The ALM Services Forecast: R&D Consulting

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The ALM Services Forecast: R&D Consulting

R&D Consulting Research Series

Nathan SimonSenior Director, Management Consulting Research T +1 212-457-9185 [email protected]

Author

For more information, visit the ALM Intelligence website at www.consulting.almintel.com/analysts.

© 2017 ALM Media Properties, LLC 2


Contents

Overview 3

Client Demand Trends 4

Market Size 6

Market Size by Service 10

Market Structure 13

Methodology 15

Definitions 17

About ALM Intelligence 18



Overview

R&D consulting targets the innovation strategy and product development operations that drive companies’ organic growth

engines. Both growing the core business and building the business of the future, these activities contribute directly to

company value by identifying and delivering new ways to create value for their customers.

R&D consulting is changing in significant ways as client needs evolve. Demand for innovation strategy is shifting away from

developing generic strategies toward launching new ideas in the marketplace, increasingly via collaboration with external

ecosystem partners. Product development, for its part, is transitioning from a narrow, technical consulting competency to one

that is increasingly integrated in broader corporate transformation initiatives. Much of this is occurring in the context of the

convergence of physical products with software and services and the shift from transactional to recurring revenue models.

R&D is also in the sights of CFOs looking for untapped sources of cost savings and COOs intent on better synchronizing the

value chain, typically with a strong dose of digital thread connectivity.

This demand environment is shifting the gearing of R&D consulting growth. Innovation strategy, coming off three years of

secular growth, is in for a slowdown, but product development, a traditionally slow and steady growth market, is accelerating,

driving the broader R&D market. But capturing this growth is not free as providers seek to obtain new resources to meet

this evolving demand. Innovation strategy experienced a number of acquisitions over the past couple of years, with larger

providers seeking design and innovation expertise and design specialists seeking to enter the market in their own rights.

Investments in product development resources are largely organic bolstered by partnerships, with providers building out

their PLM assets and wielding new analytic tools for optimizing product complexity and development performance.



Client Demand TrendsBuyers of R&D Consulting

Across both innovation strategy and product development, sponsorship of R&D consulting engagements is migrating both

up the corporate hierarchy and to non-traditional buyers who are taking R&D into scope as part of broader initiatives. This

manifests in diminishing respective roles for innovation and R&D functional leaders. CEOs are taking a direct interest in both

topics as they seek to jumpstart their companies’ organic growth engines. Product development is also attracting the interest

of CFOs and COOs motivated primarily by an efficiency and effectiveness productivity agenda. The former tend to focus on

resource optimization, the latter on better coordinating activities across the value chain.

Demand Drivers of R&D ConsultingConsulting demand derives from company efforts to respond to changes in demand, supply, and technology and regulation

in their markets.

R&D Consulting Demand Drivers

Driver Issue Client Imperatives

Demand

Supply

Technology & Regulation

Source: ALM Intelligence



Client Demand TrendsBuyers of R&D Consulting

R&D Consulting Client NeedsAs companies respond to these drivers, they encounter many challenges that furnish the underlying needs that consultants

must meet as they design and deliver solutions to their clients.

R&D Consulting Client Needs

Client Service Challenges Consulting Implications

Innovation Strategy

Product Development




Market Size Market Size & Composition

R&D makes up just over half of the broader front-office services portion of the management consulting market, equating to

approximately X percent of overall management consulting with client spending of $X.X billion in 2016.

