Rating of consulting companies, 2006

Table 1. List of the largest Russian consulting groups, 2006
Table 2. Strategic planning and organization development - services
Table 3. Financial management - services
Table 4. Tax consulting
Table 5. Personnel management and selection - consulting
Table 6. Organization of production of goods and services - consulting
Table 7. Information technologies – management consulting
Table 8. Information technologies – development and system integration
Table 9. Marketing and PR - consulting
Table 10. Economic law – legal consulting
Table 11. Assessment activity

Coupled by the same goal

The conclusion of another Expert RA rating of consulting groups: extensive market growth due to mass automation has been exhausted. Clients are not sure what else should be automated.

Larissa Krashchenko, Vartan Khanferian

The consulting market has notably decelerated its growth rate last year. In 2004 and 2005 revenues of consulting groups showed annual increment of 47% and 54% accordingly, in 2006 the revenues of 150 largest consulting groups went up by mere 40% and neared 50 bln rubles (see diagram 1).

Another change at the market was caused by IT specialists – information technologies’ consultants. They have been prevailing at the market for several years. For example, 2004 and 2005 witnessed dramatic growth of software and system integration companies. They doubled their revenues within a couple of years. The period was characterized by information boom – any enterprise of importance was keen on automating its business-processes. At the same time traditional consulting increment did not exceed 20%.

As a result by the end of 2005 the IT share in the consulting market general structure grew up by 8 percentage points and reached 54%. At that time we made our forecast: automation for the sake of automation would soon exhaust itself, and the consultants’ future would depend on their readiness to combine two types of technologies – management and information (see “Expert” №14, 2005 and 2006). It would be clear to clients: automation of badly organized business would be useless and multiply the management problems already in existence.

The forecast proved to be correct: the consulting services in the areas of development and system integration – previously the most dynamic sector – have visibly decelerated. In 2006 revenues of the sector consultants went up by mere 20.5% (against 127% and 110% in 2005 and 2004 accordingly). Consequently, the sector share went down by three percentage points. On the other hand, the IT management consulting kept on growing. Its annual increment reached 61% comparing with previous 46%. The sector’s share also grew up sufficiently - from 22% to 27% (see diagrams 2,3). The trend was also confirmed by decreased growth of IT consultants at the top of the list. Their annual revenues were no longer incremented by 70%, 90%, 130% or even 300%. The figures went down to traditional consultants levels - from 20% to 60%.

The sector of IT-services for development and system integration has slowed down
(dynamics of the consulting services market, two years, %)

The IT sector growth has shown a significant decrease last year - from 85% to 37%. Its share in the total market structure went up by mere two percentage points to reach 56% (see diagram 3, 4). The new trend “pulled out” the whole consulting market.

The IT management consulting sector has shown annual increase 5%
(the consulting market structural changes, three years)

Burdened by circumstances

Clear enough, consulting services are required by companies at a certain level of their development. Presently, being fed up with standard “soft and hard”, clients demand well-tailored information system – to be able to reach a higher and more sophisticated (sometimes they say “international”) level of development. To achieve good results classic management consulting and IT consulting should be coupled together.

In a nutshell, a consulting company should be able to offer broad range of consulting services: business-consulting (business verticalization and setting goals for development, re-engineering and unification of business-processes), HR-consulting (unified motivation schemes to achieve set goals – for holdings), budgetary management consulting (increased transparency of financial-economic activity), consulting in the area of implementing and integrating business applications (automation of business-processes) etc.

According to Dmitry Sadkov, a head of a management consulting department in IBS: “In 2006 many projects were aimed at optimizing management structure of enterprises to make it more transparent and clear for present day shareholders and potential investors. The projects dealt with establishing IFRS, internal control systems, organizing processes, certifying quality systems. The majority of such projects were based on planned attraction of investments or stock market placements”.

Mikhail Liashch, “Compulink” president, says: “Presently there is a shift towards “purely” consulting projects, like developing IT strategies, auditing existing systems, establishing controlling, developing functioning models, modernizing infrastructures. In the past there were almost no independent projects, such services usually were followed by establishment or modernization of a program-apparatus complex – presently in the majority of large enterprises the process has been divided”.

