| | Morale within the
consulting industry
appears to be very high.
Most firms have enjoyed
a bumper year and are
expecting more of the
same in the coming year.
Bruce Tindale of PA
Consulting, for example,
says: “It’s been a good
year. Our headcount in
the year was up by 12%;
utilisation was higher
and this drove higher
revenues.” A similar
message is heard from
Atos Consulting, with
Sean Wells’ commenting:
“It wasn’t just that
revenue growth was
strong, but that the
quality of projects we
were working on was
significantly better
than in recent years –
higher profile, more
innovative and resulting
in greater added-value.”
Growth sectors
A resurgence in
client demand in
particular practice
areas has powered the
consulting boom. The
most significant area of
growth in 2005 was in | |
|
| | financial services,
where revenues increased
by 50% to account for
£1,367m of fee income.
The transport and
telecoms sector is now
worth £912m, up 41% on
2004. The primary/
chemicals/
pharmaceutical sector
saw an increase in
revenues of 30%, taking
the market to £1,140m.
And, most surprisingly,
the manufacturing sector
– one of the more
difficult consulting
markets of recent years
– grew by 20%. The one
major consulting market
to have shrunk in 2005
was the service sector,
down 10% to £1,207m.
Pricing Pressures
The last year has
seen diverging fortunes
for the various service
lines within the
consulting industry.
Overall, fee rates have
fallen again this last
year – harming the
margins enjoyed by the
industry as a whole. But
management consulting
services have rebounded | |
|
| | quite strongly, with the
40% growth in revenues
accompanied by a
sizeable increase in the
fee rates charged (see
below). By contrast, IT
consulting and
Outsourcing have become
increasingly
price-sensitive service
lines and fee rates for
both have suffered this
last year.
With fee rates waning
and salary costs on the
up, consulting firms are
having to be innovative
to try and sustain
profit margins.
Offshoring has become a
key means by which the
larger consulting firms
have sought to protect
their margins in the
face of pricing
pressure. Of Accenture’s
126,000 employees,
20,000 are now located
in low-cost locations,
for example, while
Capgemini has 10,000 in
Mumbai.
Alongside offshoring,
there has been a trend
of reducing the ratio of
partners / directors /
principals to | |
|
| | consultants. Ours is now
a more highly-leveraged
industry than ever
before, with the
valuable time of the
most experienced
consulting professionals
being spread across a
larger number of
consultants. This has
risen from 19:1 in 2004
to 26:1 in 2005,
restoring some – though
not all – of the profit
margins being lost
through lower fee rates.
Ironically, therefore,
clients are pushing
consultancies to staff
their projects with more
junior team members –
the exact issue with
service delivery that
they all say they would
like to see reversed. As
with everything in this
world, you do indeed get
what you pay for.
Recruitment and
salaries both surge
Looking deeper at
staffing issues, the
report identifies that
MCA member firms
employed 59,000 people
in 2005, of whom 87% | |
|
| | were fee-earning
consultants. This
represents a 27% leap in
the total number of
consultants employed on
a like-for-like basis,
and is a testimony both
to the rate at which the
consulting industry has
expanded in the last
year and scale of the
recruitment challenge
now facing many firms.
The number of non-fee
earning staff (primarily
support, secretarial and
sales/marketing people)
rose faster still at
37%, after suffering a
fall in 2004. More
significantly, the
number of contractors
(associate consultants
who are not full-time
employees) rose by more
than a fifth – perhaps
as a means for firms to
overcome resourcing
problems, or perhaps
because some are trying
to make their cost base
more variable in
preparation for the next
consulting recession. | |
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