THE ENVIRONMENTAL ANALYSIS OF CONSULTING FIRMS IN …



THE ENVIRONMENTAL ANALYSIS OF CONSULTING FIRMS IN NIGERIA THE CASE OF D4M CONTACT NIGERIA2014Mayowa OdunnaikeD4M CONTACT NIGERIA?12858751886585Contents TOC \o "1-3" \h \z \u Contents PAGEREF _Toc404210067 \h ii1.0Introduction PAGEREF _Toc404210068 \h 12.0Macro Environment Analysis PAGEREF _Toc404210069 \h 22.1Political Factors PAGEREF _Toc404210070 \h 22.2Economic Factors PAGEREF _Toc404210071 \h 22.3Social Factors PAGEREF _Toc404210072 \h 32.4Technological Factors PAGEREF _Toc404210073 \h 42.5Environmental Factors PAGEREF _Toc404210074 \h 42.6Legal Factors PAGEREF _Toc404210075 \h 53.0Industry and Sector Analysis PAGEREF _Toc404210076 \h 63.1Porter’s Five Forces Framework PAGEREF _Toc404210077 \h 63.2Industry life cycle PAGEREF _Toc404210078 \h 64.0Critical Success Factors and Opportunities and Threats PAGEREF _Toc404210079 \h 75.0Conclusion PAGEREF _Toc404210080 \h 8Bibliography PAGEREF _Toc404210081 \h 9Appendices PAGEREF _Toc404210082 \h 10Appendix 1: Porter’s Five Forces Analysis PAGEREF _Toc404210083 \h 10Appendix 2: Critical Success Factors PAGEREF _Toc404210084 \h 11Appendix 3: Opportunities and Threats PAGEREF _Toc404210085 \h 12 1.0IntroductionD4M CONTACT NIGERIA is a firm of multi - disciplinary management professionals, offering a wide range of professional consulting services in three practice areas: Strategy & Planning, Organisational Effectiveness, and Change Management. Across these three service areas, we serve small scale firms who have the ambition to grow big within the private sector in Nigeria. Our service offerings are classified into two broad business units such as the research & training unit and the management support unit. The former covers knowledge intensive business services (KIBS) such as projects & research advisory and workforce development while the latter is involved with management support services such as strategy management, change management, and business development services assisting clients in achieving consistent business productivity in an efficient manner.This analysis takes the general to particular structure by first presenting the Macro environment analysis using the PESTEL analytical tool. This will then be followed by analysing the Industry environment using both the Industry Life Cycle and Porters Five Forces analytical tools and lastly, the development of critical success factors and the identification of opportunities and threats in the market to present the background for identifying D4M CONTACT NIGERIA’s position in the market.2.0Macro Environment AnalysisThe PESTEL factors affecting D4M CONTACT NIGERIA at the Macro level are critically analysed as follows:2.1Political FactorsAs with other small scale firms in the service sector in Nigeria, D4M CONTACT NIGERIA is faced with unfavorable government tax policies, very strict bureaucracy (red tape), and political instability affecting the?demand?of consulting services in Nigeria. Potential clients (small firms) are finding it difficult to afford professional fee for consulting services thereby closing the available markets for D4M CONTACT NIGERIA. The corporation tax has remained unchanged at 30% for years for both small scale and large multinationals thereby making it difficult for indigenous small scale service firms to compete with their foreign counterparts who are established in the country. In addition, government’s priority for public spending is geared towards recurrent expenditure to service its large bureaucracy rather than capital projects, which is the aspect that impacts significantly on businesses. Moreover, the anti-business monetary policy of the central bank of Nigeria keeping the interest rate at 12% is worrisome considering the current economic situation presented below.2.2Economic FactorsThe services sector accounted for the largest share of real GDP at 53.15% in the second quarter of 2014, amounting to over N 8 million and employing 20% of the labour force (NBS, 2014; Shu’ara, 2014). However, the GDP per capita in Nigeria is 1098 USD compared to that of the UK at 37955 USD. The GDP growth rate is drastically fluctuating at 8.67% in the second quarter of 2014 compared to -9.88% in February, 2014 and 4.12% in November, 2013 (NBS, 2014). Current unemployment?level in Nigeria is at 23.90%, population is 166.21 million, inflation rate at 8.10%, interest rate at 12%, comparative foreign exchange rates reaching an all time high of 165.80 NGN to 1 USD from 0.53 NGN to 1 USD in 1960 when Nigeria gained independence with the actual current figure at 170.95 NGN to 1 USD (NBS, 2014; CBN, 2014). The tendency for employee turnover is high as they prefer to migrate overseas to live and work. The cost of accessing adequate relevant literature and materials is relatively high considering exchange rate. Access to funds to grow SMEs remains very challenging.2.3Social FactorsThe current Nigerian population is 166.21 million of which the middle-age is the predominant age group (NBS, 2014). Coupled with the high rate of unemployment, self-employment is at the all time increase. Education literacy is at 72% with majority holding a B.SC equivalent qualification (Shu’ara, 2014). Majority of the educated fellows