Rating of consulting companies, 2007

Table List of the largest consulting groups in Russia, 2007

Table 1. List of the largest consulting groups in Russia, 2007

Table 2. Strategic planning and organization development services
Table 3. Financial management services
Table 4. Tax consulting
Table 5. Human resources and management consulting
Table 6. Goods and services production management consulting
Table 7. Marketing and PR consulting
Table 8. IT - management consulting
Table 9. IT - development and system integration
Table 10. Economic law legal consulting
Table 11. Assessment activities

Before a tidal wave

The consulting services market gets ready for a new upcoming wave. It would be gainful for consultants focusing on diversification of services - clients mostly need comprehensive approach to more efficient business.

Vartan Khanferian

"It can not go on for long. Information systems are of obvious importance, but automation for the sake of automation would lead to nowhere", - that was our line of reasoning a couple of years ago, when we observed impetuous expansion of IT-consulting, overheating the consulting services market. Our expectations seemed to have started materializing. In our previous rating of the leading consulting groups IT people's pressure went notably down (together with the whole market). But, the intermission was not long, according to 2007 formal indicators. The current rating total revenues of 150 consulting groups increased by 52% (almost similar to 2005), and development and systemic integration consulting (over one third of the market) revenues simply sky-rocketed by 64%.

But the phenomenal growth may be rationally explained following its thorough analysis. Unexpected out-splash may be explained by the extreme "surge". Without it, the increment rate of our consulting market leaders is quite in line with the former year curve trajectory. But some factors testify to existence of present potential for serious market acceleration. The whole range of services influencing the business efficiency of clients would become trendy, not all-round interest to only one of the consulting areas.

Efficiency on demand

In 2007 total revenues of 150 consulting companies in the rating amounted to 70 bln rubles (see diagram 1). About 10% of the revenues were earned by Compiulink - the second in our list. It's consulting services revenues went up by 3.2 times in 2007 (almost by 5 bln rubles) and reached 7.1 bln rubles. Such dynamics looked surprising for a player with a consistent place among the leaders for the last couple of years. We asked the company to show us its financial reporting. The results in the draft reporting for 9 months of 2007 (IAS) were in agreement with Compiulink information about the scope of their consulting services. According to approved accounting reporting (RSA) by Compiulink head office, generating the group's main share of revenues, they truly grow with cosmic speed. The company itself particularly explains such results by increased orders for IT-consulting from telecommunication companies.

Milkhail Liashch, Compiulink president, says: "In 2007 RZhD, Gazprom, the RF Pension Fund, Severstal-avto, MIG, Sibur Holding, Gazprom Neft were among our consulting clients. But telecommunication clients were a serious contributing factor of our growth".

Possibly, the issue at hand is an introduction of Oracle e-Business Suite in Sviazinvest companies. According to mass media information the project costs 405.5 mln dollars. If it is true, than the market speedy acceleration may very well be the result of the mega-client activity. Without Compiulink incremented revenues from consulting companies in the 2008 list would immediately drop by 8.8 percentage points: from 52% to 43.2%, and consulting revenues in the area of development and systemic integration would slow by over 2 times: down to 29.2%.

Consulting services are mostly demanded by big business. "Expert-400 companies (the largest Expert RA Russian companies' annual rating) are still the leading consumers of consulting services. Despite the popular opinion that everything has already been adjusted and implemented, they continue to perfect their management systems", - says Dmitry Sadkov, IBS management director of consulting department. It is hard to disagree with the statement. The more so, the largest companies may set demand for consulting services to a new level. Chief driver here is the business strife for better efficiency.

Resources of the extensive model, which permitted the largest companies to reach current gigantic levels, are practically exhausted. The recent fifteen years saw enormous consolidation of big business - it is extremely difficult to find attractive assets available for acquisition in current Russia even for the richest Russian corporations. Capacious regional markets have already been divided, although in the recent past retailers and cell communication operators entered the markets and earned billions. Even unprecedented price growth for hydro-carbons due to the state efforts is unable to secure to exporters comparable profit rates. Nowadays increased efficiency is the only long-termed factor of business development. The market is in dire need of highly qualified consultants. They face virgin land to be upturned. Productivity level of the largest Russian companies can hardly be compared with its international competition.

