UK management consulting industry worth over £7 billion, says analyst

16 October 2017 13 min. read

The UK’s management consulting market has grown significantly over the past few years, and is now estimated as being worth more than £7 billion. Despite continued expansion, Brexit is giving the industry a mixed outlook, with growth slowing on last year, as experts debate whether the UK’s divorce from Brussels will provide boom – particularly in the financial services and public sectors as organsiations prepare for Britain’s withdrawal – or whether it will inspire a downward trend, as overall economic confidence and client activity subdues.

According to analysis of data from a UK-analyst firm Source Global Research, the UK’s management consulting sector consistently grew much faster than the economy over the past three years. In 2014 6.6% growth was recorded, which grew to 8.4% in 2015, and 7.5% last year, while the economy’s highest rate of growth in that spell was around 3.3% according to the Office of National Statistics. Earlier in 2017, the International Monetary Fund (IMF) downscaled its forecast for the growth of the UK economy as a whole, citing "weaker-than-expected activity" in the first three months of the year, to predict that the UK economy would grow by 1.7%, compared to a previously anticipated 2%.

The UK’s management consulting market has expanded by approximately £1.5 billion over the past three years, with the total industry increasing in size by over a third, over the last five years. Two sectors are paramount in this growth – financial services and the public sector – they have added almost £1 billion to the size of the market in that time, according to Source’s estimates. Earlier in the year, the National Audit Office (NAO) contended that government spending alone had surpassed that figure, with the public bill for private consultants and temporary staff having risen by between £400 and £600 million since 2013. The government specifically spent £1.3 billion in 2015 on consultants, the NAO added, with the largest suppliers being the Big Four firms PwC, Deloitte, KPMG and EY, as well as UK headquartered PA Consulting Group and American strategy giants McKinsey & Company and The Boston Consulting Group.

Size of the UK management consulting industry

The market size estimated by Source differs to some extent with other examinations of the market, as it refers to what the analysts call the “big consulting” market. The firm focuses on consulting work conducted by mid-to-large-sized consulting firms (those with more than 50 consultants), which typically includes work that firms have carried out for mid-and-large-sized clients. This means that the actual total industry is, in fact, worth a good deal more. The Management Consulting Association’s (MCA) data estimated the industry to be worth £9 billion, while some US analyst firms, which have a broader definition and research model, assess the market to be larger still. ALM for instance estimated the UK & Ireland consulting industry to be worth $23 billion.

According to Source’s approach, financial services is the largest industry sector for consultants, with spending by banks, insurance companies and other financial institutions growing 8.2% in 2016 to a size of £2.3 billion. The provision of consulting services to the manufacturing sector rose 9.5% to £884 million in 2016, as manufacturers restructure their operations to minimise labour costs and make prudent use of innovative technology. Even higher than this growth, though, the pharma and biotech industry became the fastest growing industry for consultants last year – up 14.1% to £277 million, as consultants aim to make the most of an industry which is seeing income and deal activity soar globally.

Retail sector consulting services were estimated to be worth roughly £260 million, as clients in the industry strove to shrug off new competition from digital disruptors, drafting in consultants to help with the overhaul of their traditional business models. Meanwhile, London saw record levels of brand arrivals in the segment, presenting a plethora of new opportunities for firms to expand their client base.

The risk and regulatory consulting market was shown by Source’s data to be worth £540 million, having seen strong growth in recent years. This remains of key importance thanks, in no small part, to the rise of cybersecurity threats, which have seen businesses lose as much as $280 billion globally per year – while non-compliance with new legislation such as the GDPR could see clients in the FTSE 100 hit by collective fines of $5 billion. The portion of consulting relating to risk and regulation subsequently rose 10.9% in 2016, building on 12% in 2015.

Size of the digital transformation consulting market

Tech-driven growth

Technology, now the largest service line for consultants, almost hit £3 billion for the first time – growing 9.8% to £2.96 billion in 2016. Digitisation, which the market has seen become a growing presence in recent years, majorly took off in 2015, when clients began the move from demanding analysis of digitalisation’s impacts to the actual design and implementation of real-world solutions. The front office is still driving a great deal of this activity, as clients remain eager to use digital to build stronger customer relationships. Digitisation of the back-office is also becoming a major opportunity. Automation could streamline millions of jobs, and not just in manual labour, with McKinsey & Company  presenting research this year which outlined the mass-automation of global tasks, including admin work, suggesting that as many as 60% of all work activities could be automated by 2055.

