Top firms make big financial gains

It is clear that there has been a substantial improvement in the fortunes of the largest management consultants. This year, the list of top firms comprises 87 companies and virtually all saw gains in fee income during 1995. Even taking into account that it has been necessary to estimate the position for some firms, the total fee income of the top firms on our list increased by some #261.5m last year, a gain of over 15 per cent.

The total fees of the top firms in Management Consultancy’s list amounted to #1.9bn last year, against #1.6bn in 1994. It is an upbeat market. Real growth has returned to the industry and with it, much improved profitability.

The share of total fees held by the 10 largest consultancies was 69.5 per cent in 1994. Last year this share dropped by 3 per cent to 66.5 per cent. It is not a significant decline when one takes into account the point that the fees of the 10 largest firms increased by over #123m last year, accounting for nearly half of the total gain of all MC’s listed firms.

This year we list 19 firms with annual fees in excess of #25m. This group, which effectively comprises all the large and medium sized consulting firms, saw annual fees increase from #1.4bn in 1994 to #1.6bn last year, an increase of 13.6 per cent, way above the industry average achieved in the first half of the decade.

This year, amongst the largest firms, there are a number of new names. IBM appears in fourth place with an estimated consultancy fee income of #105m, a figure that specifically excludes software, systems and facilities management.

McKinsey & Co appears in ninth place with an estimated fee income for 1995 of #76m. ICL Group also appears for the first time this year with estimated fees just short of #60m, and AT Kearney/EDS appears with estimated fees of #28m.

One major change at the top of the running order of firms is KPMG moving up to third place this year. Alan Reid explains that historically KPMG has deducted subcontracts and other outlays from its fee figures. This year the figures reflect all revenues from clients and the comparative 1994 revenue figure is #96.3m.

Not all firms volunteered information this year. Andersen Consulting, for example, was unable to respond. The figure of #320m for 1995 fees is regarded by Andersen insiders as being a fair reflection of earnings in the year. It reflects growth at much the same level as in 1994. Given that Andersen’s fee income is substantially greater than that of the next largest firm, Coopers & Lybrand, even if the number given this year is hopelessly optimistic, it would have no impact on their position in the ranking table.

In some cases it is possible for MC to make a reasonable assessment based upon what is known of the firms and the trends in the industry generally. It is, after all, our eighth annual league table. In other cases, it has been necessary to look at accounting records at Companies House. These showed, for example, that McKinsey is substantially larger and more influential than many in the industry might otherwise have believed. Our estimate of #76m is based on slightly slower growth than in 1994 and may well be a conservative estimate. The figures for 1994 and previous years are taken from published accounts.

With any ranking table, there is inevitably some jostling for position. What was noticeable this year was that, at the top end of the scale, consistency in reporting was not a strong point. To a certain extent this can be explained by the difficulty large firms have in determining accurate figures due to their complex organisational structure. Small operating divisions may well have good information about what has been sold, and to whom, but bringing all the figures together is sometimes impossible.

The other problem is one of definition and this is especially true of services. The majority of firms have difficulty with determining where change management ends and BPR begins, for example. Then there are those who say that all their information technology work is consultancy, while others specifically cut out software development and facilities management from their figures.

Top management consultants in the UK 1996 by fee income (#m)

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