Italian management consulting industry sees best performance in years

15 August 2017 Consultancy.uk

Last year, the Italian management consulting industry had its best run since the outbreak of the global financial crisis in 2008, growing over 4% to reach a market value of €1.2 billion.

According to new data from Source Global Research, the Italian management consulting market recorded revenue growth of 4.3% to reach a market value of €1.2 billion in 2016. The analyst firm, which concentrates predominantly on the consulting industry, showed that despite another year of low economic growth in Italy, the consulting market had remained resilient, even in a challenging environment.

In 2013 the consulting market of Italy remained flat – growing by just 0.6% to a valuation of approximately €1.05 billion. Financial Services remained the largest and fastest growing sector by some distance – up 2.9% to €296 million due to demand from regulation, modernisation, and digitisation projects. Healthcare was the next fastest growing market (2% to €29 million), though it remains the smallest industry. From a service area perspective Financial Management & Risk and Technology were the largest and fastest growing services in the Italian consulting market – both growing by 2.2% in 2013. Regulatory work, cybersecurity, and bankruptcy-related services drove demand in financial management, while technology benefited from both traditional IT work and an interest in the cost-cutting potential of new digital tools.

While the marginal growth continued in 2014, it narrowed to an even lower 0.4%, maintaining positive momentum narrowly, leading the Italian consulting market to be estimated at a value of €1.1 billion, then equating to roughly one-fourth the size of the French consulting market and one-sixth the size of the UK consulting market. Growth was constrained primarily by the lacklustre state of the Italian economy, which has created “unhealthy buying conditions for clients” limiting conditions in which consultants would traditionally be hired.

Since then, the market has steadily upped its rate of growth, before witnessing a leap of 4.3% in 2016, with gradually expanding domestic and external investment stimulating the consulting market’s continued recovery. According to figures from the analyst firm, the Italian management consulting market is currently worth €1.2 billion. The country’s national association for management consulting firms, Assoconsult, meanwhile states the industry is in fact worth around three times as much – valuing it at €3.8 billion, which it argues is the amount generated by the industry’s almost 40,000 employees, of which 85% are consultants or “fee earners”.

Size of the Italian management consulting industry (€ / billion)

The substantial gap in valuation can be explained by the different definitions and scope applied to research. Both research firms have different ways of defining what management consulting is, and Assoconsult includes some services that fall outside Source’s definition. More importantly though, Source only considers revenues reaped by consulting firms with over 50 consultants, focusing on revenues gained at large/mid-sized clients. Assoconsult meanwhile includes revenues of smaller firms as well. Either way the analysis is considered however, the Italian management consulting sector appears to be seeing its best performance in years.

This increasing market prowess comes at a time when the rest of the Italian economy has continued to struggle, particularly amid continued debt-pressures from the EU which has worsened with the further bailout of four Italian banks adding to the national debt. The situation means public approval of the EU in the nation is currently threatening to fall beneath 50% for the second time since 2013.

Industry perspective

Financial services retained their dominance as the biggest area of management consulting in Italy, being projected as worth around €350 million thanks to renewed levels of demand for consulting support. The manufacturing industry was the fastest-growing consulting market in Italy last year, with revenues up almost 9% from 2015, and is now the second largest Italian consulting industry, valued at roughly €220 million. Retail, technology and media/telecoms meanwhile saw healthy levels of demand too, as firms looking to turn around their fortunes or to restructure, such as debt-ridden airline Alitalia. On the other hand, the public sector was the toughest segment, in spite of recent contracts from the government to digitalise Italy’s voting system being offered to Italian firms, among other projects.

Digital investment in the sector meanwhile picked up significantly in 2016, contributing majorly to the overall increasing prosperity within the market. With greater and more varied demand for consulting support, and a noticeable shift towards implementation and an expectation of tangible results on each project, the Italian consulting scene mirrored global trends which have seen a growing number of clients requiring consultancies to help them leverage digital solutions to cost-cutting issues. Around one fifth of the largest companies now have a Chief Digital Officer in order to help meet these needs, working with consultants as any other member of the C-suite might do in order to do so. Subsequently, technology was the fastest-growing consulting service line in Italy in 2016, precisely because of the shift towards the implementation of digital solutions. Technological consulting is now worth approximately €260 million.

However, across board, digital consulting remains less mature than in other markets. Digital uptake in Italy remains well behind due to a lack of money for clients to devote to projects considered as non-essential – something that remains steadfastly accepted since last year’s analysis. However, due to the rapid uptake of digital technology in global business, such projects are now becoming seen as indispensable, rather than luxury, and while the collective value of Italian consultancies have spiked in spite of the slow uptake, this suggests the Italian consulting market can anticipate sustained growth as the tide changes in favour of digital business practices. Globally, the digital consulting market is worth an estimated $23 billion.

Structure of the Italian management consulting market

Technology firms experienced the strongest growth of any firm type in 2016, bolstered by their digital credentials. Accounting consultancies – a group that includes the Big Four – enjoyed a better year than they saw in 2015, thanks to their focus and investment in digital. Strategy consulting firms also performed well, with higher levels of M&A activity and clients’ desire for growth strategies boosting revenues.

The Italian market has a great deal of variation in sizes and growth rates between firms, extremely variable compared to other markets. According to Assoconsult, management consulting in Italy is very fragmented, with a total of 20,700 companies, up nearly 3.5% over 2015. About 85% of these companies have less than 3 employees – which as mentioned, are not accounted for by Source’s figures.

The changing dynamics in the landscape is placing the traditional consulting model under increasing pressure, driving new ways of working, and partially explaining the sudden increase in growth, as new boutiques and smaller firms strive to innovate to out-manoeuvre previous market incumbents, while the firms who formerly dominated the market must adapt and invest in order to defend their position. This has also seen a shift to an asset-based or subscription model, whereby scalable digital solutions are created and become reliable revenue streams. A previous stumbling block of the industry, perceivably high charges for ineffective services, is also being eroded, with firms working hard to differentiate themselves and their service offerings from competitors to justify a higher rate.

Looking ahead, consultants are hopeful that 2017 will prove a similarly strong year, with further demand for digital and growth-related initiatives providing good levels of growth, while sustained competition drives innovation which further interest potential clients in external experise. While Source does not predict a concrete number, Assoconsult says it expects a substantial 6% growth.

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