London: The UK consulting market recorded strong growth in 2014, rising an impressive 6.6 per cent to £6.02bn — with the consulting arms of the Big Four accounting firms outperforming the rest as their revenues grew by 8.9 per cent to £2.34bn.
The report from Source Information Services (Source) says the UK consulting market is one of the most attractive in the world right now: large organisations are at last feeling the benefit of the economic recovery, giving them the confidence to start spending on strategic initiatives and projects that have been on hold for some time.
The Big Four are well-positioned to make the most of work in the financial services industry — by far the biggest sector for the UK consulting market. The Big Four further benefit from the fact that their financial management and risk services — an area of particular strength for these firms — was also one of the fastest-growing consulting service lines in the UK in 2014. At the same time, digital work has been the tide that has lifted almost all consulting firms' boats, including those of the Big Four.
The report says that without sophisticated work relating to new technologies, namely digital, analytics, and data, many consulting firms would be sliding further into a world of price-pressured commodity consulting. For many firms, digitisation is the route back to the 'luxury', premium end of consulting and is the service to specialise in above all others.
Fiona Czerniawska, Director and Founder of Source Information Services, said: "Exploiting the transformative power of digital in the back office is driving work in nearly all sectors as clients realise the possibilities for wide-ranging change, major transformation, and the rethinking of business models in order to help them thrive in the markets of the future."
Harry Gaskell, EY's Managing Partner of Advisory, added: "The UK economy is emerging from a five year hibernation, and it's being bolstered by a pent-up demand to invest in and leverage the potential of new technology."
All sectors register strong demand for consultants
An impressive picture was reported across all sectors with the standout areas being retail (up 9.7 per cent to £253m) and pharma (up 10.7 per cent to £194m). Both industries are facing major disruption and are therefore calling on consultants to help them overcome the challenges ahead. For instance, in pharma: regulation, the need to cut costs, and post-merger activity have all created demand.
The two largest sectors in UK consulting, financial services and the public sector, also recorded strong growth of over 6 per cent. In the public sector, consultants anticipate a pre-election slowdown, but following a big contraction in this sector after the 2010 election, many firms are far less dependent on it than they used to be.
In financial services, there's a sense that 'regulation fatigue' is setting in with banks getting fed up of having to spend money on external regulations, but the volume of requirements from the regulators is showing no sign of abating.
Aidan Brennan, Global Head of Management, KPMG, added: "Financial services clients want to draw breath but probably won't be able to do that for long — the need for real change in banking and insurance is huge."
Technology — the fastest growing service
In terms of consulting services, the biggest growth rates were in technology (up 7.7 per cent to £2.23bn), strategy (up 7 per cent to £1.39bn), and financial management and risk (up 7.1 per cent). Strategy services were buoyed by healthy M&A activity and clients grappling with high levels of disruption across various industries. Demand for operational improvement services remained robust (5.1 per cent) as clients are still keen to maximise productivity and slash costs. HR and change management consulting (up 4.8 per cent) had the best year the service has seen in a while.
The year ahead
Source expects the good times to keep rolling in the UK market, particularly as 60 per cent of clients say their consulting spend will increase over the next 18 months. Source therefore forecasts that the market will grow by 6 per cent in 2015.
However, while the revenue outlook is good, there are signs that clients are expecting more for their money in a fiercely competitive market. Two-thirds of companies favour payments being linked to specific KPIs (i.e. 'outcome-based' contracts), while the competition for large projects is such that some consulting firms are waiving fees for the whole first phase of projects — sometimes providing work free that would previously have been valued in the seven-figures.
Fiona Czerniawska, concluded: "The market has been bright for consulting firms across the board — but it's the march of the Big Four that in many ways stands out. The performance of the Big Four firms could hardly have been better during the last two years, though their fortunes could change due to new EU audit regulation that came into force in 2014."
"Although this regulation will not become binding for some time, it is already having a significant effect on UK clients' choice of auditor, and it's the single biggest issue facing the Big Four as they are forced to walk away from what is in some cases a substantial chunk of their client base. They will hope to make the revenue up elsewhere — but we are bound to see a mixture of winners and losers in such a shake-up."