US management consulting market grows to $58 billion, top 40 firms

20 July 2017 19 min. read

According to new figures, American companies have increased spending on management consulting by over 7% over the past calendar year, as more businesses sought external advice on among others digital and cybersecurity.

The US consulting industry is the globe’s largest and most mature market of its kind, accounting for nearly half of the world’s consulting economy, according to an examination by Source Global Research as well as analysis. The US advisory industry has seen sustained expansion over the past five years particularly, with 2016 yet again a strong year for the segment, which saw growth of 7.1%, as it reached a value of $58.72 billion*.

An explosive digital transformation consulting market played an instrumental role in that upturn, while high demand for cybersecurity also drove growth as clients made steps to safeguard their digital empires. Uncertainty introduced by Brexit and the tumultuous presidential race meanwhile created a slight dip in activity in the middle of the year, but by late 2016 clients were operating at full-capacity once more, closing out the year in strong fashion.

Contextualising current rates of growth against this backdrop, if it holds then 2017 will be as good a year as 2016 for the consulting market, while slightly less exceptional than 2015.

Best industry sectors

The industries that benefitted most from the sustained consulting growth in the US were Retail, Financial Services and Technology, Media and Telecommunications (TMT).

Size of the US management consulting industry

Retail continues rapidly expanding as it is a much smaller market, despite being the fastest grower in 2015. Much of the consulting work here relates to clients seeking assistance for their omni-channel offerings, as they attempt to fight off challenges from digital disruptors, such as Amazon.

Last year was a rough year for those consulting in the public sector however, as a challenging procurement landscape put pressure on fees and made winning work difficult. Governmental procurement is a volatile segment of business generally feared by consultants – with a recent Source report finding that the Obama administration’s preference for firms owned by under-represented groups made it tough going for some larger more traditional consultancies. This factor may well change in 2017, with a new more conservative administration coming to power, however the report also noted that these challenges were compounded by intense price pressure and the drip-feed release of funds for consulting, meaning their future remains uncertain.

The report further found digital innovation now played a widened role across traditional service lines, as demand for company-wide digitisation initiatives once again grew. Technology consultants subsequently had an exceptional year, as clients sought to update infrastructure with modernised systems. An upsurge in future-proofing also benefitted strategy consultants, with many clients forged ahead with growth plans despite anxieties around global political and economic uncertainty.

US management consulting industry – by industry

As the strain of regulation lessened across the US financial services industry, financial institutions nevertheless increased their consulting spending by more than $1 billion in 2016 – a 8.3% increase to a total value of $14.8 billion – as they sought to implement new technologies, such as RegTech, Artificial Intelligence (AI), cognitive computing, and robotics. Robotics provided consulting firms in the US financial services industry with the most tangible opportunities, with the automation of simple processes forming the bedrock of this work. Cybersecurity meanwhile became a hot topic, with demand for cybersecurity work booming by a 30% increase, with revenues reaching over $7 billion.

Digital consulting

In line with the electrified US market, digital consulting has become a global force in terms of big business. It is estimated that $1 in every $6 budgeted for professional service consultation is spent on digitisation, as the trend continues to envelope traditional consulting services of all varieties. Global digital transformation consulting alone now amounts to more worth than many localised consulting markets, having grown to twice the size of the UK’s consulting market as a whole, and a massive five times larger than China’s. While that has presented new opportunities for more agile new competitors however, the big consulting firms hold a leading role globally, and Source’s researchers estimate that 59% of the total market is made up of the ten largest firms in the sector. 21% of business meanwhile was taken up by the Big Four – though largely this portion is made up of Deloitte’s dominance in the sector, which holds a 12% share of the market. Accenture and McKinsey & Company are the two largest players outside the Big Four.

In the US meanwhile, digital has subsequently grown to be a big portion of the industry, with a seismic shift in attitudes toward digital transformation playing a big role in wider consulting market growth. As the US walks on forefront of economic changes in the globe, American consultants are generally the most exposed to the winds of change blowing through the market. In the case of digital transformation, it remains a key force in the US professional services market, with value-driven clients taking increasing interest in front-office and back-office improvements that could be delivered through leveraging new technologies. Data and analytics also remained a central issue, helping companies understand where resources might be better placed to address essential priorities, while robotics became increasingly attractive to businesses looking to cut operational costs and maximise output. AI is meanwhile projected by researchers to become of increasing interest to companies looking to do the same for repetitive jobs that are less based upon manual labour too, echoing predictions from PwC’s Strategy& division that administrative roles could also be in line for automation in coming years.

Opportunities for US strategy firms

As global businesses prepare to implement a new wave of automation, professional service groups will be presented with a massive opportunity, however automation also represents a threat. While the technologies themselves present clients the chance to understand and integrate new methods into improving performance, if the potential of the AI market is realised then consultants also stand to bear the operational and human consequences of it.

