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  • Kennedy Research Reports LLC

The Corporatization of Consulting

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KRR-Blog-Corporatization-Oct 2023
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What Are We Seeing?

  • Though scant evidence exists that productization has yet to increase the efficiency of consulting operations, firms have been investing over the past decade in solutions built on capitalized IP and tech-enablement. In the mid-tier provider segment, private equity and debt have been playing an important role in financing these investments.

  • The consulting market is now shifting into a consolidation phase, with providers that are pushing the productization agenda “corporatizing” their internal management by centralizing sales, product, and technology functions. For private partnerships, corporatization can be illusory as partner-led practices still exert outsized control. But it is very real at PE-backed entities and firms like BDO USA that convert to professional services corporations.

What's Behind It?

  • The degree of corporatization varies across three competitive groups: 1) Mostly public companies that were already balance sheet businesses and are exchanging one type of asset for another; 2) Private partnerships that were and continue to be people-based, with investments centered on optimizing the way they deploy their people; 3) Providers with outside ownership stakeholders (public companies and private equity/debt-backed) that are actively growing their balance sheets to fundamentally change their businesses.

  • Managing a product-based business is about minimizing the cost of capital to invest and maximizing the efficiency of that capital allocation (e.g. the turnover generated by those assets). There is a well-honed playbook for outside investors to transform that kind of business, and PE-backed providers are at the forefront of the corporatization drive.

Why Does It Matter?

  • Corporatization takes on many forms. For consultants contemplating corporatizing their businesses, the key questions are who owns the business and who controls the management transformation. Any moves that put distance between ownership and control will be tough to execute and sustain.

  • Tight credit markets and competition for attractive targets in high demand technical domains will necessitate a much sharper investment strategy. While consultancies will be less acquisitive, providers’ bets will be more consequential and require careful management to be successful. Whether these investments drive broader business model transformation will depend on the acquirer’s ability to get the corporatization balance right.

  • While driven by productization, corporatization will reverberate back to the talent value proposition. As private partnerships scale up and flatten their pyramids, they will diminish the relative value of their equity as a currency for attracting and retaining talent. Heretofore “premier” consulting brands will risk losing some of their cache to the extent prospective talent pits them against pureplay technology companies that offer a more direct path to wealth creation.


Our next installment will examine M&A activity within the consulting market.


(c) 2023 Kennedy Research Reports LLC

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