prefer a white-colar office job. However, Nigerian graduates are generally evaluated to be unemployable due to poor quality of education and the fact that they do not meet up with the required competency level expected by employers (Nkinyangi, 1991; Kolawole and Arikpo, 2004). SMEs make up about 97% of the entire economy with majority being either micro/one-man business. Most SMEs are failing within the first 5 years of starting operations due to poor or no formal planning. Skills gap is high especially within the knowledge-intensive business services (KIBS) sector. The need for proper business planning is rising but owner-managers do not have enough confidence in the quality/value business planning done by indigenous consulting firms may impact on their businesses. This is due to the belief that multinational firms and expatriates are the ones who can provide the quality services that are needed.2.4Technological FactorsThe rise of availability of information technology, internet services, search engines, online communities, free online resources, virtual businesses across the globe with established brand have made indigenous consulting firms struggle for customers in the local market who do not believe in the quality of local services. Businesses in Nigeria are fond of accessing hard data from the internet to inform decision making rather than conducting systematic research with the help of external consultants. In addition, the major technological factor affecting all businesses in Nigeria is the lack of infrastructural facilities such as power-supply, good roads, and the cost of production. There is no constant electricity to work with and workers need to struggle with traffic to commute to and fro spending unreasonable hours on the road. Nigeria is relatively cost intensive with little or no incentive from the government. Internet data connectivity could be very slow at times yet expensive. Consulting firms are left to build their own technology capabilities.2.5Environmental FactorsThe ecological factors such as the weather and climate change in Nigeria are favorable for the consulting industry. The hot temperature is manageable and won’t cause any major disruption to work. Although some field works e.g. market research that requires door to door data collection might most times be disrupted by constant rain. Furthermore, epidemic is known to be uncontrollable in most African countries due to poor management, poor infrastructure, illiteracy and poor number of qualified health practitioners. However, the case is now different especially in Nigeria as the health sector and research in both health and environmental sciences is radically advancing. The most recent example is the surprising way Nigeria was able to curtail and eliminate Ebola outbreak in the country some weeks ago. Insecurity in Nigeria is however very poor especially in the northern part of Nigeria that is infested with terrorist insurgents. With respect to environmental law, documents are not printed unless it is necessary to keep the environment clean and the same is communicated to our clientele via email.2.6Legal FactorsThe legal framework upon which D4M CONTACT NIGERIA operates is not quite strict. Research ethics compliance in Nigeria is not as strict as the western world and this makes business and management research easier compared to researching in the developed countries. However, the D4M CONTACT NIGERIA is highly ethical in its research processes as ethical standards are taken very seriously to build her brand in the Nigeria market. The national minimum wage in Nigeria may also not be favorable in relation to ad hoc research activities like seasonal data collection when part-time workers will only be needed to collect face-to-face data for a couple of weeks. 3.0Industry and Sector AnalysisBased on Porter’s five forces model, the task environment in which D4M CONTACT NIGERIA operates is examined. According to Meyer et al. (2007), a task environment is regarded as the set of forces that directly affect the ability of an organization to acquire resources and deliver its offerings on a daily basis, emanating from its immediate environment such as the suppliers, distributors, customers and competitors.3.1Porter’s Five Forces FrameworkThe level of rivalry among organisations in the management consulting industry and the potential for entry in Nigeria can be likened to a targeted city without walls. The economy is rich with resources, the population and its demography is very attractive for any market. The industry is wide open only to new entrants who have the strength to survive because foreign firms with established brands are the current market leaders and are in the business of building barriers to entry. Gartner’s 2013 Market Share Analysis of consulting services firms worldwide reported that the consulting services global market grew by 4.5% from $114.1 billion in 2012 to $119.3 billion in 2013. However, of this growth rate only 4 top multinational firms within the global consulting industry contributed about 40.4% (Gartner, 2014). Indigenous consulting firms in Nigeria mostly SMEs are seeking ways to increasing their market share striving to compete both nationally and globally as well as with market leaders who have their presence established in the Nigeria market. There are numerous suppliers of inputs as human resources and Information Technology is the basic inputs. There is large demand for consulting output especially now that corporate profit is recovering from economic downturn. However, there are few substitutes available for consulting services from other industries such as Government parastatals, Research institutes, and Educational institutions. However, buyers’ preferences are more toward consulting firms. See Appendix 1 for an illustration of the Porter’s Five Forces model as applied. 