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.
Hi Luke,
how was it possible for you to estimate the ‘negative networth’ of Roland Berger?
I’m now analyzing the DNA, the firm culture of
this firm.
akihiro
October 23, 2007
Hi Akihiro,
Net worth is a balance sheet issue. If total liabilities outweigh total assets the company has negative net worth (also known as shareholders’ funds). Care has to be taken in this sector as landing a large contract can appear as a liability on the balance sheet as the company has an obligation to deliver. So assessing any companies’ position needs to be balanced against their ability to compete for customers. So compare with ATKearney – also in negative net worth but competing strongly for customers.
Regards, Luke.
luke423
October 29, 2007