The UK consulting market recorded strong growth last year, growing by 6.6% to £6.02 billion, driven by growing demand across all sectors and functional areas. Looking ahead, the good times are expected to keep rolling in the industry, with over half of the clients forecasting to spend more on management consultants in the next 18 months.
With a market value of £6.02 billion, the UK consulting industry is according to Source Information Services (Source) the globe’s second largest business advisory market, following the US, valued by the analysts at more than $40 billion. In the aftermath of the financial crisis the UK industry has gained momentum – in 2011 the market was worth £5.28 billion*, and following years of increasing growth rates, the market currently stands at £6.02 billion. The recovering economy is regarded as the key driver, with large organisations increasingly confident to invest in strategic initiatives and projects that have been on hold for some time. “The UK economy is emerging from a five year hibernation, and it's being bolstered by a pent-up demand to invest in and leverage the potential of new technology”, comments Harry Gaskell, EY’s Managing Partner of Advisory.
From a sector perspective, all industries performed well, with retail (up 9.7% to £253 million) and pharma (up 10.7% to £194 million) the standout areas. Demand is driven by major disruption in both industries, with retailers forced to deal with among others omnichannel, digital and customer experience challenges, whilst pharma companies are massively calling on consultants to help them overcome topics such as regulation, cost-effectiveness and post-merger support. The two largest sectors in UK consulting, the public sector and financial services, also recorded strong growth of over 6%.
Digital and technology work led the way from a functional viewpoint, boosted in particular by high demand in the back office. Fiona Czerniawska, Director of Source, stating: “Exploiting the transformative power of digital in the back office is driving work in nearly all sectors as clients realise the possibilities for wide-ranging change, major transformation, and the rethinking of business models in order to help them thrive in the markets of the future.” Not only does digital prove one of the key growth areas, it in addition provides consulting firms the route back to the ‘luxury’, premium end of consulting, says Czerniawska, relating to the fact that clients are increasingly purchasing high value-added digital services, enabling consultancies to boost their fees and margins respectively.
In terms of consulting services, the biggest growth rates were booked in technology (up 7.7%), financial management and risk (up 7.1%) and strategy (up 7%). The latter was buoyed by healthy M&A activity and clients grappling with high levels of disruption. HR and change management consulting (up 4.8%) had the best year the service has seen in a while, while demand for operational improvement services remained robust (5.1%) as clients are still keen to maximise productivity and slash costs.
Looking ahead the outlook is bright, says Source, particularly as 60% of clients say their consulting spend will increase over the next 18 months. By the end of the year the UK consulting market is estimated to reach £6.38 billion, which translates to a 2015 growth rate of 6%. Financial services – which globally accounts for a quarter of the entire industry – is yet again expected to be a key driver. Aidan Brennan, Global Head of Management at KPMG, comments: “Financial services clients want to draw breath but probably won't be able to do that for long – the need for real change in banking and insurance is huge.”
Consulting firms will in the months to come face a number of challenges however. Professionals services firms that serve both the accounting and consulting market are set to face increasing dynamics in client base, and hence market share, as partners will in some cases be forced to walk away from opportunities that risk infringing with segregation of advisory duties. “We are bound to see a mixture of winners and losers in such a shake-up”, states Czerniawska. In addition, the shift to performance based pay continues to gain terrain in the industry, as previously highlighted in the ‘The Business of Consulting' special released by the FT in November last year. According to the data from Source, based on more than 600 (typically C-suite) end users of consulting services, two-thirds of companies currently favour payments being linked to specific KPIs, such as ‘outcome-based’ contracts.
Management Consultancies Association
Roughly three months ago the Management Consultancies Association (MCA), the representative body for management consultancy firms in the UK, provided its own outlook on the UK market, and the results demonstrate significant common ground. Almost all (92%) of the MCA member firms reported that they had met or exceeded their fee income expectations for 2014, and in around half of the cases the increase was marked.
Note that the market definition by Source focuses on consulting done by mid-sized and large-sized consulting firms (those with more than 50 consultants) and typically includes work they have carried out for mid- and large-sized clients. The consulting market for (very) small firms and/or freelance consultants is excluded from the sizing. Research from Consultancy.uk shows that the UK has in total 140,000 management consultancies, of which 97% have 10 or less employees. Data from for instance the MCA, the BDU (the MCA’s counterpart in Germany), FEACO and Kennedy apply a broader definition (both in terms of market scope and functional definitions), and hence present larger market estimates. See the page UK consulting market for details.
* Source has changed baseline figures for 2013 and before, following “improvements to its research methods”. As a result, Consultancy.uk has updated market estimates based on percentage growth rates.