Ente

rpris

e St

rate

gy

Corporate

Finance

Operating Model StrategyCustomer

Research &

Development

Supp

ly C

hain

Operations

Rewards

Management

Talent &

Workforce

Business Strategy & PlanningPortfolio & Capital Strategy

Strategic Risk

Cybersecurity

Transactions: Acquisitions

Transactions: Divestitures

Joint Ventures & Alliances

Balance Sheet Strategy & Investor Communications

Organization

Corporate Services

Branding & Marketing

Pricing

Commercial ExecutionCustomer Service

Innovation Strategy

Product Development

Supply Chain PlanningCapital ProjectsProduction

StrategyProduction Operations

Asset ManagementLogisitics

Sourcing Strategy

Procurement Operations

Service Operations

Finance

IT

HR

Retirement Bene�ts

Health and Wellness Bene�tsCompensation

Workforce ManagementCommunications & Change

Talent & Leadership

Source: ALM Intelligence estimates

Management Consulting

Market $XX.X Billion



Market SizeConsulting Spending by Industry Sector

Legend: Very Strong Strong Moderate Weak Very Weak

R&D Consulting Top Industry Sector Market Trends

Sector 2016 Growth Market Attributes

Manufacturing

Healthcare

Financial Services





Market SizeConsulting Spending by Geographic Region



R&D Consulting Regional Market Trends

Region 2016 Growth Market Attributes

Asia Pacific

EMEA

Latin America

North America




Market SizeMarket Growth Outlook

Base Case Forecast

Forecast Scenarios




Market Size by ServiceConsulting Spending by Service



R&D Consulting Service Market Trends

Service 2016 Growth Market Attributes

Innovation StrategyProduct Development




Market Size by ServiceInnovation Strategy Growth Outlook

Base Case Forecast

Forecast Scenarios




Market Size by ServiceProduct Development Growth Outlook

Base Case Forecast

Forecast Scenarios




Market StructureMarket Share Rankings

R&D Consulting RankingsRank Firm Total CY 2016 Growth % Change in Rank Market Share

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20




Market StructureStrategic Dynamics

R&D is the least concentrated of the management consulting markets. Absent stronger growth and hampered by complex,

* Concentration ratio is measured as the combined market shares of the largest three providers.Source: ALM Intelligence estimates



MethodologyOverview

ALM Intelligence has been researching the management, financial and IT consulting industry for over 40 years, studying

the global consulting marketplace at multiple levels. The resulting market analyses help buyers of consulting services to

effectively target best in class providers, and help consulting providers to identify and evaluate business opportunities.

The research is conducted around three primary dimensions:

■ Consulting Service Lines

■ Client Vertical Industries

■ Global Geographic Regions

The proprietary research methodology comprises four components:

■ Extensive interviews with consulting practice leaders, financial analysts, consulting clients, and clientside industry experts

■ Data and background material from the proprietary library of research on the consulting industry and individual firms

■ Quantitative data collection from primary and secondary sources

■ Key economic data relevant to the sector(s) being analyzed

The research output for a project is derived predominantly from primary research.

Data is obtained through a centralized effort, with teams of analysts collecting, assessing, fact-checking, and refreshing

baseline information on leading consultancies and consulting markets. This information populates an extensive knowledge

base of consulting providers, widely regarded as among the most comprehensive in the world.

Working collaboratively, analysts narrow their research to the most discrete and pertinent intersection of consulting service/

industry/geography.

The experience and knowledge of the analyst team are critical to the success of these research endeavors. Directors and

associate directors average over a decade of consulting and/or analyst experience, with an emphasis on professional services.

Junior analysts typically bring an average of five years of consulting and/or analyst experience.

The group’s long-term relationships with consulting clients and industry leaders are based on trust and respect. ALM

Intelligence’s fundamental goal is to deliver objective assessments and insightful viewpoints on the management, financial

and IT consulting market.



MethodologyHow We Evaluate Consulting Markets

ALM Intelligence’s goal is to deliver objective analyses to help providers of consulting services understand the structure and

prospects of the markets in which they compete in order to assess business opportunities and competitive threats.

ALM Intelligence evaluates consulting trends with respect to a particular consulting area in terms of the following elements:

■ Market Size & Outlook: What is the size of the market in the context of the consulting area? What are the distribution

and drivers of client spending across geographic regions and industry sectors? What is the outlook for market growth and

how might different scenarios alter the expected trajectory?

