Headstart: IT skills - Boom time for consultancy.

The outsourcing of IT services is one of the key contributing factors making accounting and consulting services increase enormously as a share of UK gross domestic product, says new research.

IT services, previously regarded as a support function, are taking the forefront and now have greater prevalence as central to companies’ business strategies, according the study from International Financial Services, London. Findings revealed that IT services made up nearly a third of consultancies’ 2000 revenues, following on from a surge of activity in 1998, as companies looked to resolve potential Y2K problems and prior to the launch of the euro.

Against a background which saw accountancy and consulting increase its share of GDP from 1.4% in the first half of the 1990s to 1.8% in 1998 and is likely to have risen in 2000, the study found organisations increasingly focus on their core functions and consequently outsource their IT systems to management consultancies.

The accounting and management consultancy study said: ‘The increasing pervasiveness of network computing and the internet, combined with the growth of e-business is causing companies to re-evaluate the mode of operation.’

IT services income made up 29% of consultancies’ revenues in 2000 and have risen further since the jump of in 1998.

Statistics from the Management Consultancies Association showed that IT systems development brought in nearly #600m, while IT consultancy activity generated close to #550m.

Outsourcing as a whole generated about #800m in revenue in 2000, showing a dramatic jump from 1995 and becoming the largest source of income for consultancies. Financial services companies were the largest customers, generating almost 24% of annual income in 2000.

The top five firms in this sector in the UK are Cap Gemini Ernst & Young, PricewaterhouseCoopers, Accenture, Deloitte Consulting/DTT and KPMG Consulting.

Together employing approximately 23,800 staff in the UK, they generated revenues of #2.8bn in their last financial year.

Among the key characteristics found among the top 30 consultancies was their international presence, with a strong UK representation, which accounts for 5-13% of their revenues. Worldwide, management consultancies reached an estimated $102bn (#71bn) in 1999.The US accounts for half of the world market, while the UK makes up 10%.

In the UK, consultancies have achieved a greater market penetration than in any other European country. Revenues brought in account for 0.78% of the UK’s GDP, compared to less than 0.5% in other European countries.

The study also shows that the Big Five dominate the international market in accountancy and consultancy services, making up three quarters of the $80bn revenue of the 50 largest firms in the world.

More from the International Financial Services London on www.ifsl.org.uk.