London: The MCA's 2012 Industry report, Leading the Recovery — consolidation and growth in challenging times — was published in London last week.
Here are its highlights:
- Fee income moves back to pre-crisis levels, rising by 5%: 2011 was a year of consolidation and growth, with the UK management consulting industry moving back to fee income levels last seen in the immediate pre-crisis period. Growth is largely fuelled by an increase in fee income from the private sector. The industry is now worth almost £9 billion. This is a considerable improvement from the 2009 slump, where fee income dropped by 7% as a result of the recession.
- Employment boost: The total number of fee earning consultants increased by 10% in 2011. This is in stark contrast to 2010, when a 2% reduction in fee earners was recorded.
- Strong private sector growth (14%) leads to industry rebalancing: Private sector growth in 2011 was once again strong — running at a healthy 14%. This eclipsed the 12% growth in 2010. As a result, there has been a rebalancing effect on the consulting industry's activities from public to private sector. Currently the ratio is 80:20 private to public, with further private sector growth foreseen by most consulting firms.
- Manufacturing sees the fastest growth in fee income in 2011, rising by 21%: The growth of consulting in manufacturing is an early indication of some rebalancing in the economy. The sector, although it remains dwarfed in importance by financial services, generates a promising 16% of total fee income. The pattern of services used by the manufacturing sector is different again from the whole economy and offers a contrast with financial services. In this case IT consulting and project/programme management are the most important areas of activity along with operations and outsourcing. Analysis by the MCA suggests that clients are trying to exploit the economies of scale and the possibilities of "just-in-time" delivery (therefore holding low inventories) through the use of information and communication technologies. The focus is on productivity and efficiency.
- Banking reform drives financial services growth, rising by 39%: 2011 showed some shift in the direction of more fee income from financial services (39% in 2011, 32% in 2008). The volume of work from the financial services sector is expected to grow as a result of the heavy legislative and regulatory agenda giving effect to the recommendations of the Vickers review. International regulatory interventions (Basel 3) and related changes to capital and liquidity requirements are also proving important in generating work for consultancies. The focus here is on the management of risk, enabling clients to develop systems and processes that may help to prevent a recurrence of the conditions that precipitated the crisis in 2008-09. Banking was responsible for over half of all fee income from financial services in 2011.
- Consultancy buyers focus on preparing businesses for growth: Fee income grew most dramatically in the area of operations (up 37%), outsourcing (18%), strategy (11%), financial (9%), HR (7%) and IT consulting (3%). It is not entirely clear whether these changes are structural (reflecting a permanent shift in client demand) or cyclical (clients may be buying different service lines at different points of the economic cycle). The pattern exhibited in 2011 demonstrates clients focusing on preparing for growth. It would be wrong to draw a firm conclusion, however, and there is a strong case for further research in this area not least because it could prove to be a useful tool in identifying permanent and cyclical changes in the pattern of demand. In contrast, declining fee income was found in business process re-engineering, change management, environmental consulting and project/programme management — the only key service line to see a reduction in demand.
Industry experts say growth is as a result of two mutually consistent hypotheses:
1) Clients who had retrenched their own activities while they focused on survival began to recognise they had problems that could only be resolved with external help. Issues pushed to the side of the plate (and ignored) in 2008 could be addressed with more ease in 2011.
2) While client businesses may not be confident enough to undertake major capital investment in current conditions, they are concerned to develop their capacities, processes and systems so that they are ready for the upturn when it materialises.