■ Market Structure: What is the distribution of providers in the market? How concentrated is the market? What are the

provider-level strategic dynamics that will shape market structure in the context of changes in demand, barriers to entry,

and returns to scale?

■ Client Demand Trends: What are the drivers of client demand? How do client needs influence the nature of consulting

solutions?

■ Consulting Provider Trends: What differentiates providers in terms of their consulting approaches and service delivery

models? How are providers positioned relative to client functions and activities? What differentiates providers’ business

and operating models? How do the attributes of different provider peer groups manifest in patterns of capabilities?

In addition to briefings with consulting buyers and providers, ALM Intelligence uses a mosaic approach to derive its findings.

This incorporates primary research conducted with industry practitioners, academics, and other experts and secondary

research on providers’ public information and other third-party sources of data and analysis.



DefinitionsWhat is R&D Consulting?

Management consulting is a collection of discretionary

services targeted at helping clients improve producitivy

by growing their businesses and cutting costs. Man-

agement consulting is evolving from relatively siloed

solutions focused on optimizating singular or adjacent

activities within functions towards an integrated mod-

el taregeted at front to back office transformation. The

drivers of this evolution emanate from both inside and

outside the client organization as companies exhaust the

potential efficiency gains within functions and respond

to customer demand for more personalized products and

services designed to help them achieve better outcomes

in their businesses and lives, and new competitors with

purpose-built business models. In this context, clients

seek to simultaneously grow and cut costs and do so at

an ever faster pace.

Enabling this evolution are two factors. One is the diffu-

sion of digital technologies characterized by distributed

data and disparate processing systems and that are changing rapidly and relatively low cost and easy to set up and use. These

technologies are breaking down the traditional barriers that separated functions within companies and governed external

interactions with customers and business partners. The other factor is risk. Increased volatility and recognition of the inter-

connectedness of risks across functions and between companies and the external environment are compelling companies to

design and manage their activities in an integrated way with risk at the center.

R&D consulting forms part of the management consulting services directed at clients’ front office activities. Its objective is to

improve clients’ organic growth engines.

R&D consulting consists of two services:

1. Innovation Strategy: Aligning innovation to strategies, furthering technology development, structuring and managing

an innovation portfolio, and injecting user-centric and nonlinear design thinking that fosters more collaborative, cross-

disciplinary innovation

2. Product Development operations: Developing products and services that succeed in the marketplace by effectively

coordinating upstream with sourcing and production engineering and downstream with commercial execution,

increasing efficiency by streamlining and accelerating R&D activities across locations and functions, and maximizing the

return on the development and IP portfolio

Ente

rpris

e St

rate

gy

Corporate

Finance

Operating Model StrategyCustomer

Research &

Development

Supp

ly C

hain

Operations

Rewards

Management

Talent &

Workforce

Risk

Digital &Technology

BackO�ce

CorporateO�ce

FrontO�ce

MiddleO�ce

About ALM Intelligence

ALM Intelligence provides accurate and reliable market sizing and forecasts on consulting services worldwide, needs-analysis

and vendor profiling for buyers of consulting services, timely and insightful intelligence on the top consulting firms in their

respective markets, and operational benchmarks that measure consulting performance. ALM Intelligence’s research spans

multiple service areas, client vertical industries, and geographies. Our analysts provide expert commentary at consulting

industry events worldwide, and offer custom research for Management Consulting and IT Services firms. More information

about ALM Intelligence is available at www.consulting.almintel.com.

ALM, an information and intelligence company, provides customers with critical news, data, analysis, marketing solutions and

events to successfully manage the business of business. For more information, visit www.alm.com.

About the Forecast Consulting Research SeriesALM Intelligence’s exclusive, quantitative assessment of provider size by service segment, industry and geography, creates a

short list for the buyers of the most extensive consulting firms. The forecast consulting series explores nine service segments,

12 industries and four geographic areas.

For further information and to purchase ALM Intelligence research, contact [email protected], 855-808-4550.



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The ALM Services Forecast: R&D Consulting

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