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Spanish consulting market worth €12 billion, employs 150,000 consultants

21 August 2017 Consultancy.uk

The consulting market of Spain is on the brink of a collective income of €12 billion. New figures reveal that the Spanish consultancy industry is not only growing at rates nearing comparison with pre-crisis levels, but at a quicker rate than the broader recovery of the national economy.

In 2016, Spanish consultancy firms earned €11,818 million from sales, 4.9% up on the previous year. In line with the rest of the global consulting market, the Spanish portion has witnessed a gradual recovery since the initial credit crunch of 2007 and the global financial crisis of 2008. According to a new report released by the Spanish Association of Consulting Firms (Asociación Española de Empresas de Consultoría; AEC) with the exception of the lapse of 2013, which also mirrors a global trend, income of the consulting industry in Spain has continued to grow, now dwarfing 2007 levels of €8,561 million.

The proportion of domestic income the Spanish consulting sector currently receives alone is €8,672 million, with a further €3,146 million invested from overseas. While the success of Spanish consulting is partially linked to the general recovery of the economy, it is developing ahead of the growth rate for the Spanish economy in general, thanks particularly to foreign income. While these figures are still not as high as pre-crisis figures meanwhile, which generally topped 10%, that was in a scenario of much higher inflation.

This rise is in line with the AEC’s forecast a year before, suggesting that the industry is back on a track of sustained growth and structural stability. The sustained appetite for external expertise in financial services is one large reason for the growing sector, with strong demand for services ranging from cost cutting and efficiency to customer experience improvements, as well as each segment looking to employ new digital technology without falling victim to digital disruption. Since the crisis, financial institutions were the leading source of revenue every year except 2009 and 2010, and their share in the industry’s sales has constantly increased since 2011. In 2016 they accounted for 30% of all income, with financial institutions having become the chief source of revenue for the industry – a position they are likely to retain long into the future, as demand from this sector has proved less dependent on economic cycles.

Total income from sales by Spanish consultancy firms and their overseas subsidiaries

Two more major industries are government and telecoms & media. Turnover in these areas peaked in 2009, since which cutbacks affecting all tiers of government in the country led to an important shrinkage in demand for consultancy services. Governmental demand for consulting services is now at the lowest it has been since 2004, partially because following the financial crisis, demand spiked as the Spanish state drafted in external advisors to help find efficiency savings – resulting in a peak of 27% of the total market share in 2009. Since then, demand has rapidly fallen back to previous levels, with income from sales of services to government again falling slightly in 2016. Despite a sudden spike in 2011 and 2012 meanwhile, the telecoms & media demand for consulting continued a long-term trend of steady decline. In spite of this, growth has remained strong in the overall consulting industry.

The overall industry is meanwhile categorised by the AEC into three different segments. Consultancy, which includes strategy consulting and management consulting, Development & integration, a placeholder for IT consulting services, and Outsourcing. In 2016, growth was greatest in the consultancy segment at 16.7%, compared to the relatively weak development & integration (3.2%) and ITaaS (2.2%) portions of the market. Demand for consultancy services was favoured by a major increase in the number of digital transformation projects in companies and organisations. Year on year meanwhile, a trend has emerged showing that outsourcing has continuously taken largest share of the market activity, with 43.5% of consulting work relating to the provision of external professional services.

Comparative weight of the three largest sectors by demand for consultancy services

“It has to be said that current growth figures are not on a par with those of the last expansion phase prior to 2008. However, a number of factors lead one to think that this new growth period is built on more solid foundations. The growth in business has been essentially organic and is backed by an increase in domestic demand in a period of favourable growth forecasts for the Spanish economy”, said Elena Salgado, Chair of the Spanish Association of Consulting Firms (AEC).

The fact that consulting is outpacing economy is good news because as the last years of the boom before the global bust of 2008 show, a thriving professional services industry acts as a stimulus for talent and knowledge intensive talent. “Special mention should also be given to the industry’s place as a source of qualified employment. The report offers a revealing comparison of staffing trends in consultancy and other knowledge-intensive industries. Spanish consultancy firms are an important source of high-quality employment in the Spanish economy. They recruit a higher percentage of people with third-level education and invest considerably more in training them than the Spanish average," said Salgado.

