8 out of 10 professional services firms expect growth in 2023

15 June 2023 Consultancy.uk 6 min. read
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Following an extended boom, the professional services sector is facing a number of key headwinds in 2023. In spite of this challenging environment, however, eight-in-ten firms in the sector expect revenues to grow, while fewer than one-in-five think their operating profit will decline in the coming months.

Professional services firms had enjoyed massive boosts to their balance sheets in recent years. The pandemic, and the tough economic picture which has followed, might have hit many industries hard, but it also meant that many clients quickly turned to external expertise from consultants, accountants and tax specialists to help steady their own ships.

As economies around the world finally see inflation begin to slow, and supply chain strains return to normal, however, firms are scaling back on their professional service spending where possible. As a result, many of the sector’s leading firms –AccentureMcKinsey & Company and KPMG among them – are looking to make reductions in their headcount, and find savings where possible, as they face possible declines in the rate of profit.

8 out of 10 professional services firms expect growth in 2023

Despite this trend, however, many more firms in the professional services sector remain upbeat on their prospects in the coming months. A global survey from Unit4 has found that 77% of professional services firms expect to growth their revenues in the coming months, with 28% expecting at least ‘strong growth’. Meanwhile 80% expected to grow their profit margins – and 36% anticipated ‘strong growth’ in that regard.

The survey of senior business and technology executives took in the opinions of 400 large and medium-sized professional services organisations based in Europe and the US. However, it also found that not all national markets matched in their levels of optimism. The 50 UK-based respondents Unit4 polled were broadly more positive than their global counterparts – 79% said they expected revenues to grow over 2023 – but they were less confident of explosive growth than firms overseas. Just 17% added this would be ‘strong growth’. Similarly, while 85% expected growth of at least ‘moderate’ proportions for their operating profit, a smaller 28% thought that would be ‘strong growth’.

Differing expectations

Explanations for this may be found among the trends which firms believe will be driving growth. On the global scale, the largest portion of 46% of respondents told Unit4 that launching new products and services would be a primary growth driver. This was narrowly ahead of 45% who said selling more to existing customers would be a top priority. More than a third said acquiring new customers and expanding into new sectors would be leading drivers of growth.

8 out of 10 professional services firms expect growth in 2023

In sharp contrast, only 38% of UK respondents said the launch of new offerings would be a top driver of growth, compared to 52% who identified selling more to existing clients as a key component of their success in the coming year. This suggests that UK professional services firms may be behaving more cautiously amid the apparent improvement of economic conditions than their global competitors – scaling back on spending, and looking to make the most of what they have than investing in bringing in new customers. This may also be reflected by a smaller portion of them weighing up M&A activity – 21% – than the 26% of global respondents.

That is not to say that investment is off the cards for UK respondents all together, though. A 71% majority said that to more fully exploit relationships with their existing customers, they would be investing more in tools to analyse client needs, and their current rates of satisfaction and loyalty. Meanwhile, 58% were putting funds into strategies which could help boost customer retention.

A lower number said they were sinking resources into recruitment or new businesses to reach new clients – though at 42%, this was still reflective of another recent study from the Managing Partners Forum, which found many firms remain determined to maintain headcount goals in spite of a tightening market. One fear driving this is that amid high employment, to shed talent might see firms hit worse by a talent shortage in the near future.

8 out of 10 professional services firms expect growth in 2023

It’s digital

That is not to say UK professional services firms are only adding to their headcount, though. More likely, they will be reallocating funds from things like admin to ‘value adding work’ with billable hours, while looking to maximise their existing engagements. To support this, they look more determined to find organisational savings via digital investment. A 52% majority said they would see ‘strong growth’ at least in their spending on digital transformation – 9% more than the global average.

With UK firms having noted their intentions of doing more with less, much of this investment looks set to coincide with reductions in back-office functions. In particular, 58% of firms said digital transformations relating to human resources functions were set to receive more funding – including 35% who said there would be a ‘strong increase’. Similarly, customer relationship management functions were set for digitalising – with 61% saying investment in this would increase, and 31% saying this would be a ‘strong increase’.

Speaking on Unit4’s findings, said Bryce Wolf, senior manager for industry solutions with Unit4, said, “Despite the current market volatility, it is positive that the majority of PSO firms expect to see growth in 2023, but the industry continues to have a significant issue with legacy applications holding back innovation. Organisations must focus investment if they are to grow revenues with existing clients. The goal should be to increase organisational resilience, which will ensure firms have the ability to respond to market opportunities as they arise.”