“Digitisation continues to be a very hot topic and still drives most of the chatter where consulting services are concerned,” said Zoë Stumpf, Head of Consulting Market Trends at Source Global. This will likely see the demand for more ‘holistic’ front-to-back solutions from consultancies rise over coming years, as companies seek a business-wide view of digital solutions. In preparation for this, many consulting firms, from the Big Four to one of Europe’s fastest growing consultancies, Elixirr, have set about acquiring digital and design agencies to build such all-inclusive digital offerings. Demonstrating the growing threat of consulting firms’ design offerings to traditional marketing firms, Accenture Interactive recently built a new holistic platform, aimed at simplifying and improving the user experience of students, educators and job seekers using education firm Pearson’s online materials and services.

Another trend in industry is convergence, which has become a dominating feature of the UK’s consulting landscape. The boundaries between previously distinct lines of service are becoming blurred, especially in relation to technology, which has become intertwined with all sectors as clients across markets seek to innovate their businesses. This has tied technology and strategy consulting services together, particularly thanks to the pervasiveness of digital.

Talent management

The heating market means talent retention has become a major issue for competing consultancies. While firms work hard to get the best out of their existing teams, firms are ramping up their teams to meet growing demand. To improve recruitment and retention, firms are focusing on their culture and attempting to remodel themselves in a more inclusive form. Recent examples are PwC, who voluntarily released data on their pay gaps in terms of race and gender, as the firm bids to reach parity in both regards, while Brickendon announced that their senior management team would become 50% female by 2019.

Why employees leave their firm in consulting

A recent poll by the MCA looked into why consultants are leaving their firms, finding that 38% of respondents simply saw better opportunity elsewhere, highlighting that personal growth, rather than salary-related issues, remains the chief reason for advisors moving between firms. Other factors, including career change, or a need to relocate, meanwhile, ranked second at 18%, before compensation and benefits factored into the discussion, with 13% of respondents. Lowest ranking responses were the amounts of stress and travel connected with the role, both at 6%. Management consultants are the most well-travelled workers in any industry, according to recent analysis from – so much so that it may become problematic for some employees in terms of work/life balance.

2017 and beyond

Looking ahead, Source Global Research expects that the UK consulting market will grow further as a result of Brexit, as its two biggest customers – the financial services sector (worth £2.3 billion to consultants) and the public sector (£1.3 billion) – are likely to turn to consultants for help. However, while this may well deliver a short-term boost to UK management consultants, it poses difficult questions for the sector’s long-term prosperity. With London’s status as the financial hub of the world in danger of diminishing, and as many as 40,000 investment banking jobs thought likely to leave Britain, post-Brexit, many consultants are anxious about how things will play out for them, and the wider financial ecosystem. Source’s analysis suggests that much will depend on the particulars of the Brexit deal, especially regarding passporting. Further uncertainty thrown up by the US election has compounded this precarious position, meanwhile, as Britain’s would-be alternative trade ally outside the EU has become increasingly erratic under the Trump Presidency.

In addition, another boom is expected in 2017 and beyond from public sector work, which has already created substantial pre-Brexit work as the Civil Service look to patch holes left by years of austerity cuts, via outsourcing. With the government still seemingly unprepared for the enormous task of negotiating a Brexit deal, and preparing for a post-Brexit UK, many consultants anticipate boom times ahead. One consultant interviewed for Source’s research said, “There could be a need for 3,000 to 5,000 consultants, lawyers, etc. supporting the government’s Brexit negotiations.” Reportedly, the government had also approached all strategy houses for free advice as a matter of national interest, and according to one senior expert at a strategy consulting firm, “all consulting firms said no,” as they are looking at working commercially for the government instead.

What effect has Brext had on client growth expectations

However, the MCA's estimates of Brexit effect are less rosy. A poll by the association found that while 50% of consultants surveyed expected little impact on operations, a miniscule 6% expected Britain’s secession from the EU to benefit the industry. A less enthused 44% of respondents anticipated a negative effect on their businesses.

This substantial minority of unnerved members of the consulting industry are not unfounded in their doubts. Half of UK businesses now lack faith in the government’s Brexit office, or their negotiation strategy in comparison to that of the EU. While the UK remains a member of the EU at present, subject to its rules, regulations and benefits, uncertainty surrounding the process and the growing likelihood of a dreaded “no deal” scenario is clearly impacting clients. Retailers, for instance, are being impacted by the low Pound, with consumers’ decreased spending power clipping their profits. As a result, retailers import many goods/products, which in turn lowers their financial room to hire consultants.