Consulting buyers switch their attention from cutting costs to growth
A new Sourceforconsulting.com report finds that across the UK’s management consulting sector, there has been a sharp contraction – down as much as 8 per cent compared to the previous six months. At the same time, marketing, selling and financing consultancy – normally associated with growth – have seen significant rises in the last six months.
A mixed picture across the market was highlighted with differences from one client to another. The report found that a third of clients increased expenditure on consultants – some by as much as 30 per cent. However, slightly more than half (54 per cent), reported decreases in expenditure; some claiming they’ve done so by as much as 50 per cent.
The Sourceforconsulting.com report, which surveyed some of the largest buyers of consulting services (1), also found that after a period of steep growth in financial services, a fall in buyer demand in this sector was considerably more than the market wide 8 per cent.
Fiona Czerniawska, Director of Sourceforconsulting.com said: “There are two reasons for the mixed picture across the market. Firstly, demand varies a lot from sector to sector, even from client to client: some are quite bullish about the future, others far less so. Secondly, it could be a sign that the economy is heading back into a second period of contraction – which will be unchartered water where the consulting industry is concerned. Organisations are responding differently this time around: with costs cut to the bone at the beginning of the recession, the focus is now switching to growth without increasing costs.
“Now more than ever, if consulting firms are going to avoid needing to pull a rabbit out of the hat themselves, they’re going to need to plan better, to have a clear strategy in place and to accept that accidental success can no longer be relied upon.”
Strategy firms show signs of eroding the Big Four’s market share
The report found that strategy firms are eating into the Big Four’s market share, with a 3 per cent increase in share of overall expenditure (from 13 per cent – 16 per cent). This actually represents an impressive 25 per cent increase in strategy firms’ particular share. The report says that the challenge for them over the coming months will be to maintain that share as demand for traditional consulting starts to fall away again.
Growth by acquisition drives financing consulting services
Financing consulting services fared well – rising by 90 per cent in the first six months of 2010. These services include due diligence and valuation, M&A deal structuring, transaction support and major PFI and infrastructure financing initiatives.
On this rise, Fiona Czerniawska commented: “Rises in financing consulting could again be read as strong signs of a return to growth – were they not coming at a time when the consulting market was actually shrinking. However, they do back up the sense that clients’ response to renewed difficulties in their trading environments is to grow their business, either organically or by acquisition.”
Risk and reward on the rise
One of the hallmarks of the previous downturn was the effect it had on the number of projects in which consulting firms were asked to share risk and reward with their clients. The report found that for the first time since May 2009, they’re on the increase again. Rising to 14 per cent of all contracts, this is a clear indicator that clients are nervous about the state of the markets in which they operate.
The future
Expenditure over the next six months looks set to decline across the consulting market by around 3-4 per cent. However, two-thirds of financial services organisations expect to spend less which, given the certainty of a declining public sector and the importance of both to the overall health of the industry, could mean a more significant fall in demand.
(1) Sourceforconsulting.com surveys organisations whose combined annual consultancy spend represents between a quarter and a third of the total UK consulting market.