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US consulting market expands four times faster than economy - Source

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The US consulting market nearly reached double digit growth last year, expanding by 9 per cent to over $50bn, according to new data from leading global consulting market analysts, Source Information Services (Source)

This growth rate is almost four times faster than the US economy (2.4 per cent in 2014), and is a rate typically reserved for emerging markets.

  • Digital hype turns to action across most sectors
  • Financial services sector fastest growing — up 11.9 per cent to $12.4bn
  • Big Four firms outperform the market — posting growth of 12.8 per cent to $17.5bn
  • Risk-reward contracts are rapidly growing in popularity

The Source report says that while a strong domestic economy partially fuelled consulting market growth, digitisation is driving demand for consultants across every function, in every sector. For the first time, digital is living up to its hype.

B.J. Richards, Senior Editor at Source, and author of the report, added: "Consulting budgets expanded across most sectors as clients threw off the conservatism of the last few years, eager to grow, get things done, and maybe even start taking risks again."

Financial services sector fastest growing

The US consulting market's biggest customer: financial services, was the fastest growing industry sector — up 11.9 per cent to $12.4bn in 2014. Regulation continues to be a big driver of activity, but there's also a growing amount of work connected with digitisation. Both the second and third biggest US consulting sectors grew strongly: energy and Resources up by 9.6 per cent to $6.8bn and manufacturing up 8.9 per cent to $6.5bn, largely due to growth in the automotive sector. Here, complex manufacturing processes and innovations such as driver connectivity and the driverless car made this a ripe sector for consultants.

On strong growth in financial services, Lynne Doughtie, Vice Chair — Advisory at KPMG, said: "Financial services companies are asking themselves how they're going to grow in the future. They still face regulatory and cost pressures, but they pulled almost all the levers where efficiency is concerned and they now have to look at how they can improve their top line. Our role is to bring innovation as clients are looking for this."

Cybersecurity moves up the corporate agenda

From a service perspective, the big riser was financial management and risk, which grew by 11.8 per cent to $16.2bn in 2014. Source says that aside from regulatory work, cybersecurity is driving a lot of work for consultants as it has moved up the corporate agenda in recent years just as it has moved towards the front pages of newspapers.

Technology services also grew strongly, up 8.9 per cent to $12.7bn. Source expects this growth to continue as over three-quarters of US clients (76 per cent) said their spend on technology will increase over the next 18 months.

Big Four firms outperform the market

Big Four firms outperformed the US market by some distance in 2014, posting growth of 12.8 per cent to $17.5bn. This is partly thanks to a strong commitment to acquisition. According to the Source M&A bulletin, in the US market alone, over a quarter of consulting acquisitions in the last 27 months involved accounting firms.

Risk-reward contracts rapidly gaining in popularity

The Source report also revealed that risk-reward contracts, where fees are aligned to project outcomes, is striking a chord with value-conscious US clients. As one senior accounting firm consultant told Source, "We think that 40 per cent of volume in the US in 2020 will be some form of outcome-based fees." With the balance sheets strong enough to underwrite millions of dollars in risk, this method of billing is mainly popular among larger firms.

Ken Hutt, Principle at Deloitte, added: "To relieve price pressure, we do more value-based billing. It's probably easier for us to offer that as a big firm. We're able to make the economics better for the client until they are able to see the impact."

Deals market continues to drive work

With growth back on the table, consultants saw M&A work come back with a vengeance, fuelled by low interest rates, high volumes of cash, and the robust economy. The US accounted for almost half of global M&A activity last year, bringing consultants a steady stream of work ranging from due diligence all the way through to post-merger integration.

Thomas Puthiyamadam, U.S. Management Consulting Leader at PwC added: "We think M&A will be really an explosive source of growth in the next 12-14 months: clients are more active, are fending off more competition, entering new markets, and are exploiting new technology."

The future

US consultants are some of the most optimistic in the world, and many think 2015 will be even better despite a tough first quarter. Many report strong pipelines, with a book of work stretching well into the fall and beyond.

B.J. Richards from Source concluded: "Of course, it's not all sunshine everywhere. There may be a few clouds on the horizon for consultants in the energy sector as oil prices continue to be depressed, and those in federal government are still experiencing a good deal of stress. But even these bits of gloom can't distract from what is a dominantly sunny forecast."

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