3.2Industry life cycleThe global management consulting industry is in its maturity stage where products are becoming more standardised and there is low growth. The western market seems saturated and firms are expanding markets and getting themselves established in new markets. The Nigeria market is also getting congested at its shake-out stage, forcing out a lot of weaker players and gradually entering its maturity stage.4.0Critical Success Factors and Opportunities and ThreatsThe methodology used in developing the critical success factors (CSFs) is the inputs-process-outputs framework, which is considered in the light of both the Macro and Industry conditions analysed above. As identified above, the major inputs from suppliers are Human Resources and Technology. Without the efficient management of these, value cannot be created for the customer. Value is created through business processes with the use of technology for the clients. The diagram in Appendix 2 gives a simple overview of the CSFs which must go right for D4M CONTACT NIGERIA to compete successfully in the dynamic environment it operates.The opportunities and Threats are identified based on the PESTEL analysis above. Attractive opportunities abound in the Nigeria consulting Industry, as much as there are threats. The above PESTEL economic statistics means a lot for D4M CONTACT NIGERIA to remain competitive. Inflation rate at 8.10% for example could mean company must achieve a minimum growth rate of 8.10% to retain last year’s bottom line value, plus the fact that cost of production is relatively high, which could effect on price. Prices may also need to be increased by a minimum of 8.10% to retain the value of previous year’s prices of services. To retain the value of employee’s earnings for last year, there may be need for a minimum increment of up to 8.10% and so on. On the other hand, high population is an opportunity for reasonable demand for service. Coupled with high unemployment rate, it is an indicator for workforce availability with the fact that the predominant highest qualification of B.Sc. equivalent is just what is needed for staffing. However, the fact that graduates are unemployable due to poor education would mean initial cost of training. Other opportunities and threats are as shown in Appendix 3 below.5.0ConclusionThe PESTEL analysis, Porter’s Five Forces, and Industry life cycle consideration show how dynamic the external environment of the consulting industry is and how it may determine the strategic position of firms operating in or intending to operate in such environment. Overall, D4M CONTACT NIGERIA is in a manageable environment, which when constantly monitored and with focus on the critical success factors will lead to business prosperity and sustainability for the organisation.BibliographyAppelbaum, S.H., and Steed, A.J. (2005). The Critical Success Factors in the Client-Consulting Relationship. Journal of Management Development. Vol. 24, No. 1, pp.68-93. Adeoye, A.O., and Elegunde, A.F. (2012). Impacts of External Business Environment on Organisational Performance in the Food and Beverage Industry in Nigeria. British Journal of Arts and Social Sciences. Vol. 6, No. 2, pp.194-201.CBN. (2014). Central Bank Of Nigeria Report 2014.Gartner. (2014). “Market Share Analysis: Consulting Services, Worldwide, 2013.” Gartner publications.Kolawole, C. O., and Arikpo, P. A. (2004). “Predictors of Self-Employment Efforts Among Unemployed Nigerian graduates”.Meyer, E., Ashleigh, M., George, J.M., and Jones, G.R. (2007). “Contemporary Management, European Edition.” UK: McGraw-Hill Higher Education.NBS. (2014). Nigerian Gross Domestic Product Report, Issue 2, Quarter Two 2014. National Bureau of Statistics Nigeria.Nkinyangi, J.A. (1991). Student protests in sub-Saharan Africa. Higher Education, Vol. 22, No. 2, p. 157.Ogunro, V.O. (2014). Nigeria’s Business Environment: Issues Challenges and Prospects. International Journal of Academic Research in Business and Social Sciences. Vol. 4, No. 4, pp. 132-138.Shu’ara, J. (2010). Higher Education Statistics- Nigeria experience in data collection. Paper presented at the UNESCO Institute of Statistics Workshop on Education Statistics in Anglophone Countries , Windhoek 17th – 21st October 2010.Wernerfelt, B. (1984). A Resource-based View of the Firm. Strategic Management Journal, Vol. 5, No. 2, pp. 171-180.AppendicesAppendix 1: Porter’s Five Forces Analysis074930Appendix 2: Critical Success FactorsCritical Success FactorsAppendix 3: Opportunities and Threats ................
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