Huntswood: The state of the market – Q1 2013

I start this year feeling very positive: the FTSE100 is back to where it was two years ago (pre-Eurozone crisis and in full recovery mode) and people I’m talking to are feeling real enthusiasm about the year ahead. The “new normal” that we exist in means that, although growth will be minimal by pre-crash standards, it should be something to celebrate. Mercer’s Salary Movement Snapshot suggests that UK employees are in for a 3% pay increase through 2013; I, for one, am celebrating that!

The picture is even rosier in the management consultancy world. The MCA’s Consulting in 2013 report predicts a 5% rise in fee incomes through 2013, with 77% of firms interviewed saying they expected their business to grow. While 80% of fee incomes still come through the top 10% of firms by size this is – to some extent – flattening out and the smaller and more specialist firms are showing more resilience.

Firm performance
Growth has been the report from most firms publishing results in the last quarter save for a few strugglers. Of the larger consulting organisations Ernst and Young’s advisory function is up 16.2% at year end; its best year since 2006! PwC has also reported a 7% revenue growth in its UK consulting business, including a net 3% increase in headcount. Similarly, Deloitte’s consultancy is up 14%. However, what we are hearing on the ground is while certain service lines are booming (Deloitte Digital, for example), some of the more traditional business change consultancy service lines are struggling in the Big4. Off-the-shelf solutions aren’t enough anymore in the likes of shared services and outsourcing design and delivery. KPMG has been making redundancies while the boutique consultancy market in this area is flourishing. For more on this please read our blog article regarding boutique consulting.

In the technology players, Accenture is up 4% in revenue across European consulting and Atos is up8% in revenue in consulting and technology, driven by public sector work (a stark contrast though to the 7% decrease across the rest of Europe). Cognizant has reported revenue growth and is expected to publish a 20% increase for 2012 globally, driven by establishing a consulting-led approach. CSC has also reported another improvement in profit through its Q2, a sign of its slow recovery, although total revenue fell slightly. Capgemini and IBM have reported minor contraction in consulting services through Q3 of 4% and 3% respectively, though the latter is reporting a huge increase of 14% year to date in its business analytics offering.

In the boutiques the MCG has confirmed that Alexander Proudfoot and Kurt Salmon are performing in line with management expectations, an improvement on the outlook of the last quarter. Baringa Partners, specialist consulting in the energy and financial services sectors which now consists of 250 consultants has had a fantastic year and reported a 25% growth in its business for FY ending in April 2012. This, it has to be said, is in line with massive growth reported across various other specialist firms in similar sectors, with reports of up to 200% growth in the last financial year.

M&A;
The big story of the last quarter was the takeover by Deloitte of the Monitor Group. This identifies a clear intent of the firm to continue to expand its footprint in the strategic consulting space as outlined by Deloitte’s MD of Strategy & Operations Consulting, Michael Canning. Commentators have speculated about whether this will lead to a full merger, or whether they will try to maintain the Monitor brand in a “Monitor Deloitte” entity.

Elsewhere in M&A; news:

• Deloitte has also acquired mining consultancy Venmyn for an undisclosed amount, a move to consolidate its existing mining advisory services into a new entity “Venmyn Deliotte”

• Hitachi Consulting has made a move to bolster its management consultancy services by acquiring business operations consultancy Celerant. The deal, for which terms were not disclosed, will both allow Hitachi a greater footprint across Europe & the Americas, as well as combining with the rest of the portfolio to allow Hitachi to make a full business transformation lifecycle pitch. It is an interesting move for the highly acquisitive firm which has previously signalled intentions to pursue more of an IT consultancy focus. I look forward to seeing how the new business develops

• In looking for ways to enhance the company network since its management buyout and re-structure last year, Arthur D. Little has partnered with Solidance in APAC, a B2B growth strategy advisory and promoter of growth and innovation in emerging markets

Procurement of consultancy services
The procurement of consulting services has been an ongoing theme throughout the quarter; specialist research firm Source for Consulting has reported that over two thirds (69%) of procurement managers are now strongly influencing the purchasing decisions of large consulting projects. Reports have also established that procurement have also begun to be more involved throughout an engagement in an attempt to drive the return on investment for the work. The MCA has also moved to launch its new “Consultancy Buyers Forum”, a service that will bring together the country’s leading consulting firms with major client organisations with an aim to achieve even better rates of ROI for clients than the already impressive figures reported in its research.

The consultancyONE government framework ploughs on without an end in sight; the costs are becoming onerous for smaller firms. We all hope to see a resolution as soon as possible to how the government will procure consultancy services, and who from.

Growth areas

Emerging markets
International growth of consulting firms has continued. Africa, the Middle East and Latin America offer the most interesting opportunities for international expansion for UK management consultancy. For instance, Africa’s adoption of new technology over more traditional desktop and wired internet gives companies who can develop mobile based solutions a real advantage in the market. Furthermore, the MCA has also reported that the growth seen in the UK management consultancy industry in 2012 is almost entirely down to consulting exports, with accredited firms reporting that almost a fifth (17%) of consulting revenue now comes from international markets compared with just 5% last year.

This quarter, strategy giant Booz Allen Hamilton has been the most recent edition to significant Middle East operations after unveiling its new base in the Etihad Tower, Abu Dhabi. Meanwhile, Atos has established new operations in Qatar and BPO giant Capgemini has opened new offices in Sao Paulo, Brazil. Accenture has moved to establish an FS innovation centre in Beijing offering business and technology services to support strategic growth and transformation of large banks in the region.

Public sector
Two years down the line and reality is dawning in the public sector and doors are opening up for consultants in the NHS, local government and emergency services. In the MCA’s Consulting in 2013 report they state that “key areas outside of central government, such as health and local government, are in a period of massive process and operational change, and could be future growth sectors for the consulting industry.” Source for Consulting has reported that more than 80% of Public Sector managers want to buy more consulting services in order to access skills not available in-house. Local governments are also under pressure to reform services to allow more choice and become more ‘customer centric’. KPMG, which has traditionally been strong in this space, has moved to install a new Head of Public Sector across Europe, Middle East and Africa. Alan Downey, who will assume the role, commented that external advisors have a huge role to play in enabling public sector organisations to significantly change the way that they operate in order to deliver better public services with less money if they are to survive and thrive in the current economic environment.

In conclusion, firms can look at the public sector with openness again, international growth is a plan all firms should be taking and, for all of us, 2013 ought to be a year of positivity.

Stephen Humphreys, Recruitment Manager, Huntswood
Email: [email protected] ; Tel: 0118 971 8467

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