Susan Blouin _consultingincanada Analysis

8/3/2019 Susan Blouin _consultingincanada Analysis

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MANAGEMENT CONSULTING IN CANADA

Size of the Consulting Market

Management Consulting is a dynamic and growing industry in Canada that not only generatessignificant revenues and profits, but also provides value to all types of organizations.Approximately 70% of all business and government organizations in Canada have used theservices of a management consultant at least once in the last five years.1

There are many challenges in defining the size of the consulting market due to definitionalissues around management consulting, and the fact that many firms in other industries alsoprovide management consulting services. Under Statistics Canadas Standard IndustrialClassification (SIC) system, Management Consulting is captured under code 7771.

Industry Canada also collects statistics based on the North American Industry Classification

System (NAICS). The consulting codes are as follows:

54161 Management Consulting Services541611, Administrative & General Management Consulting Services541612, Human Resource & Executive Search Consulting Services541619, Other Management Consulting Services

5416AScientific & Technical Consulting Services54162, Environmental Consulting Services54169, Other Scientific & Technical Consulting Services

Based on the NAICS categorization, the Canadian market for management consultingservices is estimated at $5.7 billion (all funds are in Canadian dollars unless otherwisestated).

Revenue of all Canadian Management Consulting Firms, 1998

NAICS Total Revenue $000s

54161 Management Consulting 5,736,024 86%

5416A Scientific & Technical Consulting 940,033 14%

5416 Total 6,676,057

Source: 1998 Survey of Service Industries: Management, Scientific & Technical Consulting Industry, Industry

Canada, March 2001

1 Management Consulting Services, Industry Sector Analysis, US & Foreign Commercial Services and USDepartment of State, 1998

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The consulting industry in Canada had grown significantly over the past two decades. Theindustry was growing at levels greater than 15% per year up to the 1990-92 recession. In1995, Industry Canada estimated the size of the Canadian Market for Management Consultingservices (based on Canadian industry revenues) at between $2.3 billion and $3.0 billion. 2

Although data is not available, annual growth rates for the late 1990s were estimated to be in

the range of 20%.3

Consulting revenue in Canada is concentrated in the most populous regions, with more thanhalf of all revenue from the province of Ontario. Many of the largest firms have offices in atleast one or two of the larger cities (Vancouver, Calgary, Toronto, Montreal). In the last fewyears, the accounting based consulting firms have reduced the number of offices by exitingsmaller communities. In addition, with the drive to have consultants billable, and working atthe client site, larger firms are experimenting with hotelling" arrangements, which enableseveral consultants to share office workspace.

Provincial Distribution of Consulting Revenue, 1998

TotalRevenue

% TotalCanada

$000s %

Ontario 2,935,726 51.2%

Quebec 1,160,266 20.2%

British Columbia 710,579 12.4%

Alberta 629,197 11.0%

Manitoba 109,953 1.9%

Saskatchewan 64,971 1.1%

Nova Scotia 55,348 1.0%

New Brunswick 39,472 0.7%Yukon & Northwest Territories 14,539 0.3%

Newfoundland 9,543 0.2%

Prince Edward Island 6,429 0.1%

Canada 5,736,024

Source: 1998 Survey of Service Industries: Management, Scientific & Technical Consulting Industry, IndustryCanada, March 2001

2 Sector Competitiveness Survey Management Consulting, Industry Canada, 1997


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Providers of Consulting Services

There are approximately 5,000 management consulting companies in Canada, and over20,000 management consultants, depending on the definition used. According to the 1996

census, women account for 44% of those employed in the Canadian consulting industry.

The number of consultants in Canada has increased over the last two decades. In the earlynineties, much of the growth was attributed to the downsizing of senior executives. TheCanadian situation mirrors that in the US where growth is also triggered by the blurring ofboundaries with technology service providers. Increasingly traditional hardware, software andtelecommunications companies are opening consulting divisions. In addition, otherprofessional service firms such as law firms and advertising agencies are beginning to providemanagement consulting services to their clients.