IT specialists were also instigated by processes of mergers and acquisitions, business restructuring and active development of multi-profile conglomerate holdings. As a rule, such projects are aimed at harmonizing all regulations, rules, calculation methods, motivation schemes and other management systems between different companies in a group, setting control over a number of diverse businesses with its further integration to the world economy. “The trend exerts serious influence over specific business purposes, - says Aleksey Ananyin, Borlas president, - which demands corresponding instruments for implementation (including certain types of consulting). On the one hand, the task of cutting production costs loses its vitality (majority of businesses in Russia show extremely high margin figures); on the other hand, we face increased urgency of business tasks in conglomerate companies eager to join the world economic system – the desire hardly achievable otherwise”.

Intellectual component in IT-projects was impacted by the state, too. Thus, in 2006 many higher educational institutions received financial support to implement innovations in line with national projects of priority. Setting project management systems to effectively manage a number of projects, performers, their interconnections etc. through one program is highly demanded. “R&D of prototyped innovative solutions for different state management and social security elements is of special interest, — says Tagir Yapparov, IT Group, chairman of board of directors. - In 2006 one of our largest projects in the area was to provide information support for education activity in the Moscow State Institute of Electronics. The project has been implementing a special system of identifying the institute staff and students, developing IT curriculum etc.”

arge-scale projects for the state authorities to develop All-Russia information systems, financed by Russian financial centers, the World Bank etc. have also been increasing. “Such projects imply totally different level of demand and competence of involved companies, - says Mikhail Liashch. – Besides, the state and municipal structures keep ordering “turn-key” systems, and not some abstract research (services, not supply of “hard” facilities). Regulation and legal consulting for the state sector may be singled out as a separate category. It includes development of strategies, normative bases and standards in the ICT area, IT strategic positioning, organization design of IT/IC target structures, systems of key indicators of efficiency and balanced system of indicators, concepts and feasibility studies of information systems”.

Staff web

Staff seems to be the problem for all brunches of our economy. We lack good specialists of quality, ready to perform for the boon of their employer. Consequently HR consulting has been steadily demanded for a number of years. Last year revenues of companies in the segment increased by 66% and amounted to 1.5 bln rubles (staff consultants revenues in 2004 were 387 mln rubles). It is really a good illustration of close interconnection between classic and IT consulting types and of efficiency of such cooperation.

Typical IT specialists of yesterday have changed their way of thinking. Dmitry Sadkov says: “Formerly well-formalized HR elements were in high demand (staff registering, motivation or grading systems), nowadays it is rather comprehensive projects, related to setting staff management systems including elements with psychological aspects (staff appraisal, individual assessment etc). For instance, presently IBS has been implementing a project of staff management system as a basis for planned automation of HR systems for Miel Real Estate – one of the largest Russian real estate companies. The project’s goal is to build an efficient targeted model of managing the company staff, using modern management methods in order to achieve its long-term business results”.

Services to form and train outsourcing teams and their consequent management gained special popularity in 2006. As a rule, such teams are required for large-scale information technology projects in big industrial and production holding centers. Tagir Yapparov says: “We have had to give a serious reconsideration to traditional HR-consulting approaches. IT Group traditional strong point was implementation of HR-systems and staff training. Presently we have been providing consulting for staff insourcing and outsourcing, recruiting of specialists, staff “leasing”. And, I can tell you frankly, dynamics in these relatively new areas look quite impressive”. Sizeable IT projects include training, forming and managing special outsourcing project teams for large information technology projects in LUKOIL, Rusal and a number of foreign companies. The result is clear enough. Within a year the company managed to quadruple its revenues for HR services and occupied a leading position among Top-150 in this particular area of consulting.

What is the response of traditional and classical consultants? Says Olga Doronina, Euromanagement executive director: “Automated systems of managing human resources have been increasingly demanded in 2006 – such systems optimize personnel management and paperwork operations and salary accounting and secure broad-scale implementation of HR processes aimed at higher efficiency of personnel service and all other components of your enterprise”. With these goals in mind, OAO Moscow United Electricity Network Company (MOESK) has launched a 3-year project to build a united automated system of managing human resources.