"We seem to enter a new era of industrial development. A real battle for efficiency is being waged. It is a principal rearmament to be followed by serious consequences: structuring of current assets, personnel, training, final departure "from the shadow" of our industry, commerce, salaries and taxes. So we may expect growing interest to all consulting services related to putting to order all processes in the productivity battle", - says Elena Trubnikova, FinExpertiza audit-consulting group managing partner.

But consultants may not sit and wait for an avalanche of new orders. New changed conditions would bring fruits only to companies ready to present a broad range of high quality services. Time for narrow specialized professionals seems to be over. Now a client requires a comprehensive approach. There are numerous examples of such a need: for instance, all-penetrating automation of a badly managed business only worsens existing management problems instead of achieving set goals. It is inefficient and inconvenient for a consumer to cooperate with different consultants in different areas.

Together with expected big-business growing demand, the consulting market will develop due to appearance of absolutely new types of clients. National projects have given significant financial support to organizations, formerly outside the consultants' field of vision. "In 2007 consulting clients were joined by another player - educational structures. Due to national projects educational institutions managed to renew their material base and bring forth numerous innovative solutions. Large-scale transformations cover all areas without exception - from curricula and training methods to systems of managing educational institutions, administrative processes, IT and infrastructural support", - says Sadkov.

Partnership in the name of diversification

Asset consolidation of consulting business is a strategic component of diversification of services. The market in 2007 witnessed several mergers. IBS and Borlas consulting group announced their merger at the beginning of the year, as well as TopS Business Integrator and "Sistematika". Later Optima was joined by Alfa-Integrator, and REDLAB joined Compiulink.

IBS-Borlas and TopS BI-Sistematika mergers marked the outgoing year. "The consulting market made a notable step towards consolidation, and to maturity, - says Dmitry Sadkov. - Companies are interested in providing their clients with the broadest range of services, covering different areas of management. On the other hand, the market situation demands thorough analysis of all business tasks of a client: strategy, concept, methodology, implementation and support. Intensive development of domestic business does not allow accumulating necessary expertise even to the largest IT and consulting companies, therefore they use mergers to secure required growth of resources, quality and operative approach in implementing large-scale comprehensive projects".

Dmitry Vol, OXS deputy general director, describes merger-promoting factors: "Companies try to present the whole range of solutions and services "single-handedly". Such an approach implies mergers and diverse forms of consortiums, since big projects may currently be performed by a limited number of companies. In the first place, the strategy is beneficial for a client - he prefers to deal with one supplier of services rather than with many. In this respect the tendency of going larger is a logical response for demands and requirements of the market. Another factor of importance is a new level of competition and desire to strengthen an expert element in consulting. Mergers then present opportunities to accumulate knowledge and expertise of companies and to enlarge range of services in the long run".

It may be noted that large business dynamic development and propagation of complex solutions in the area of management and IT-consulting is accompanied by deficit of highly qualified specialists. It is another reason why consultants join their efforts. Says Vladimir Sorkin, TopS BI director for business development: "Mergers of consulting companies at the Russian market change its landscape. Increased consumption of consulting and IT-services by the leading corporations demand services of higher quality and credibility. To perform large-scale comprehensive projects we need proper resources and competences. Instead of "growing" business-necessary food or industrial expertise it is more efficient to get it by joining efforts with companies already equipped with the expertise".

But such an approach carries certain risks. According to Andrey Doubinsky, head of Unicon, "mergers and acquisitions in consulting business do not always produce synergetic effect. Initially a newly formed joint company increases its market share and expands its product line. But the main capital of consulting companies is known to be people with their abilities and mentality, representing their corporate cultures. Such cultures are pretty often unique for each company, and joining efforts is not always smooth - one culture may assimilate another, and those unwilling to assimilate are "washed out" of the united company. As a result, both professionals and clients, accustomed to the people and a certain culture of servicing, leave the company. Considering high risks, we plan no merger with any other company to build-up our business. Unicon has always been noted for our own unique competences, and this approach seems to be correct - the way things develop. We grow our own experts and attract professionals from the open labor market. Unicon is quite attractive for career development and professional growth of out consultants".

