| | Imagine the trends you
would expect to see as
an industry begins to
mature: more modest
sector growth rates; an
intensification of
competition & declining
prices; a greater focus
on controlling costs as
a means of sustaining
margins; and outsourcing
of tasks to lower-cost
countries.
These might sound
like trends one would
associate with clients
in the airline industry
or telecoms sector, but
in fact these are just
some of the patterns
being seen in the
consulting industry of
2005 in the UK—and
arguably in much of the
developed world too.
This startling
picture is revealed in
the MCA’s new report
“The UK Consulting
Industry 2004/5”, which
shares an unprecedented
range of data on recent
trends in the consulting
profession. The
over-riding conclusion
one reaches is that our
industry is not that
dissimilar to any other
and that consultancy
Partners are now
tackling issues that
have hitherto never been
faced by the consulting | |
|
| | profession.
Let’s take a look
first of all at the
issue of fee rates. Data
in the report suggests
average fee rates have
stopped their upwards
trend and have actually
declined since 2003. As
the average fee rate
ultimately dictates how
much a consultant or
consulting partner
pockets, a long-term
decline would clearly
have serious
implications for the
attractiveness of the
industry.
Delve deeper into
this data and the
picture becomes much
more enlightening. For
it is clear that IT and
outsourcing fee rates
have remained relatively
stable this decade,
while traditional
management consulting
has seen fee rates
decimated during the
downturn.
In the good years the
low-margin high volume
IT and outsourcing work
was typically
accompanied by a healthy
slice of high-margin
lower volume consulting
work. Average fee rates
were buoyed
accordingly—and as
recently as 2002 this | |
|
| | traditional consulting
work was being sold at
an annualised fee rate
of £326k per consultant.
Just two years later in
2004 this rate had
collapsed to £207k.
Whether this decline
proves to be just
recession-related or
down to a more
structural change in our
industry (and the way
that clients purchase
our services) does still
remain to be seen. It’s
conceivable that a
strong rebound in demand
for traditional
consulting could reverse
much of this fee rate
decline. But when you
consider how much more
sophisticated and
aggressive clients’
purchasing departments
have become in the last
years, it makes you
wonder if fee rates can
ever rebound quite to
the £326k levels of old.
We’ll watch the MCA’s
next data points with
interest, but suspect
that a partial rebound
is the best we can all
expect. In which case
consulting would
certainly continue to
display the
price-squeeze pattern so
typical of a maturing
industry.
| |
|
| |
So with margins under
threat from eroded price
points, how have
consulting Partners
reacted? Two clear
trends can be seen from
the report's staffing
data, which shows
changes in the number of
staff employed. Firstly
an axe has clearly been
taken to administrative
/ non fee-earning costs
and the ratio of
fee-earners to non
fee-earners has risen
considerably as a
result. This helps
reverse the decline in
margins, though only
partially.
Equally apparent is a
rise in the ratio of
employee fee-earners to
partner-level fee
earners. The pyramid
structure of consulting
organisations has
flattened, with fewer
partners now being
sustained by a growing
number of consultants.
Put another way,
partners now share the
spoils with a smaller
circle of partners,
offsetting any decline
in their earnings
brought about by falling
margins. Or put another
way still—it’ll be
increasingly tough for
aspiring consultants to | |
|
| | make it to partner
level.
About the MCA report
The UK Consulting
Industry 2004/5
The MCA’s latest
report is authored by
Fiona Czerniawska,
Director of the MCA’s
Think Tank and one of
the world’s leading
commentators on the
consulting industry. The
comprehensive data is
sourced from the MCA’s
members who include the
likes of Accenture,
Capgemini, Deloitte,
Infosys and
PricewaterhouseCoopers.
We believe the 112 page
report to be the
definitive work on the
UK consulting industry
and our thanks go to the
MCA for allowing us to
reproduce a few of the
key points in this
article.
Our thanks also go to
the MCA for extending a
£100 discount to readers
wishing to purchase a
copy of the report.
Single print reports may
be ordered for £300 and
the PDF version costs
£700. Interested readers
should quote TC1 when
calling to place an
order on +44 (0)1494
732830 | |
|
Previous Page 