US consulting industry grows strongly to market size of $55 billion

13 June 2016 8 min. read
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The higher echelon of the US consulting market grew strongly last year at a healthy 8% to reach nearly $55 billion, according to new data. Digital and technology consulting, the market’s largest segment, continues to be the fastest-growing service line, while also risk and regulatory consulting enjoyed a bumper year in 2015. Consulting activity is however expected to slow down this year, in the slipstream of lower business momentum as a result of the US election season.

The management consulting industry, as we know it today, has its roots in the United States, with many of the world’s most illustrious names established in the US in the early decades of the 20th century, including the likes of Booz Allen Hamilton (1914), A.T. Kearney (1926), and McKinsey & Company (1926), while Arthur D. Little – generally recognised as the oldest modern day consulting firm – was established in 1886. In the 60s and 70s the large American management consultancies expanded into Europe, bringing their management models and experience to the continent, a move which in part stood at the basis of the evolution of Europe’s own consulting industry.

On the back of its first mover advantage, and the fact that it houses the world’s largest economy – the US has a GDP of $17.9 trillion; more than six times the size of the UK economy – the US consulting industry has always held the position of the globe’s largest and most mature. In the recent period the US has even managed to expand its lead on other mature markets, such as Europe’s powerhouses the UK, Germany and France, following a string of years in which its consulting landscape has seen bullish performance. In 2012 the top segment of US’ management consulting market was worth $44.1 billion*, and following 6% growth in 2013 and 9% growth in 2014 the market, for the first time, broke through the barrier of $50 billion in that year. New data from Source Global Research, a UK-based analyst firm, shows that growth remained healthy last year, as the landscape expanded by 7.7% to reach $54.7 billion.

Size of the US Consulting Industry

Financial services remains far and away the US consulting market’s biggest spender. Banks and insurers, among others, spent nearly $14 billion on consultants in 2015, up 9% on last year, although the growth rate was slower than the year previous. Retail was the fastest growing sector, expanding 11% to approach $4 billion as retailers bolstered their digital investments in order to tap into the rise of e-commerce and omnichannel demands. Consulting to the public sector remains the poor relation of the industry, according to the researchers, with a 2.6% growth to $6 billion, as public sector investment sunk to the lowest level in over 60 years. The US energy & resources consulting market grew by 5% to $7.3 billion, while pharma grew by a strong 10% to $1.7 billion, despite mounting pressures in the space, including an increasingly intense debate about drug pricing practices.

In terms of functional segments, technology was consulting’s biggest and fastest-growing service line in 2015 worth $14.4 billion, up 11% thanks to clients’ insatiable demand for offerings such as digital transformation, e-commerce, Internet of Things, Industry 4.0 and more. 2015 was also good year for risk and regulatory consulting work (up 7.8% to $14 billion), fuelled by worries around cybersecurity, as well as the usual regulatory load. In particular cyber is hot in this service line, find the authors, with a range of consulting firms investing heavily in M&A and alliances in a bid to get in on this particular act.

Tracy Benard, a Managing Partner in KPMG’s Advisory practice, notes, “Cyber and cybersecurity are still concerns for a lot of people. From a technology perspective, augmenting the workforce with robotics and cognitive capability may be an opportunity to cut costs and decrease some risk exposure, but it also poses new risks that we are helping clients address.” John Romeo, Oliver Wyman’ Managing Partner for North America, adds “Cyber is a significant issue at a board level. Discussions often tend to start and finish in the very technical space, but organisations need to develop a broader risk management approach in which they can identify risk, model scenarios, quantify, and stress test, in order to develop an organisational strategy.”

Size of US Consulting Industry (by industry)

Big Four
More than a decade after the traditional accounting giants were forced out of the consulting industry in the years after the 2002 Sarbanes-Oxley Act, with the exception of Deloitte which retained faith in its advisory business (‘Deloitte Consulting’), the Big Four have come roaring back into the consulting field. The Big Four – Deloitte, EY, KPMG and PwC – have expanded their market domination, growing their combined revenues by 11% to $19.6 billion. Risk & regulatory work (including cybersecurity) drove a lot of work for the Big Four.

“The Big Four have about 35% of the entire US consulting market share, which is extraordinary,” says Edward Haigh, Director at Source Global Research. “That replicates what we see elsewhere as well, and their growth is higher than anybody else.” In comparison, the Big Four also outperformed the market in the UK, growing 12% versus 8% across the market.

Much of the growth stems from their aggressive pursuit of an acquisition agenda. Deloitte for instance acquired Monitor Group in 2013, renaming it Monitor Deloitte, PwC bought Booz & Company in 2014, renaming the strategy house Strategy&, EY purchased The Parthenon Group in 2014, while KPMG has picked up Beacon Partners and Towers Watson’s Human Resources Service Delivery practice. Globally the Big Four closed more than 35 high-profile deals in 2015.

Number of deals in the US Consulting Industry

Across the board, the US consulting industry saw 1.092 transactions last year, 91% of the total number of deals in North America, and 45% of the global number. 85% of the buyers stemmed from the US market, with the UK and Canada the second and thirst most active target countries.

Although 2016 has started well, the researchers highlight that a growing anxiety in the market is threatening to dampen the mood. An increasingly unstable global economic and political landscape is starting to take a toll on client confidence, while mixed signals from the US economy have put some investors on edge. In addition, just as national elections did in the UK last year, the tumultuous presidential race is forecasted to impact spending on consultants. “We expect that the rather unusual U.S. election season will have a bigger impact on the second half of 2016 than anyone is currently ready to accept – or at least admit.”

Ravi Chanmugam, Managing Director at Accenture Strategy, says he is starting to see the impact in the industry, stating “There's some slowdown in decision making and a question of whether this is a good time to invest.”

* The market data by Source focuses on consulting done by mid- 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 actual value of the entire US consulting industry is a lot higher. ALM Intelligence, a US-based analyst firm, for instance, values the market at more than $93 billion.