According to Human Resource Development Canada, two thirds of consultants in Canada are

employed by firms with more than 100 employees. Some 28% of consultants work in firmswith less than 20 employees, and many of these people would be sole practitioners.

Source: HRDC Industry Profile, Management Consulting Services

The largest consulting companies in Canada are the same large international players that onesees in developed nations around the world. Although some repositioning has occurred, therehas been little movement in the composition of the top firms over the past 10 years. The largeconsulting firms are becoming larger and the smaller firms more numerous, and this trend islikely to continue. Frequently, firms which reach 20-50 employees are acquired by the larger

companies. Currently, mid-sized Canadian firms include Western Management ConsultantsMyers Norris Penny, and Johnston Smith International.

The top 20 consulting firms in Canada represented more than one third of the total industryrevenue in 1999. The largest consulting firm in Canada at the end of 1999 wasPricewaterhouseCoopers with revenue of $44.1 million from a total staff of 1749.

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Where consultants work, by firm size...

20-100employees

6%

100

Employees+

66%


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Major Consulting Companies by Revenue and Staff

Rank FirmRevenue($Cmn)

Growthrate %

Effectivedate

Number ofConsultants

Numberof

PartnersTotalStaff

Revenue /Consultant

($Cmn)

Revenue /Partner($Cmn)

Consultants /Partner

1 PricewaterhouseCoopers 441.0 282% Jun-99 1511 81 1749 0.29 5.44 18.65

2 Deloitte Consulting / DTT 388.5 16% Aug-99 n/a n/a 18253 Andersen Consulting 226.4 28% Dec-98 1070 14 1350 0.21 16.17 76.43

4 William M. Mercer 208.0 22% Sep-99 697 n/a 1275 0.30

5 Ernst & Young Consulting Services 187.0 15% Sep-99 463 67 620 0.40 2.79 6.91

6 KPMG Consulting 148.0 32% Sep-99 659 55 861 0.22 2.69 11.98

7 Aon Consulting 66.0 3% Dec-98 230 n/a 550 0.29

8 Watson Wyatt Worldwide 62.6 2% Jun-99 289 0 375 0.22

9 AT Kearney 60.0 20% Dec-98 77 4 119 0.78 15.00 19.25

10 Computer Sciences Corporation 60.0 16% Mar-99 400 n/a 600 0.15

11 AMS Management Systems Canada 42.0 -3% Dec-98 50 9 230 0.84 4.67 5.56

12 Boston Consulting Group of Canada 36.0 63% Dec-98 63 n/a n/a 0.57

13 Arthur Andersen 31.5 24% Aug-99 n/a n/a 182

14 Bain & Company 29.8 19% n/a 60 6 80 0.50 4.97 10.00

15 DMR Consulting Group 28.0 33% Dec-98 260 0 n/a 0.11

16 Hay Management Consultants 24.2 13% Sep-99 87 9 156 0.28 2.69 9.67

17 Eckler Partners 20.3 17% Dec-98 80 22 110 0.25 0.92 3.64

18 Ajilon Canada 9.2 70% Dec-99 60 5 n/a 0.15 1.84 12.00

19 RSM Canada 6.5 23% Dec-98 20 5 30 0.33 1.30 4.00

20 CPCS Transcom 4.0 33% Aug-99 12 2 15 0.33 2.00 6.00

Source: Management Consultant International: 12, January 20,2000, CAMC Analysis

Of the firms listed, Andersen Consulting (now Accenture) had by far the highest leveragemodel, with a ratio of over 75 consultants for each partner. As a result, it also had the highestrevenue per partner at over $16 million. The other major firms had an average of betweenfour and twenty consultants per partner. Average revenue per consultant ranged from $110-

780,000, with most of the top twenty companies billing between $200-300,000 per consultant.

Different consulting firms focus on providing different services. Over time, technology relatedservices are becoming an increasing portion of most firms offerings.

