The Italian consulting market remains extremely difficult with another flat performance in 2014 — with negligible growth of just 0.4 per cent to €1.1bn — a new study from Source Information Services (Source) reports.
The key issue is the state of the Italian economy. Low or negative GDP growth over the last few years, with no real prospect of change in the near future, has created unhealthy buying conditions for clients, and spending on consulting is suffering consequently
The Source report says that consulting firms are taking a variety of approaches to survival and growth, including exporting their consultants to more lucrative markets. However, there is a recognition that fundamental change may be required to respond to structural changes in the Italian consulting market.
Zoe Stumpf, Head of Research at Source Information Services, said: "The big surprise in Italy is that, despite this consistent lack of growth, firms are hanging in there, though they're finding the only way to retain or gain market share is to cut prices. The result of this is that rates are significantly lower than in much of the rest of Europe, and although the volume of work is holding up reasonably well, margins are being squeezed. The Italian consulting market is uniquely fragmented, with few major consulting buyers, and with those clients now used to low prices with no compromise on quality, it is difficult to see how the market can recover."
Financial services — keeping the market afloat
Although few sectors experienced growth in 2014, the financial services sector grew by 2.7 per cent to €335m, due in a large part to the need for regulatory compliance. The issues exposed by the European Central Bank (ECB) stress tests added to this regulatory burden.
The report argues that, in light of these pressures, banks are turning to consulting firms for support in finding solutions to the questions they cannot afford to get wrong.
Danilo Viviani, President of Gruppo Coreconsulting, explained: "The impact of ECB supervision was big, and it was quite challenging for us. The banks had a lot of requirements to meet around regulation, which impacted demand for anything else. Italian banks have improved their stability now, so we think that demand will improve."
Perhaps the biggest beneficiaries of this increase in financial services work have been the Big Four firms, which continue to dominate the consulting market in Italy, recording growth of 2.6 per cent to €412m.
Digital not yet taking off
Digital is an increasingly important driver of demand in the consulting industry in markets as diverse as the US and India. But digital has not yet taken hold in Italy to the degree that it has in those markets, although interest is slowly growing, and it could yet prove to be the answer too much that troubles Italy's consulting firms. The report says that the Italian market's attitude toward exploring new digital solutions is often reactive rather than proactive.
Alfredo Arpaia, Partner at Roland Berger, explains, "For the majority of clients, their focus of interest in digitisation is more likely to be around defensive questions like, 'How does it hamper my business?' and 'How will we survive the disruptors?"'
Mixed results for service lines
The financial management and risk service line experienced the best levels of growth in 2014, expanding 2 per cent to €290m. Source states that this was largely due to regulatory compliance work in financial services and other heavily regulated industries, but there is also a growing interest in cyber-security as Italian clients recognise that they are not immune to threats from hackers. However, operational improvement, which is the biggest service line in Italy, suffered a poor 2014, shrinking by 2.4 per cent to €301m. This was due to the fact that cost reduction and process improvement opportunities have been largely exhausted, and large-scale transformation programmes are few and far between.
Zoe Stumpf of Source said: "The prospects for 2015 do not appear particularly rosy, though with a slowly improving economy, pent-up demand, and some interest in digital, the market may achieve modest growth."