IT without borders

In 2007 the share of revenues for IT-consulting services was about 60% of the total revenues in our rating (see diagram 2). Consolidated revenues for consultant services in the area hiked by 50%. But let us remind again: without the Compiulink's contribution the sector's dynamics are twice as little, although the sector itself would still be the most capacious structure at the market. In a way, it may be explained by the fact that complicated IT technologies sometimes make it impossible to clearly distinguish between consulting works and IT-projects proper. Preparing our rating we do our best to single out a consulting component of the business, but we can not guarantee absolute data purity.

Demand development is based on steady trends and relatively new factors. Says Dmitry Sadkov: "My understanding is new economic conditions are followed by demand for new instruments and renewed management systems. Thus, the largest domestic universities come to understanding necessity of corporate governance methods in order to achieve an ultimate goal - improved quality of education. In 2007 IBS won a tender for servicing REA named after Plekhanov and MGIMO and prepared a set of demands to electronic educational resources - the e-learning system is being completed. The company also finished the project for strategic development of a unified information-education environment".

Changes in tax and bank domestic legislations also contribute to renewal of information-reporting systems among large businesses. In this connection consultants have been actively developing and implementing more complicated functional management systems. Solutions in the area of accounting, management of expenses and production costs still remain popular.

Classic IT-consulting is ever-popular, too: IT-system analysis, IT strategic development, technical consulting. Says Boris Bobrovnikov, KROK general director: "Strategic projects in our company are consistently increasing; we begin with auditing current IT status at an enterprise and developing IT-strategy, than smoothly come to the implementation stage in the capacity of a general contractor or a business consultant with functions of author's support. In 2007 we made a number of such projects: audit of IT-infrastructure of Alfa-Bank computer center, comprehensive large-scale audit of information systems and technical IT-consulting for ОАО Irkutskenergo, development of IT strategy for Integra group of companies and comprehensive audit of Euroset IT-infrastructure.

Besides, management consulting services are also on demand. Nikolay Zeziulinsky, business development director from FORS - Development Center shares his experience with us: "Recently management consulting, to be exact, business modeling, has gained popularity. It helps to get answers to questions on character and nature of utilization of current information resources at an enterprise, build an optimal model for business-processes and implement it in the information system. The approach permits to avoid numerous mistakes during the implementation stage. Business Intelligence (BI) analytic systems allow getting quality information with a good level of detail and make strategic and tactical decisions in an operative way".

Facing your personnel

Demand for services in the area of human resources management has been stabilized. Despite decelerated consulting revenues its share in the structure of the consolidated revenues of the largest consulting groups was 3% for the last couple of years. In 2007 the segment companies earned about 2 bln rubles, with 36% increase over the previous year (the former rating showed even heavier gain in the sector - 66%).

Personnel management consulting, according to the sector leaders, is characterized by high demand for personnel assessment and training. The demand for the services is still obvious: companies need many qualified specialists, level of university graduates is still considered insufficient for ever-growing business. First of all, it relates to industrial enterprises requiring particular specialists. Therefore commercial and state structures are willing to invest into human resources.

Consultants follow the demand and assess competence and perform big projects to develop automated personnel assessment systems. Says Pavel Bezrutchko, EKOPSI Consulting general director: "In assessing their personnel companies are interested in finding qualities of managers and leaders as well as professional knowledge and skills. The trend is really new. First, many companies have already established good selection practice for personnel reserve and assessment of management skills of employees for their further development. Second, necessity to manage professional qualifications of employees may be explained by inconsistence of university graduates to required professional standards, and even absence of the above standards".