While in assisting other industries implement AI, consultants will undoubtedly experience an immediate boom in their work, however AI too has the potential to make much consulting work redundant. In particular transactional work, which many firms have come to rely on for steady income – is threatening many organisations with declines in revenue should they fail to adapt their business models.

The large strategy consulting firms originating from the US have come to dominate the globe; in particular they have come to rule the higher echelons of the management consultancy space, and while many had thought that the rise of digital could pose a threat to strategy firms, data shows that contrary is true. Large growth of digital interestingly poses large opportunity for strategic firms, including American big guns McKinsey, BCG, Bain ('MBB') and Strategy&. Central to this sustained importance of strategists is that the implementation of digital has a major impact on corporate strategy and digital business models.

Size of US technology and digital consulting industry

70% of all organisations, and 86% of the largest businesses surveyed, informed Source researchers their future focus lies with the utilisation of digital technologies to alter the foundations of their business model. Significantly lower numbers of respondents said their priorities remain the typical aims of better customer engagement or improved operational efficiency. From this insight, the researchers predict that the US market and that of the world more generally stand on the edge of a brand new era of digital transformation driving corporate evolution – one that will be characterised by consultancies’ clients using digital innovations to completely overhaul how and what they do. Most clients in this epoch of market progression will likely prioritise a consulting firm’s relationship with their board over its increasingly common technological capacities. Against this backdrop, strategic advisories may well turn out the big winners of digital opportunities within the consulting industry. Outside of that segment, the challenge faced by consultants is how rapidly they can gain a competitive edge vis-a-vis competition.

To tap into the digital market, strategy firms have expanded their technology footprint, mostly through the launch of new brands to be able to differentiate offerings (and pricing) from traditional strategy work. McKinsey launched McKinsey Digital (building on its former 'Business Technology Office'), and has a Solutions arm which provides tools and analytics. BCG meanwhile groomed BCG Digital Ventures, founded in 2014, after it poached a large chunk of Booz & Company Digital. Rival strategists Bain launched Bain Digital, while Strategy& has together with PwC ramped up its digital offerings to create its own service line.

The 'top' consulting firms

US clients are across the board relatively satisfied with the support they are receiving from external management consultants – overall, US clients are more positive than any other region the analyst firms surveyed. Source Global Research asked senior customers to rate the quality of work of the three most important consulting firms they work with, finding that 18 of the 19 firms studied score an overall satisfaction score of between 70% and 79%. IBM Global Business Services – the consulting arm of the US giant – is the top-rated firm for the quality of its work: 79% of its clients described its work across ten different consulting services as of “high” or “very high” quality. McKinsey & Company came in on second place, at 78%, closely followed by A.T. Kearney on 77%.

One trend which may explain high client satisfaction is that firms are increasingly taking a full-service platform approach, helping clients with their entire issues in the professional services domain. By building external partnerships and blending into ecosystems of service providers, they can deliver greater breadth of consulting services, meanwhile, it allows them to keep exclusive ownership of client relationship and to sell more lower-value services as part of a profitable package.

Previous data from Source had found that IBM also ranks top when it comes to the quality of thought leadership. IBM beats its competitors on appeal, resilience, and prompting action, while Deloitte, who ranked second overall, leads the way on differentiation. Research reports, white papers and other studies of over twenty global consulting firms were taken under scrutiny, on four evaluation criteria (resilience, differentiation, appeal, and prompting action, with Oliver Wyman, PwC and EY closing the top five.

Surprisingly, McKinsey Global Institute, McKinsey’s research arm which was named the globe’s best private sector think tank last year, is not in the top five named by Source. The same applies for other consultancies which are generally renowned for the quality of their research work, including A.T. Kearney, Strategy&, BCG, Bain and Roland Berger – they all fell outside the top positions of Source's ranking, while are included in many others, highlighting how research metrics play a role in the landscape.

The top 40 management consulting firms in the US

In terms of firms US clients are likely to recommend, IBM and Accenture are top of mind, highlighting client’s large preoccupation with technology these days in light of rapidly changing digital environment. Deloitte and Bain & Company follow, while McKinsey and KPMG tie up as fifth most spoken about consultancies.

While the standard of quality in the market remained highly regarded meanwhile, only 38% of clients described consulting firms as adding more in value than the fees they charged – suggesting that even when consultants enable firms to leverage long-term, cost-saving digital solutions, there is a tendency towards growing scrutiny on the value added of external advisory services.

Another angle to look at US consulting firm space is at reputation in combination with the breadth of depth of service portfolios. This looks at services offered by firm across the full breadth of industry competencies, as well as functional skills, including areas such as Strategy, Organisation, M&A, Finance, Operations, Supply Chain, HR, Sustainability, Innovation, Sales & Marketing, IT, Digital and IT-Implementation. Leveraging data from Statista and Forbes, analysis shows that the ‘Big 5’ – the Big Four accounting and consulting groups plus Accenture – and the three large American strategy consultancies – McKinsey, BCG and Bain (‘MBB’) – are the landscape’s most important players.

