Marketing services firms hit by macroeconomic conditions

09 February 2016 Consultancy.uk

Marketing services companies find themselves increasingly under pressure as a range of macroeconomic and structural challenges emerge. Macroeconomic conditions, which include the expected increasing cost of borrowing, exchange rate fluctuations as well as downturns in emerging markets, rank in the top five biggest risks identified in a recent survey by BDO. Liquidity and cash flow issues come in as the biggest risk to the industry, with clients payments that push out further and further while suppliers tend to expect relatively short payment schedules.

In a recent survey, titled ‘Tackling Risk Head On: Marketing Services Risk Factor Report 2015’, BDO looks into the key development in the marketing services landscape. The research considers financial data from companies across the globe, complemented by the findings from several interviews held with executives of marketing services companies, for insights into the risks affecting their short and long term growth.

The survey identifies a number of risks that the industry perceives will likely affect their operations in the coming years. The risks in part highlight that the industry is going through a period of significant and disruptive upheaval as new technologies and ways of working challenge traditional practices, while macro-economic conditions – such as exchange rate volatility – create uncertainty. The result of macroeconomic conditions is that the global ad spend has been revised down, now estimated to be a rise of 3.8%, down from the 5.1% anticipated at the beginning of last year. Volatility in emerging markets, particularly Russia, Brazil and China, are contributing factors.

The top 20 risks identified by marketing services companies

The biggest risk that marketing services companies identify is liquidity and cash flow, as cited by 72% of those approached. Marketing services companies find that clients are less and less willing to provide relatively short payment deadlines, while suppliers tend to expect payment within 45 days. Particularly multi-national clients – potentially seeking favourable exchange rate changes – seek longer payment rates of 90 or 120 days. As a result, marketing companies find themselves with cash flow and liquidity issues.

The second equal risk for the market is thought to be currency exchange rate fluctuations and access to growth financing, while the number four risk is cited as interest rate fluctuations. The three issues are related to each otherwhile interest rate hikes improve the strength of the US dollar, it creates exchange rate fluctuations as well as increases the cost of debt. With respect to exchange rate volatility, it is particularly the strength of the dollar and euro against currencies in emerging markets across Africa, Asia and Latin America that is seen as problematic.

The issue of uncertainty – what is favourable one year becomes unfavourable the next – requires companies to invest more into repatriating profits and to deal with the tax and currency issues arising. The latter is a result of expected increases in the cost of money as interest rates are again pushed up from their historically low levels in the US and the UK. The consequence is that the servicing of debt for marketing services companies becomes more burdensome, requiring them to consider other forms of financing than bank finance.

Marketing Services

Further issues highlighted in the top ten include the changing demand and reduction in client spending, often as a result of cost cutting measures where the CFO is quick to target the marketing department, in part due to a lack of clear KPIs about the success of marketing operations.

Dependence on key personnel is the number six issue, which is further tied into the wider issue of attracting and retaining talent (#9). As the channels through which advertising is disseminated changes through technological advancement, the kinds of skills required to perform well in the advertising space too have changed. Sought after skills are now more difficult to get hold of as demand for quantitative skills is in short supply across a range of industries, placing further pressure on companies.

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”