Distribution of industry income by service type (2004-2016)

However, despite renewed growth, there are still some areas of concern for consulting. While the industry is outperforming the Spanish economy as a whole, this has been the case since records began. While the industry will take encouragement from this continued performance, the differences between growth in the industry and Spanish GDP are not as spectacular as they once were. During the years leading to the crisis (2004–2008) the gap was far wider, whereas in the last two years, when GDP growth stood at around 3.5% (and in a context of price stability), income in the industry grew by around 5%.

Meanwhile, consultants are having difficulty raising the low prices they were forced to adopt during the economic downturn in order to maintain a constant stream of business. Consultants fear that prices will remain low in Spain even after the economy fully recovers, and this price pressure is particularly acute in the beleaguered public sector consulting market – which due to sustained austerity measures sees revenues remain proportionally low. In a bid to overcome this wider pressure, many firms are forming partnerships and ecosystems with fellow consulting firms and with other professional services providers, in order to provide clients with the one-stop shopping experience they want. This holistic experience is something that has been adopted increasingly by global consulting firms, particularly ones looking to invest in digital and design solutions, in order to diversify their revenue streams.

Trends in turnover of the consultancy industry and GDP: 2004-2016

Interestingly, revenue is returning to being more locally fuelled, even though a considerable amount of Spain’s consulting income is based on overseas trade. While improvements in the Spanish consulting industry and wider economy – coupled with anxieties surrounding the impact of Brexit on Europe’s current financial capital of London – have seen plenty of foreign investment in the sector from consulting players overseas looking to prepare for hard times, home-based business has become increasingly integral to Spain’s consulting success.

Over 2016 there were more sales on the domestic market than on exports of services or sales by overseas subsidiaries of Spanish firms, while sales on the Spanish market grew by 6.5% and accounted for a higher share of business proportionally than previously, with 73.4% of the income of Spanish consultancy firms coming from domestic business.

Breakdown of income of Spanish consultancy firms by geographical market - 2004-2016

This has also led to a boost in employment within the industry. At the end of 2016, Spanish consultancy firms had 150,547 employees, having climbed 6,282 (4.4%) following 2015. This continues a long-term trend which even continued despite the economic crisis, as the number of people employed in Spanish consultancy firms has risen continuously since 2009, while even the brief contraction of income in 2013 did not lead to net staff cuts in order to halt this rise.

Trends in employment in the industry since the start of the crisis in 2008 can be divided into two very separate stages. The period from 2008 and 2012 were marked by a significant increase in staff numbers, as some firms sought to compensate for a drop in domestic demand for their services by extending their overseas operations. However, from 2013 on, the number of employees began to grow at a more moderate pace. In 2013 and 2014, consultancy firms strove to maintain, and even slightly expand, their workforce, in an attempt to retain their human capital. In 2015 and 2016, on the other hand, staff numbers grew apace with —or in some cases slightly below— expansion in business. This explains the slight recovery in productivity figures, measured as turnover per employee.

Workforce of Spanish consultancy firms - 2008-2016

Consultancies themselves forecast a further 5.5% increase in turnover in 2017, bringing the total figure to €12,465 million. According to the AEC, this forecast is in line with growth rates over the last two years, suggesting the internal make-up of turnover by type of service provided will not vary substantially in the near future. Nonetheless, the sector will probably continue to recover their share of the total GDP, to account for 19.1%, while financial services and outsourcing will continue to account for the bulk of consulting work commissioned.

Forecast distribution of income of the consultancy industry by type of service and by client sector

Governmental spending will likely remain a cause for concern, however it is still likely to improve as the growing Spanish economy may free up greater resources for the state to spend, with consultants being beneficiaries of this. According to Elena Salgado’s conclusions, “Spanish consultancy firms do not for the moment predict any significant recovery in revenue from services to government”. However, the economic recovery and a progressive improvement in public accounts are expected to lead to a recovery in demand for consultancy services from this sector in coming years. While from a consulting perspective this remains to be seen, the need for digital transformation, and its capacity for enabling efficiency and high quality in public services could see governments turn to consultants to help implement new innovations, as looks to be the case with the NHS in the UK.

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Accenture's push into the creative sector is an identity crisis

18 April 2019 Consultancy.uk

In its latest push into the creative sector, Accenture Interactive acquired New York and London-based ad agency Droga5 earlier this month, adding illustrious clients such as HBO, Amazon and The New York Times to its roster of clients. With the latest in a long line of similar purchases, Accenture Interactive further demonstrated its ambition of becoming the globe’s leading trusted advisor to chief marketing officers. Yet according to Ben Langdon, Chairman of Class35, Accenture’s strategy may be heading in the wrong direction.