McKinsey, Deloitte, BCG, PwC and Accenture all excel in this categorisation, maximising their scores. They are followed closely by Bain & Company on 97%, while KPMG and AT Kearney tie next on 93%. EY are the last firm to score 90%, with IBM GBS rounding off the top 10 with a score of 83%.

The Big Four of Deloitte, PwC, EY and KPMG, all present in the top 10, together generated revenues of $21.5 billion last year in the US, helped by their huge cross-industry portfolios, while also for the three strategy consultancies the US was their largest market. PwC ranks in fact twice in the top 20 on service portfolio, with Strategy&, the strategy consulting arm it established after acquiring Booz & Company, holding joint tenth spot joint also with a score of 83%.

Among others Oliver Wyman, FTI Consulting, Arthur D. Little and Huron Consulting Group also boast a services suite that spans over half of the entire consulting mix, while not surprisingly top functional specialists, such as Mercer and Hay Group (human capital), Simon-Kucher & Partners (sales & marketing), Alvarez & Marsal (financial advisory), Gallup (research advisory) and Slalom (operations and technology), yield an overall lower score.

Number of mergers & acquisitions in the global consulting industry

M&A in US consulting market

Across North America, there were 1,271 deals in 2016 within the wider professional services industry, with an average of $12.2 million in deal size, data from Equiteq reveals ('Global M&A Report'). 85% of the deals in North America was within US and Canada, with 12% of the acquisitions relating to firms outside North America. Specifically within management consulting, there were 450 deals, flat on last year, average of $15,1 million. BDO alone made 7 accounting and consulting transactions in the US.

Globally, last year saw 2,902 deals in the professional services landscape, with EBITDA multiple at the highest point since 2007, at 9.7x. The M&A rate in the global consulting industry had fallen dramatically following the global financial crisis in 2008, falling 25% to 2,015 in 2009, with only 698 deals in management consultancy in particular. With the most recent figures from 2016 now exceeding the pre-crisis figures, 946 deals, or 33%, involved management consulting firms, and the largest minority of those took place in North America. Increasing by 2 from the previous year to a total of 450, North America’s total management consulting M&A activity was rivalled closest by Europe – though the continent’s total of 323 still saw it as a distant second – and suggested that despite continued turbulence in the Americas following recent political developments, the economy remains strong, with a high number of investors looking to further expand their firms.

In the immediate future, clients remain positive that they will invest more in developing their businesses. US-based clients of the American consulting industry exhibit higher levels of enthusiasm than the global average, with 82% of American clients expecting to increase their consulting spending through to June 2018. Last year, comparatively just 67% said their consulting budgets were going up, while globally, 70% of clients this year said their consulting spending will increase over the same period. 12% of that group anticipate a drop, paralleling the optimism rates of business leaders in the UK and abroad following Brexit. While businesses there maintained optimism in spite of uncertainty regarding the UK’s divorce from the EU, seeing it as an opportunity for the government to scale back environmental and employment regulations, thus enabling them to save on corporate expenditure, those on the continent and further afield were concerned of labour shortages caused by intensified borders, and tariffs hitting imports and exports, suggesting the decision would have serious long-term ramifications for the national economy in terms of foreign investment.

M&A in the management consulting industry

For the same reason, the surprise presidency of billionaire Donald Trump has become a major topic among consultants, as it has for people and clients all over the world. The Trump White House is perceived as exceedingly unpredictable, and while the third-generation tycoon’s administration was seen by some as business-friendly, issues like increasingly hostile borders jeopardising labour access, and protectionist import policies threatening profits with heightened tariffs have seen a spike in uncertainty across global and domestic markets.

With the US seemingly increasingly polarised politically, opinions are further split within the consulting sector on whether this time of doubt will favour the industry or not. While the wildly varying policy tones of President Trump have not as of yet brought strong investment in the US economy to a standstill, industrial players from sectors his campaign pledged to upend, such as healthcare and financial services, expect to see drops in external interest, as foreign and domestic investment shies away from new initiatives anticipated to be set for a period of volatile change. While, again, consultants can also benefit from this in the short term, providing advisory services on how to best future-proof companies nervous during the beginning of this presidency, they will see a long-term knock to revenues if investors do begin looking to put down roots elsewhere.

On the whole though, consultants in the US are feeling positive when considering the coming months. While there is a degree of caution as the country and the world wait to see the actual impact of Trump, for now the economy remains strong, with clients eager to push forward with new projects. In this respect, the ongoing and growing demand for digital transformation ensures that for the time being at least, the US consulting market will continue to gather pace.

Related: 'Trends and challenges in the consulting industry' and 'The fastest growing management consulting firms of Europe'.

* The sizes of the US consulting industry for 2015 and before are estimates from based on growth data previously released by Source Global Research. Note that Source may have restated baselines figures in the meantime, which may lead to discrepancies in total market values.