How big three are commoditizing consulting biz

My hypothesis is that MBB (McKinsey, BCG, and Bain) are doing to Indian management consulting what TIW (Tata Consultancy Services, Infosys, and Wipro) did to Indian IT—commoditizing the sector but in a good way.

In the 1990s, as the Indian information technology sector started maturing, TIW were prominent recruiters in the Indian Institutes of Technology (IITs). These were sought-after roles, offering 25% yearly increments and the potential to immigrate to the West.

TIW acted as finishing schools for Indian engineers and prepared them for the software boom that continues.

TIW could do this then because, to borrow a startup term, they were hyper-scaling. US dollar per-hour rates offshore were in the late teens and early twenties, which provided enough margins for the attractive increments and swanky campuses.

Things started changing in the mid-2000s. Given their growth, TIW became mass recruiters on their traditional campuses. This loss of exclusivity dampened their appeal.

Continued pressures on billing rates, which barely crossed $20 offshore, impacted their ability to pay relatively high salaries. They responded by expanding their recruitment net to the next tier colleges and relied on processes to preserve their margins.

This trend continues. Three decades later, offshore billing rates remain in the mid to late twenties. Starting salaries in these companies have hardly doubled in two decades, and their recruiters target a very different profile of colleges.

While this may sound negative, this trend has been a massive blessing for India, which just crossed $300 billion in IT services export. This continuous expansion of the recruitment pool has ensured that hundreds of thousands of young engineers have been through these world-class software finishing schools. This has made them globally competitive.

Today, many have started their own firms or are top leaders in established IT companies. The standardization of the global delivery model, which allowed this expansion with limited billing increases, is an insurmountable competitive advantage for the Indian IT industry.

The Indian management consulting industry is witnessing similar trends.

Till the mid-2000s, an offer from MBB was the holy grail in the top business schools. They recruited from just five-six campuses and rarely hired more than 25 consultants combined. Their salaries used to be the highest, and the occasional offer from international offices made front-page news.

Today, these firms are mass recruiters in a larger pool of business schools. It is not unusual for MBB to recruit 30 students from every targeted campus.

Add to that several similar firms, such as Kearney, Accenture, and Deloitte, which recruit similar numbers. Salaries remain competitive, but technology companies such as Google and VC-funded startups routinely offer higher pay. In fact, product management in startups is competing with consulting as the preferred choice of fresh MBAs.

These firms are also haemorrhaging talent. Many find the constant intensity (and travel) of consulting unsustainable. There are multiple opportunities now in funds, startups and corporates that offer competitive pay.

These alternatives highly value the MBB training, creating a lucrative exit path for consultants. It is common for consultants joining these firms to have a two–three-year horizon for an exit. It is this talent bleed that caused a once-blue blooded firm to flood LinkedIn, requesting applications in recent weeks.

As with IT, this is a very positive trend for India. We will soon have the largest pool of management consultants in the world. Their training is highly valued, and their talents are sought-after. These are the professionals who will drive India’s growth as corporate leaders, startup founders and fund managers. Many of them will leverage their training and relationships to start their consulting firms, which will drive a wave of offshoring of consulting services to India. The influence of this soft power will be massive, perhaps even more than the influence of Indian IT globally.

This will also drive down the rates of consulting services, which will make it accessible to a larger pool of clients, not just in the traditional markets but also in emerging economies in Asia and Africa. The resulting virtuous cycle for India-bred global management consulting firms will help attract both clients and capital.

Like IT, management consulting in India is commoditizing. This is great for India and the world.

Abhisek Mukherjee is co-founder and director of Auctus Advisors.