if you would prefer to wait I’ll be showing you the value propositions of all of these companies as well as those of: Cap Gemini, Dunn Humby, Inforte, Inzenka, PA Consulting, Parthenon and Phrophet.

Keep posted!

© Luke 4:23 The analyses and comment in this blog are designed to stimulate discussion about the effectiveness and competitiveness of strategy consulting in the
UK. My competitive perceptions and methodologies are up for additional peer review. However, the content is not to be distributed, reproduced, edited or quoted for commercial purposes without prior written consent.