Still, automation is not the only priority for traditional staff consultants. Says Mark Rozin, EKOPSI Consulting general director: “The recent year has shown an increased number of projects at the border between HR functions and general systems of company management. For example, there are projects to increase efficiency through HPI (Human Performance Improvement) methods. Clients have also developed new demands in the HR financial area, like managing wage funds, personnel numbers and labor productivity. “Soft factors”-related projects are also on the upswing side – transformation of corporate culture or monitoring personnel satisfaction”. Here are the most interesting EKOPSI Consulting projects in 2006: development and implementation of competence models for ТНК-ВР, efficiency management system implementation for ОАО Uralkalyi and ОАО NK Rosneft, development and implementation of talent management system for ОАО Severstal-Resource.

Home turf performance

Last year revenues of financial consultants have made a 21.5% leap – almost ten percentage points above 2005. Development of services in strategic planning and organization development have been accelerated by 30%, in a large extent due to contribution from IT consultants.

For instance, financial consulting has been thriving because “large enterprises keep on improving their financial management systems and deal with more comprehensive projects, says Dmitry Sadkov. Formerly companies introduced simple financial management instruments like accounting and top-level planning. Presently the first wave of informatization is being completed to allow majority of companies access to reliable primary information (including historic data), enabling them to use more advanced management instruments and implement systems like cost management systems”. Obviously, next to knowledge of finance and IT areas you should be able to combine these two areas of knowledge. It took IBS several years to become a leader the field. But the result speaks for itself: the company revenues from financial management services within a couple of years more than doubled - from 151 to 365 mln rubles.

Traditional consultants should be given their due, too. After all, financial consulting has always been their strong point. And in this area they have properly retained their positions in the top-ten list.

The strategic consulting situation is quite different. Three IT companies have already staked their claims in the field, despite the status of classic consultants being quite stable. They are still good in preparing strategic development plans for both real business and the state. Revenues of the strategic consulting leaders – ROEL Consulting and Business System Development have shown an annual increase of 70% and 57%. Their share of total revenues among the consultants in our rating constitutes one third.

ROEL Consulting deputy general director Aleksandr Likhachev says: “In 2006 our clients have shown interest in strategic management issues, including planning and consulting support during implementation of different projects and programs at certain territories, industrial brunches and enterprises. It testifies to the fact that the Russian economy has achieved a new level – you no longer “close gaps” but make planned investments to most important and promising areas. The most impressive results – against the backdrop of generally positive dynamic development – have been achieved by construction and machine building sectors of economy. Russian regions have been actively developing, too”.

Recently strategic consulting has been highly demanded by the state. According to Evgueny Konovalov, deputy director of Business System Development, the area of administrative reforms have required a lot of attention, for instance, optimizing functional structures of federal authorities and subjects of the federation, administrative regulations, management of results. The same is true about development of strategies and programs for social and economic development in subjects of the federation, for federal targeted programs and corresponding events, for regional development of housing and utility programs etc”.

But strategic developments should be supported by detailed elaboration of business-processes and automation. Says Tagir Yapparov: “Development of administrative electronic regulations for executive state structures has been one of the most important consulting aspects in the state area. The point is to make the state administrative-management processes more efficient and transparent, to secure reliable distribution of functions and liabilities, to increase personal responsibility of the state officials. The same regulations, describing key internal processes, form basis for development and implementation of automated systems”. Thus, in 2006 the IT Group executed two consulting projects in the area of administrative electronic regulations for the federal custom and migration services.

Closed area

So far there are three niches untouched by IT-consultants’ hands: appraisal, tax and legal consulting. These are traditional specialties of classic consultants. The niches would probably not be crossed with IT anytime soon, since they show turbulent development without any IT involvement.

For example, annual revenues of consultants-appraisers increased by 58% against previous year 20%. According to the opinion of appraisers themselves, their services have been on demand due to processes of consolidating and restructuring assets of enterprises in the real sector, and due to attracting investments to the sector. Appraisal of businesses and property complexes (assets) was the most popular service in 2006.

Growing investment attractiveness of the domestic business encouraged the development of legal and tax consulting. Tax consultants’ revenues in 2006 went up by 34% (against 26% in 2005), revenues of legal consultants – by 26% (against 19%). It is worth noting that extended range of legal services is accompanied by lawyers acting more responsibly.

