Consulting companies- how can they predict the unpredictable?

Consulting companies such as McKinsey, Boston Consulting Group, Booz and Company, Bain and Company to name a few have built they reputation among the industry for their foresight and solutions. There is no question or credibility crisis as far as the solutions that have helped companies tide over their problems is concerned but I have a slight problem when it is related to research and prediction. The prediction can be of demand, supply, trends, consumer behaviour, market share et al.

A recent report by research firm Booz & Company, shared exclusively with Economic Times talks of the change in consumer behaviour. A marked change from thrifty behaviour during and post the 2008 recession to increased conspicuous consumption in the third quarter of 2010 on the back of increased salaries and better economic prospects. No problem with the consulting companies for me. It starts when they predict that the “India’s upper middle class —those with an annual income between 5 lakh and 10 lakh — will grow to 30 million people by 2020 as the economy keeps growing at a healthy rate”. My doubt is that how is it possible to predict a ‘probable number’ 10 years hence when economic fundamentals are so intricately linked to the world markets that there are constant changes. Analysts might say that it is just indicative rather than absolute. Agreed.

But what is the point of such a prediction when the world changes every quarter.

The report goes on to mention about the “FMCG industry could grow at a base rate of about 17% annually to become a 6,20,000-crore industry by 2020”. GDP figures on growth vary per quarter. How can an industry grow constantly in such a scenario? The FMCG industry depends on so many external factors namely the consumer sentiment, income levels, demand supply gap, increased competition from foreign as well as low cost local players (in the Indian context). FDI in retail acts as an indirect factor which bears significant weight due to behemoths such as Carrefour, Wal-Mart and Metro standing in queue to enter India. It bears so much on government policies. FDI, competition law, monopolies act etc. which is so much unpredictable

The concern which I share here is not about the veracity of the report or the credibility of the consulting company. It is about the relevance of such a prediction in volatile markets. Based on such estimates, whatever is the probable value, companies investing or strategizing with the information in mind would take a risk which would have the highest risk factor. As some one famously said “the only constant is change”. And predict at your own peril.