A press release on Accenture’s website announcing the acquisition sits next to a quote stating that “brands aren’t built through advertising” – a huge contradiction from a consultancy firm hell-bent on becoming the ‘CMO agency of choice’. It’s not alone of course. The entire consulting industry wants a piece of the creative pie right now. In addition to Accenture Interactive, recent acquisitions by PwC Digital, IBM iX, and Deloitte Digital meant that in 2017, for the first time ever, four of the world’s ten largest creative agencies were consultancies.

So just what it is that Accenture wants to achieve from this? For one thing, it’s clearly trying to be a digital transformation business. A one-stop creative shop rivalling more traditional models, it wants to lure CMOs in with the promise of lower ad spend and a “more impactful customer experience”. At the same time, though, it’s still in thrall to those same slinky, shiny branding and advertising agencies it’s attempting to disrupt. The Droga5 acquisition and that of Karmarama a few years before are both testament to this.

There’s a fundamental problem with this, though. Digital transformation businesses don’t sell to CMOs. These people have enough on their plates trying to transform their own marketing skills in order to keep up with an ever-changing market – they just don’t have the time or the energy to concern themselves with digitally transforming a whole business. If Accenture’s purpose is digital transformation, then going after creative agencies is barking up the wrong tree.Is Accenture's push into the creative sector an identity crisis?

Worlds apart

Perhaps more importantly, these two industries are worlds apart in terms of the way they think. Creative agencies are all about ideas, campaigns and consumers. Digital businesses, on the other hand, are customer-driven – they think in terms such as lifetime value, measurement, and efficiency. Customer-led thinking is an entirely different beast to consumer-led thinking.

The reality is that the arrival of digital and an all-encompassing obsession with technology, measurement and social has led to the death of agencies in a reductive, zero-sum, efficiency-focused battle with brands. Indeed, agencies have become so obsessed with the latest tech fads, they’re beginning to forget how brands work. Worse still, they’re beginning to forget how brands are built. And, by forgetting, they’re destroying their own values.

Killing creativity

All things considered, it really feels to me as though Accenture is a chip leader in a game it doesn’t understand. Expensive acquisitions like these show that they’ve got the big money, but they don’t appear to have any idea what they’re doing with it. Take talent, for example. The best talent in the creative industry right now is out in the market; it’s not tied to any one agency. Both agencies might well be at the top of their game, but why would a consulting firm waste so much money on buying them when they could hire high-quality creative talent on a contingent basis instead?

As their presence in the top 10 creative agencies shows, there is a growing trend in which Accenture, like many of the other big players, are buying up agencies as if they were nothing more than keywords. What they’re really buying, though, is a collection of credentials, clients and IP. Unfortunately, the talent that created those credentials aren’t going to stay at the business, the clients that hired the agency in the first place won’t be interested in buying what is basically just another part of Accenture, and the IP never really existed to begin with.

Droga5, for example, was one of the few agencies that did great brand work the old-fashioned way – undoubtedly something that made it attractive to Accenture in the first place. The irony, though, is that by leading it further away from the way of working that made it so special, the consulting giant will kill its creativity.

“Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record…. But, in flashing its cash, it is spending millions on acquiring nothing of any value.”

If pressed, the recently acquired agency staff at Accenture will tell you just how dysfunctional the new arrangement is. They’re largely unfulfilled. Rarely do they feel their work has any sort of meaning or purpose. What’s more, the different disciplines have found little or no common ground, and find it hard to work together as a cohesive whole. It’s not surprising, then, to see talented people leaving in droves.

Beyond the window dressing 

It’s clear, then, that consulting firms and creative agencies are no easy bedfellows. But in his company’s defence, Accenture Interactive’s Senior Managing Director for North America, Glen Hartman, described its culture as being “far, far away from what a stereotypical consulting firm would look like. Our office and studios look a lot like Droga5’s.”

In demonstrating a belief that office design equates to workplace culture, this statement serves as an illustration of how confused Accenture is right now. It wants to justify its new strategy so badly, it’s started dressing like a creative agency. But if you look beyond the window dressing and see that you and your partners are speaking a different language with a different purpose, selling to different people in a different market, there’s no getting away from the fact that you’re different.

Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record, and it wants to dazzle others with its new direction. But, in flashing its cash, it is spending millions on acquiring nothing of any value.

Related: Space between consulting firms and creative agencies is converging.