Leading Canadian Consultancies: Fee Split by Activity

IT

Strategy &Organ-ization Financial

ProjectMgmt

HR &Search

ChangeMgmt Marketing

Oper-ationsMgmt

ProcessRe-

engineer

Facilities /Out-

sourcing Others

Ajilon Canada 20 15 5 27 10 3 10 10

Aon Consulting 14 86

Computer Sciences Corporation 30 20 20 10 10 10Hay Management Consultants 15 80 5

KPMG Consulting 30 8 0.5 7 29 2 0.5 21 1 1

PricewaterhouseCoopers 60 10 30

Source: Management Consultant International: 12, January 20,2000

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Metrics on Consulting Service Providers

On average, management consulting firms in Canada earn 22% profit before taxes, andscientific and technical consulting firms earn 20%. Salaries and benefits are the largest

component of expenses, accounting for 40% of total expenses. Other main expenses includesub-contractor fees and occupancy costs.

Revenue and Expenses by Province, Canada, 1998

NAICS 54161Total

Revenue

Salaries,Wages &Benefits1

TotalExpenses

Profitbeforetaxes

Management Consulting $000s $000s $000s %

Ontario 2,935,726 948,419 2,260,305 23

Quebec 1,160,266 397,342 938,837 19

British Columbia 710,579 258,233 568,786 20

Alberta 629,197 218,110 466,825 26

Manitoba 109,953 37,099 81,308 26

Saskatchewan 64,971 16,461 47,199 27

Nova Scotia 55,348 18,943 39,238 29

New Brunswick 39,472 8,724 26,928 32

Yukon & Northwest Territories 14,539 3,139 11,730 19

Newfoundland 9,543 2,647 5,819 39

Prince Edward Island 6,429 1,793 4,374 32

Canada 5,736,024 1,910,910 4,451,349 22

NAICS 5416A

Scientific & Technical Consulting 940,033 311,808 752,850 20


Operating Expenses by Type as a Percentage of Total Revenue, Canada 1998

Salaries, Work sub- Repair Adver- Depre- Occupancy Materials, Other 4 Tota

Wages & contracted & Main- tising ciation & other Components Expen

NAICS Benefits2 to others tenance rental3 & Supplies

54161 Management Consulting 40 9 1 1 2 7 3 20 82

5416A Scientific & Technical Consulting 39 9 1 1 2 6 2 23 83

5416 Total 40 9 1 1 2 7 2 21 82

Notes:1. Data for surveyed firms only, accounting for 89% of incorporated firms revenue, and 79% of revenue overall2. Fees paid to contract employees are not included3. Includes rent or lease of land and buildings, rent/leasing of motor vehicles, computer equipment, machinery and other equipment,

heat, light, power and water, insurance, taxes, permit and licences. Mortgage payments are excluded.4. Includes fees paid to contract employees, interest paid, office supplies, telephone, travel and entertainment, royalties, franchise

fees paid, legal, accounting and consulting fees, and other operating expenses.


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Consumers of Management Consulting Services

Businesses are the largest consumers of management consulting services, representing 71%of services based on revenue. It should be noted that the government portion (15%) may beslightly overstated as it may include consulting services provided to private organizations, but

funded by government or other public agencies. For example, organizations such as theCanadian Technology Network (CTN) and the Industrial Research Assistance Program (IRAP)contract consultants on behalf of small and medium sized businesses.

Distribution of the Client Base as a Percentage of Total Operating Revenue, 1998

Households &Individuals Business Government

ForeignConsumers

54161 Management Consulting 3 71 15 11

5416A Scientific & Technical Consulting 2 58 25 14

5416 Total 3 69 17 11


Canadian consulting companies provide services to a variety of industries, although somefirms have much deeper penetration of different industry verticals. Based on the fee revenueof a selected group of the largest firms, the financial services and high tech firms are thelargest private sector users of consulting services.