Building corporate training centers is another popular service. According to Dmitry Sadkov, systems of corporate internal education are on the rise. "Companies, faced with global personnel deficiency, are on the look-out for new ways to resolve the problem. Corporate education processes to develop one's own staff efficiently and economically (making "Corporate universities") are on steady demand. Special instruments and special curricula are developed".

Services of classic HR-consultants to build corporate universities are also demanded. Thus, EKOPSI Consulting incremental revenues amounted to about 60% last year. "2007 saw increasing number of requests to build education systems and corporate universities. It really means that companies understand: investing in staff should be done systematically, with clear response and well-organized process", - says Pavel Bezrutchko.

Next to corporate education clients set other more extensive tasks, related to training centers' development, centers of assessing efficiency of training, corporate systems of training management. IT chairman of board Tagir Yapparov says: "Last year may be called a breaking point in relation to attitude towards e-learning. One of the key trends in the electronic training area is new attention of clients to integrated projects. Electronic education joins forces with a personnel training and development system. Companies try to unite learning portals and education management systems to make one point of access to all information - both for training courses and knowledge exchange. Recently IT Academy completed a project implementing a corporate university portal of Uralvagonzavod machine-building enterprise. A special internet-resource was developed based on analysis of Uralvagonzavod learning business-processes. The portal contains built-in specialized services and allows managing the process of educating plant employees, giving access to training programs and obtaining analytic reports".

Back to origins

Historically marketing and production professionals were the first to form the consulting services market. But with time the automation boom pushed them to the background. Current production and marketing consulting sector is quite narrow. In 2007 its share was mere 5% of the total rating revenues. But growing competition and refurbishing of current capacities is a powerful generator to encourage demand for the services.

Marketing consulting. In 2007 the segment of consulting showed extremely dynamic results. Annual revenue increment in the segment (32 rating consulting companies) exceeded 50% (see diagram 3). The total earnings amounted to 1.3 bln rubles. Marketing consulting services gain popularity due to maturity of domestic business and intensified market competition. Next to traditional consumers from trade and services, marketing consulting is demanded by the economy real sectors - energy, metallurgy, engineering, petrochemicals. "Currently market mentality is being formed at all levels of management - marketing is recognized to be a chief instrument of efficient competition. Marketing services at enterprises tend to play more important role, although, being overloaded with issues at hand, they can not always concentrate on, say, strategy analysis of market perspectives of one's business. Besides, such prospects may be analyzed in a more objective fashion from the outside. All this implies interaction with marketing consultants", - says Leonid Klochkov, senior managing partner of Marketing and Investment Projects.

Market players see changes in quality of demand. Clients tend to require more comprehensive and complex marketing solutions, like marketing programs of regional business development, industrial and product marketing strategies. Vartan Sarkisov, IMA-Consulting general director expresses his views on market-consulting and variety of services: "Demand for marketing communications is on the rise due to growing competition at different markets and extended range of tasks, set forth by companies. One of such tasks is to assess dynamics and trends of development, to analyze prospects of new product areas and niches, to control quality of servicing and level of consumers' satisfaction in view of forming unique proposals and strengthening one's market stand".

Production consulting. Growth of industrial production did not leave production consultants unattended. Comparing with the previous rating, their consolidated revenues increased by 36% to reach 1.8 bln rubles. With production capacities at their limits, need for modification and expansion of production raise interest in consulting services. You need to increase equipment productivity and optimize operation activity.

Besides, market players note desire of their clients to bring down production cost. "Growing cost of commodities and energy resources constitutes significant competitive disadvantage for many companies. Ant their present concern is to cut down costs. Consultants help to quickly develop constructive solutions and sufficiently curtail consumption of materials and energy", - says Stanislav Kondratsky, Power Management general director. "We have a project at a petrochemical enterprise. We have elaborated specific recommendations to cut costs (4%), raw stock and unfinished production (5%), to increase output of certain production items (30-40%). The project is noted for solutions enabling the enterprise to increase its own generation of energy and diminish dependence on the supplier".