The MCA End of Year Report 2015 paints a picture of a consulting industry that is in good shape. Based on an opinion survey of our members, conducted in September and October this year, the report outlines MCA firms’ expectations for the year and their predictions for 2016. The full report is available free for members and can be purchased by non-member firms. This year, for the first time, we have also published the nine interviews conducted for the report as a separate, freely available document.
MCA firms in the main are positive about 2015. Many respondents report growth across all sectors and service lines, with the majority anticipating that by year-end they will have met or exceeded their targets. Cost and price constraints appear to have become marginally less exacting. Growth in Digital, both as a service line and as a sector, confirms consulting’s continuing centrality to the Digital transformation of the economy and public services. Members also record significant growth in infrastructure assignments, again an indication of consulting’s importance as the glue binding together complex, strategically significant projects. They have also reported growth in small but emerging specialisms, such as marketing advice, plainly linked to Digital, and there appears to be a slight resurgence in programme and project management.
Many firms have added new capabilities this year, especially in Digital, and are increasing their headcount. In the survey, we began anew the process of baselining data on MCA firms’ overseas activities. Over two thirds of respondents recorded that their consulting practice is active outside the UK, confirming British consulting’s global reach and its status as an important export.
Overall, respondents have positive expectations for the economy as a whole in 2016, and predict great things for their own business, with substantial numbers even anticipating double-digit growth. Many will continue to recruit, add new capabilities and offers, and target new markets.
Nevertheless, the picture is not uniformly positive. This is unsurprising. 2015 was a volatile year economically and politically. Despite the UK maintaining an enviable GDP record for a developed economy, predictions for growth have been subject to repeated downward revision throughout the year. Markets were unsettled by poor Chinese output and other factors, such as the ongoing threat of Grexit.
These conditions seem to have affected some clients and consultants adversely. A small but noticeable percentage of respondents recorded reductions in fee income and suggested that their expectations for 2015 had been undershot. The high pound and low aggregate global demand have hit manufacturing, and some respondents reported reduced activity in the sector. In a fascinating Think Tank Year of Growth roundtable on the topic, participants felt that political ambitions for a manufacturing resurgence to help rebalance the economy would require more than just hope. Action on skills and investment would be needed, especially targeting areas where there is continuing high consumer demand, such as Digital hardware, or in related UK differentiators like high-quality design.
The energy sector, hit by low oil prices, was another area where some firms recorded problems. Consistent with the findings of the Annual Report 2015, some respondents affirmed that human capital and environmental service-line revenues had contracted. We will monitor these issues closely. Training and development attracts low investment in the UK, a potential contributor to the country’s poor productivity record. Reduced demand for environmental consulting may prove counterproductive. A growing economy will need sustainability, both within its own growth dynamics (including energy efficiency, circularity and reuse principles in raw materials and supply chains) and in some of its core outputs, such as green manufactures.
Demand for public sector consulting has been uneven across the year. In the run-up to the General Election, as we recorded in the Annual Report 2015, there was significant activity. This bucked the historic trend of abatement in demand for contracted services immediately prior to elections. Whereas officials ordinarily await the directions of an incoming administration, this time the mood in Whitehall seemed to be that whoever won, major transformation programmes would be needed. So they acted accordingly. By contrast, since the Election, with its surprise outcome, while many MCA firms have remained active, some have noticed a drop in intensity, suggesting that Whitehall officials paused projects pending the Spending Review conclusions. The Review itself proved a surprise. Much of the public-service frontline was protected through the combination of a fiscal windfall, tax adjustments, continuing cuts in benefits, and ruthless emasculation of Whitehall itself.
To succeed, Osborne’s combination of radical devolution, Digital transformation and the recasting of central government will require external advisory support. But member firms expressed concerns in the survey about the continuing lack of political understanding of consulting’s beneficial role, as well as ongoing procurement problems. There is hope here. Our engagement with Cabinet Office about the replacement for ConsultancyOne has been constructive. Officials increasingly understand that consulting firms are sources of great ideas and innovative models. The challenge is finding a mature commercial environment through which to make use of them.
Our members also expressed other worries, some of which they share with clients: fears about the return of choppier economic waters, continuing Eurozone sclerosis and sterling’s high valuation. Some respondents are anxious about the EU referendum and the possibility of Brexit. We will canvass the MCA membership on this question in 2016. Further, the downside of consulting growth and recruitment is talent shortages. This does not yet appear to have translated into wage inflation. However some member firms highlighted difficulties securing adequate supplies of consultants in general, as well as specialists, especially in Digital.
Concerning Digital, MCA firms do not see recruitment challenges as being necessarily linked to competition with other sectors. As our Year of Digital has consistently shown, Digital has burnished consulting’s reputation. Rather, Digital specialists are inherently scarce. The MCA has produced a member briefing on Digital skills needs, suggesting ways to overcome challenges, including specificity about Digital requirements, differentiation, internal upskilling and active partnering.
Despite these nuances, the End of Year Report is broadly positive. We have no reason to doubt that when the detailed fee-income findings for 2015 come through in our unique Annual Industry Report next year, our industry’s growth position will remain enviable.
A new finding from the End of Year Report sheds further light on that growth pattern. In recent times member firms have indicated that the focus of their activities is changing. In the aftermath of 2008 MCA members helped clients downsize and survive. Since at least the first quarter of 2013, by contrast, they have been supporting clients’ pursuit of growth. To test this assertion, and to provide a baseline for our Year of Growth projects, we asked members to categorise their consulting activities. 53% said that 70%+ of their work supports client growth. Consulting is growing by helping others grow.
Nevertheless, interviewees for the report expressed a desire to do even more. The MCA’s Consulting Excellence initiative will celebrate the role of high-quality advice services in supporting economic and public service transformation. This is partly about measurement: a focus by consultants and clients alike on outcomes. Positive growth contributions are outcomes. Yet despite a longstanding procurement dialogue on this matter, it still remains easier for consulting projects to be measured against narrow project criteria, such as timely deliverables or cost reduction. Those are important. Yet they could mask or even inhibit more lasting contributions: in the private sector, to corporate resilience, product development, market share, global competitiveness, share price enhancement and an improved bottom line; and in the public, to radical and sustainable service reinvention. Throughout our Consulting Excellence initiative, we will explore the question of measurement. We will support our members in articulating as effectively as possible, to clients and the wider world, our industry’s irreplaceable contributions to growth, prosperity and high-quality services.
The full report is available for free to MCA members under Reports and Insights and can also be purchased by non-members.
A public collection of the interviews conducted for the UK Consulting Industry End of Year Report 2015 is also available under Reports & Insights.