UK management consulting industry grows 7% to £10.6 billion

17 July 2019 9 min. read
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The UK’s management consulting industry grew by 7% last year to breach the £10 billion mark for the first time. The industry’s headcount in the country meanwhile topped 60,000 consultants, as many firms ramped up their capabilities to meet a spike in consulting demand.

Consultants play a growing role in ensuring the prosperity of UK business and the efficiency of the public sector. Just five years ago, the industry was worth less than £8 billion, but in half a decade the industry has far outstripped that. The reason for this is clear: in a disruptive environment for companies where the public sector faces growing pressure to modernise, external expertise which can help navigate the nation’s most pressing problems is an increasingly valuable commodity.

To that end, data sourced from the UK’s representative body for consulting firms shows that for the first time in its history, the sector enjoyed revenues in excess of £10 billion. While the broader economy seems to be flirting with negative growth, the Management Consultancies Association (MCA) attributed a fair portion of its members’ success to the UK’s protracted exit from the European Union. In its annual report two years ago, the MCA predicted that the consulting sector would be a key player when it came to the UK making a decent fist of post-EU life.

The study asserted that the cost cutting, efficiency plans, growth preparation, innovation implementation and business transformation services at the core of consulting activity meant it remains integral to the success of many UK clients in both the private and public sector, leading to a spike in demand amid the chaotic Brexit process. Since then, the accompanying economic anxiety seems to have indeed led many businesses and government departments to call on the expertise of consultants, as they look to plan for different scenarios. According to MCA, “this trend is likely to continue as we move closer to the next scheduled October departure.”

Size of the UK consulting industry 2019

In keeping with this, in terms of size, financial services remains far and away the largest segment of UK consulting industry, estimated to be around a quarter to one-third of total revenues. The financial sector is expected to be one of the areas to most keenly feel the impact of Brexit, with the European economic hub of London suddenly finding itself severed from the mainland.

Meanwhile, the public sector still makes up a hefty amount of consulting revenues, as the Government seeks help with digital transformation initiatives and support for an understaffed Civil Service amid the rapid statutory change Brexit is set to bring. It is worth stating that public sector share of the market has fallen slightly from 25% two years ago to 22% now, but this is likely due to other areas growing rather than the Government – which has routinely been criticised for its consulting spending – changing policy. Analysis of previous data from the MCA shows that retail and leisure, industrial businesses and energy and resources are UK’s next largest sectors for consultants.

Conversely, in a recently released study on the UK consulting market conducted by Source Global Research, the analysts forecast UK’s consulting industry to slow this year thanks to pressures resulting from Brexit. Indeed, while the MCA’s figures do suggest the consulting sector is reaping many short-term benefits from the process, it should also be concerned with the long-term picture, as in the two years before the UK’s fateful referendum growth for the sector was faster than it is now. Looking ahead, Tamzen Isacsson, CEO of the MCA, said that while Brexit is important for consultants, it is a matter that the UK economy as a whole should be concerned with.

She stated, “The Government should pursue a Brexit outcome that secures positive economic growth and enables businesses to trade as freely as possible overseas. Talk of 'No Deal' Brexit undermines business confidence and should be avoided at all costs, but businesses should continue to prepare as much as they can for the October deadline and the possibility of a no deal outcome… Approximately 20% of fee income in 2018 was accrued overseas, including 10% from the European Union… This continues to illustrate the importance of consulting activity outside of the UK.”

Fastest growers

It would be wrong to think of Brexit as the only show in town though. Infrastructure was the fastest growing industry for consulting work last year, seeing a 190% boom to rake in an approximate £150 million in revenues across 2018. While infrastructure is the smallest sector as measured by fee income, then, it is clearly set to become a significant part of the industry’s workload in the future.

UK's consulting market by industry and area of expertise

This change has largely been due to a step change in UK investment into infrastructure in recent years, as cities look to overhaul public transport systems, and enhance their grids to better accommodate new energy technologies, causing an increase in the demand for consulting resources to help manage very difficult and complex projects and keep programmes on time and to budget, with significant efficiency expectations. Consulting firms provide key services for such developments, including programme and project management, sustainability consulting, and advisory on design and customer experience.

At the same time, retail and leisure consulting work also saw notable growth of 65%. The sector is going through an upheaval at present, with firms struggling to adapt to new e-commerce competitors, as well as low consumer spending power hit by lagging wage growth. Here, consultants were tapped to support with customer experience, branding, supply chain optimisation, and sales and marketing transformations. Elsewhere, technology consulting work also enjoyed a rising tide, boosted by 31%. Companies in the technology sector hire consultants to support with digital transformation efforts, which have become essential to their trade in particular.

Consulting goes digital

The consulting sector is made up of a range of fields of expertise. These service lines include offerings such as programme and project management, economics, merger and acquisitions and post-merger integration, environmental, sales and marketing and disputes and investigations.

Not surprisingly in terms of service lines, digital is still the sector’s main growth driver. This is largely because digital is increasingly seen as an all-encompassing solution, allowing for the reallocation of human labour to value-adding work, and away from repetitive admin, while improving efficiency and accuracy in the areas it is applied.

Following this trend, digital and technology consulting has become the largest service line in UK by far, making 28% of all fee income. Now, more than ever, consulting clients seek support on digitising their organisation – whether it involves advanced analytics and machine learning or assistance with cloud adoption. The consulting industry is at the forefront of driving technology change and transformation across public and private sector as well. After digital, finance and risk, people change and operations constitute the largest service lines.

Growth rates of management consulting firms

Speaking on growth across the industry, Isacsson, explained, “Despite a year of economic and political uncertainty, the management consultancy sector has continued to enjoy positive growth, outpacing the rest of growth in the UK economy as organisations have relied on consultants to drive (technology) transformation in their organisations.”

However, it is not all positive news for consultants. Private healthcare, life sciences, manufacturing and not-for-profit service lines all saw a decline in fee income, something partially linked to the uncertain future clients in these sectors presently face across the UK.

At the same time, the UK’s growth of consulting industry as a whole might be said to be buoyant, but it remains lower than most major European countries. In Germany, for example, the industry grew by 9% in 2017 and 8% in 2018, while France’s consultants enjoyed a decade strong record of 12% last year.

Mid-sized consultancies outflanked?

The UK consulting sector has over 1,000 reputable management and digital consulting firms. Perhaps the most worrying thing for the bulk of those firms is that the data reveals that those at consulting’s top table and the small, agile boutiques with a niche perform best.

Since 2016, large firms grew by 7%, and were able to sustain this with acquisitions, as exemplified by the clout of the ever-expanding Big Four. Meanwhile, fee income at small firms grew by a huge 18%, as many mid-market clients sought alternative services from more specialist consultancy firms, who often have consultants with a background at the biggest firms but provide services for a fraction of the price. In comparison, this seems to have placed medium-sized firms in something of a squeeze. They have tended on average to have a lower level of growth (up just 2% since 2016).

Meanwhile, freelancers are posing growing challenge to UK consulting firms. Amid the UK’s booming gig economy, according to one estimate, one-fifth of all consulting work now goes to independent consultants.