London: UK management consulting firms' fee income grew by 7 percent in 2012, with international work amongst smaller specialist consulting firms continuing to show growth.
The performance is in marked contrast to contractions in consulting markets across continental Europe. The data is based on members of the Management Consultancies Association, which represents around 65 percent of the UK consulting industry by fee.
Alan Leaman, CEO of the MCA, commented, "The background message from our firms is that trading conditions continue to be very tough. You only have to look at the growth figures of the major western economies to appreciate that.
"In those circumstances growth of 7 percent is healthy. It confirms the view that the professional services sector is an increasingly important part of the tradable UK economy."
Over the next twelve months, a third of MCA members expect their overseas income to increase slightly (by 5 percent), and one in five expect it to rise markedly (by more than 5 percent), with firms identifying Asia and the Middle East as the most important areas for growth.
Financial services continues to contribute the largest share of MCA members' fee income from the private sector (40 percent), but the two sectors that grew most rapidly in 2012 were construction and transport (up 31 percent) and retail (up 25 percent). The MCA says that these sectors account for much of the growth in services. In contrast, after strong growth in 2011, spending on consultancy by manufacturing companies declined this year.
Leaman said, ""Emerging economies are still expanding and global firms are very often using UK based consultants to undertake work in their operations overseas. The UK also boasts a number of specialist smaller firms which are able to compete effectively all around the globe."
IT Advice in demand
Consulting services in demand include financial systems and analysis, operational performance, project management and information technology. Management consulting around IT is the strongest of all these activities, generating almost a fifth of fee income (19 percent). Together these services account for almost two thirds (64 percent) of revenue.
The MCA says that a decline in HR consulting is a little surprising, since it might be expected that clients would wish to ensure that employees are especially motivated and committed in tough times.
Public sector starts to open up to smaller consulting firm
This year's industry data suggests that smaller, specialist consulting firms are starting to win a greater share of consulting work in the public sector, particularly from central government, the NHS and local government. This finding coincides with the launch of the Government's new ConsultancyONE framework which is designed to create greater access for public sector buyers to consulting from smaller firms.
As expected, the consulting industry as a whole saw an increase in public sector work following two years of dramatic decline. The MCA says that future spending levels in the public sectors are likely to be influenced by the outcome of the forthcoming spending review and the state of the economy at the time of the 2015 General Election. The fee income from public sector work remains 21 percent lower than before 2010.
Alan Leaman commented, "The public sector often gets a bad press but, as the recent MCA awards demonstrated, it is a myth that you can't improve services while also making savings. The effective use of consultancy will enable the government to deliver this agenda. The advent of ConsultancyONE gives the public sector a new opportunity to deliver maximum value from its use of consulting."
"The message that Government wants to engage smaller firms is no well spread, and we have a phenomenal group of small and specialist consultancies doing well", he added.
Looking forward to the next six months, MCA members are forecasting that the economic pressures experienced in 2012 will either continue or intensify. Only a quarter of member firms report an improvement in their order books measured by the number of projects.
Alan Leaman concluded, "As this data shows, there are still opportunities for growth despite the economic pressures. We are living through a period of unprecedented change, which often requires organisations to learn new skills or to access external advice and support. This is where future economic growth and prosperity will come from, and it is great that the UK's consulting firms are playing such a key role."
"For instance, the Financial Services sector's reform is not yet complete, and with the UK government still planning to create a Chinese wall between retail and investment banking, it is reasonable to anticipate that there will be considerable consulting opportunities in the sector for the next five years."