Andrey Goltsblat, a managing partner from Pepeliaev, Goltsblat and Partners legal company, says: “Clients of legal companies have become more attentive to technicalities of legal operations, perfect performance, non-traditional approaches and faultless service. Russian legal companies have accumulated broad experience and are ready to compete on equal terms with Western companies, slicing away their share of the Russian market. Next to purely legal tasks, our lawyers have been resolving strategic tasks – optimization of business-tasks, restructuring and developing business of our clients”. The company provided consultations to Norilsky Nikel in the area of gold-producing assets with the market value exceeding 10 bln dollars. It also presented legal support to a leading Danish confectionary producer building a confectionary factory in the Moscow area: legal auditing of purchased industrial capacities, the deal structuring and property purchasing, legal consulting related to general restructuring of existing industrial capacities and infrastructural elements, assisting the client in the process of the factory commissioning, representing the client while receiving a loan in EBRD against a real estate pledge.

Dark horses

The consulting market has two more sectors: production of goods and services, and marketing and PR. To be frank, the situation at these two segments of the consulting market is quite ambiguous. It has its ups and downs. The consultants’ revenues either leap to the sky, or plummet to the ground.

Production consulting services in 2006 grew by 21% against 85% in 2005. Marketing and PR services reached the level of 2004 (from 2.9% to 1.8%). Revenues of consultants in the field showed negative growth.

Under such circumstances it is really hard to plan ahead. It may be the reason for limited presence of IT consultants in these sectors. On the other hand, IT and PR specialists do not have much in common – don’t you agree?

As to unstable dynamics of consulting, for instance, production of goods and services, one of the reasons is a critical transformation of services in the segment due to the clientele changed priorities. The segment projects have been getting more and more complicated, comprehensive and innovative. And more costly.

Says Aleksandr Moskalenko, president of City Center of Expertise: “Due to growing activity of business life in general and production in particular, money has been in active use for production reconstruction, development of new deposits etc. New technologies – more efficient, safe and resource-intensive – are to be introduced without any doubt”. Says Maria Kamennova, general director of IDS Scheer for Russia and CIS countries: “In the past our clients in the area of industrial organization were interested only in description of business-processes, their structuring and visualizing – presently they want to analyze and perfect them. Three or four years ago projects to pass ARIS modeling methodology were predominant in our business – today we implement almost no projects with business-processes description. Such descriptive activity nowadays has become a component of comprehensive projects aimed at improvement of activities”.

Besides, today to be selected as a consultant you need to have critical experience in serious industrial expert assessment. “Russian companies want to implement the best industrial solutions both in management and IT. For instance, we have had a big project with Russky Standard Vodka to introduce SAP ERP-based solutions. Our client, next to being interested in IDS Sheer experience in the beverage industry, has demanded the best solutions for premium class alcoholic beverages. I expect the tendency to keep on prevailing – in the near future consulting companies would operate in the market segments, where they have some industrial expert knowledge”, Maria Kamennova says.

The market of marketing and PR services has hardly been shaped up. It is also hard to envisage when things at the market would turn for the better. The segment is extremely bendable, liable to external influences and changing demands – it is really difficult not to lose your ground. You either have to quickly adapt to clients’ demands – or you leave the market. As a matter of fact, leaders in the sector have been constantly changing.

We have been studying the sector for a number of years and regularly observing new areas of activity. 2006 was no exception. Oleg Karpilov, Polilog consulting group general director, says: “Last year witnessed growing interest in communication consulting. Marketing and PR services have been traditionally divided into the so-called “executive” and “consulting” units. Till recently about 90% of outsourcing services in the area were about implementing marketing and PR projects. Consulting was mostly ancillary and unclaimed as a separate service. Nowadays the demand for marketing and PR consulting services has been undoubtedly boosted”.

2006 saw a special interest in: development of company/brand communication strategy, company’s communication audit; design and “turn-key” presentation of PR departments and press-services; reputation studies, development and implementation of key indicators of communication services efficiency; development of marketing and PR corporate regulations and procedures, designing and presenting corporate “media-holdings” and GR-consulting.