| | 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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