Leading Canadian Consultancies: Fee Split by Industry

FinancialServices Mfg. Telecom Gov't

Energy /Enviro. Products Utilities Distri-bution

Transpor-tat io n He al th -c are T echno -log y Other

Ajilon Canada 5 5 25 30 5 5 5 20

AMS Management Systems 60 9 30 1

Andersen Consulting 21 9 22 25 23

Computer Sciences Corporation 10 10 40 5 35

DMR Consulting Group 23 13 29 13 8 4 10

Ernst & Young Consulting Services 22 20 4 3 20 14 4 13

Hay Management Consultants 29 15 16 5 4 11 20

KPMG 9 10 10 29 3 8 2 8 10 5 2 4

PricewaterhouseCoopers 15 7 18 28 32

Source: Management Consultant International: 12, January 20,2000

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Trade in Management Consulting Services

Canadian management consultants have been successful in work markets, and are a majorsource of export earnings. The exact dollar value of exports is difficult to track due to internal

transfer payments between the different country offices of the large consulting firms.

Source: Canadas International Management Consulting, 1990-1996, Statistics Canada, 1997

Exports are more predominant in the larger firms. It is estimated that exports account forapproximately 15% of total billings, however they may reach over 20% for the largest firms. 4

The lower value of the Canadian dollar has made Canadian consultants economical in the USmarket, and this country is the source of most export revenue. The export of managementconsulting service to the US has also been facilitated by the North American Free Trade

Agreement (NAFTA), and in a broader context by the General Agreement on Trade inServices (GATS).

Given the extent of cross border activity, many industry analysts see Canada not as aseparate entity but as part of the larger North American market given the numerous affiliationsbetween the major U.S. and Canadian firms and the significant, cross-border relationshipsheld by the major consulting groups.

In addition to providing services in the United States, Canadian consultants do export theirservices around the world. Canadian consultants participate on large projects in thedeveloping world, which are funded by the International Financial Institutions (IFIs), as well as

the Canadian International Development Agency (CIDA). In the winter of 2001, CIDAreplenished its Canadian Consultant Trust Funds (CCTFs) at the World Bank and the Inter-American Development Bank (IDB). With these replenishments, CIDA has committedapproximately CDN$ 26.5 million over the next four years to be used by the World Bank andIDB to hire Canadians to assist in the preparation of Bank-financed projects.


7

0

50

100

150

200

250

C$millions

1991 1992 1993 1994 1995 1996

Trade in Management Consulting

Exports Imports


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The Canadian Association of Management Consultants

Management consulting in Canada has been represented by a professional and tradeassociation for over 30 years. The Canadian Association of Management Consultants wasformed as a trade association in 1963 to promote professionalism in the industry.

CAMC has 10 regional chapters which offer local networking and professional developmentbenefits to members. While administration is centrally coordinated from the Toronto basedNational office, each of the provincial institutes is still responsible for conferring the CertifiedManagement Consultant (CMC) designation. This designation is given to practitioners whosuccessfully complete its course of studies, academic requirements (university degree), andpractical experience components. The CAMC Uniform Code of Conduct, and the CMCdesignation serve to help differentiate those professional consultants from those who merelyhang out a shingle while they are looking for other work.

The CAMC currently has over 4,500 members, of whom nearly half are in the province ofOntario. Of the members, over 2,200 are certified members. Membership includesrepresentation from the large firms, the specialty boutique shops, and independentconsultants.

As the Voice of Management Consulting in Canada, CAMC is active in government lobbyingand promotes the interest of consulting in Canada.

Sources

1998 Survey of Service Industries: Management, Scientific & Technical Consulting Industry,Stats Canada, March 2001

Management Consulting Services, Industry Sector Analysis, US & Foreign CommercialServices and US Department of State, 1998

Management Consulting Industry, Service Industries Overviews Series, Industry Canada,February 2001

Sector Competitiveness Survey Management Consulting, Industry Canada, 1997

Management Consultant International, 12, January 20,2000Reprinted by permission of Management Consultant International.Copyright 2000 Kennedy Information Inc, Fitzwilliam NH 03447 USA(800) - 531- 0007 http://www.consultingcentral.com
http://www.consultingcentral.com/http://www.consultingcentral.com/

Susan Blouin _consultingincanada Analysis

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