Annual league table - Winners & losers

Last year, the revenues of the Top 100 firms grew by an astonishing163;520m. But, says Philip Abbott, the boom is making the recruitment of quality staff difficult. 24 per cent, representing an increase of some #520m over 1996 levels and thus continuing the growth curve that began in 1995. What this means is that the Top 100, combined, earned over #2.6bn in the last financial year.

To a certain extent, growth of this magnitude was expected. When we conducted the Top 100 survey a year ago we asked the firms to project 1997 sales based on what they knew at the mid-point of the year. Not a strictly accurate way of making predictions, it is true, but in the event it seems that most firms were about right. Overall, the forecast was out by less than 1 per cent.

This sort of growth is very exciting. In the past two years, some #4.7bn has been spent on consultancy. Between 1995 and 1996 this spending increased by 14 per cent. Last year, the increase was even greater. A number of firms have reported growth rates in excess of their own business plans.

Some people out there were expecting to achieve something just short of 30 per cent, and instead got closer to 40 per cent. The upside is that this is great for profitability and will enable a large number of smaller firms, in particular, to grow faster than they had dared hope or expect only a few years ago.

The downside of this growth is that the people resource is being stretched.

It has not just become increasingly difficult to recruit qualified and experienced staff, it has become a nightmare. Chiefly, the staffing problem will be with the large firms who employ the bulk of consultancy staff anyway. The 10 largest consulting firms this year had combined revenues of #1,438m against #1,053m a year ago.

Some of this growth can be attributed to higher daily charge-out rates for their staff but even so, the figures suggest that together these 10 firms would have needed to grow their staff population by as many as 1,900 people on top of 1996 consultancy staff levels. It is a certainty that this year they will have to do the same again.

Last year, we took steps to devise a reporting mechanism that accurately portrayed the size of the consultancy market, without artificially inflating figures with what are effectively non-consultancy activities such as software, systems integration and, especially, outsourcing. At that time the reasoning was that if organisations like EDS, ICL, Sema and Andersen Consulting were to lump all their revenues under the consultancy banner, the figures in MC would be utterly meaningless. Exactly the same thinking was applied this year, with the result that the #2.6bn figure is as close to accurate as one will ever get. However, at the top end of the scale with accounting procedures blurred by the mass of extra fee income, it has become particularly difficult for firms to distinguish between what is pure consultancy and what are add-on services. The problem is essentially simple; clients are billed for projects which embrace a variety of consultancy skills and services, and stripping out the various elements would often necessitate something akin to a complete audit.

Consequently, this year there are rather more estimates than before, a situation which has been brought about by the need for responding firms to break down figures in a way that is alien to their own reporting methods.

What this means is that the consultancy fees reported in our ranking table do not always reflect the true size of the organisations concerned.

As an example, one only has to look at the ranking positions of Sema, Logica, ICL, CSC and CMG. The overall rankings have not changed significantly.

This year, as was the case last year, Coopers & Lybrand leads the table of consultancy revenues, followed by Andersen Consulting and KPMG.

Price Waterhouse moves up into fourth position with revenue growth exceeding 60 per cent. What these figures amply illustrate is the enormous size of the now merged PricewaterhouseCoopers. The new firm’s market share is around 15 per cent and if current rates of growth continue, the new PWC could add another #100m in fee income in its first financial year.

A daunting amount, made rather more impressive when one considers that it may not be that long before just one firm has revenues approaching the half billion mark in the United Kingdom alone.

CAP Gemini stays in fifth place with revenues just a fraction below those of Price Waterhouse. Deloitte Consulting moves up one slot. This year, Deloitte provided figures that embrace all the consulting activities of the various organisations under the umbrella, including Braxton which does not feature on our table this time. Last year we estimated the position for Deloitte and, perhaps not surprisingly, underestimated its revenues by some 17 per cent.

Having said this, Deloitte Consulting was one of the few very large firms that was unable to even guess at figures for revenues by service offering, or markets sold to, partly because of the complexity of its various consulting divisions. Consequently, we have estimated those positions on the other tables, and our estimates may again fall short of the true picture.

Moving up a number of places this year is PA Consulting Group with consultancy revenues of #124m, which represents the highest growth rate of the 10 largest firms at some 76 per cent, higher even than PW. In the past PA has had some troubled times and 1996 figures were lower than those of 1995.

Its fortunes have quite clearly now been reversed and forward growth prospects seem increasingly bright. But among the large consulting firms, the most outstanding performance of the year came from Arthur Andersen with fees that grew from #30m in 1996 to #57m last year. This is 90 per cent growth and there has been no massaging of numbers by adding in bits of other non-consultancy work.

The firm does compete in the IT market but not to the same extent as Andersen Consulting. What is most remarkable about the Arthur Andersen figure is that this was achieved despite the massive marketing effort made by Andersen Consulting which tends to attract large corporate clients into what is still, perhaps unfortunately, often perceived to be the only part of Andersen that does consulting.

Arthur Andersen has clearly gone a very long way towards challenging that particular misconception and has also attracted large projects away from many of the other large consulting firms.

Moving down the list of the Top 100 it is evident that there are a number of new names appearing for the first time. The largest is Diagonal with total consultancy revenues of #44.8m. Next is The Smith Group, based in Guildford, with revenues of #9.3m. Others include XR Associates, Rossmore Dempsey, Maxwell Stamp, Commslogic, Secor, Human Resource Partnership, SGi, Hyperion and Oakland Consulting.

This year, as part of our survey, we asked the firms how they saw their own sales for the current financial year, based on fee income so far, broken down by markets sold to and services offered. Suffice it to say that there are no pessimists out there.

The majority of smaller firms, those with annual revenues below #5m, are looking at current growth exceeding 1997 levels. The buoyancy in the market is fuelling their growth. The medium-sized firms, taken to be those with annual fees of between #5m and #25m are as optimistic but tend towards growth that is at much the same levels as last year.

The largest firms are rather more divided and conservative. There is tremendous optimism for services like IT consultancy, BPR and change management, and the firms have great expectations of the financial and public sector markets, where the bulk of fees come from. Local government is not tipped to be that significant a growth market and neither are the utilities.

We also asked about staffing levels which produced the expected response that virtually every firm was looking for more people. The firms were asked to show their consultancy population at the end of last year and then to show how many people they expected to employ at the end of this year. Overall, the expected increase is in the region of 15 per cent which is a lower level than the anticipated fee income increase. What this shows is that rates are going up and that most firms are charging more for their people.

Whether the firms will ultimately be able to add that many new consultancy staff remains to be seen. It would seem unlikely. As the head of one of the larger firms commented on the survey form: “This is the anticipated level – if we can get them”.

IT CONSULTANCY IN 1997

The IT consultancy market grew by over 10 per cent last year. Much of this growth can be attributed to Andersen Consulting which saw fee income increase by over #30m. One rising star in the market was Arthur Andersen which more than doubled its fees. This year larger number of small firms reported IT consultancy sales though most of these earned less than #0.5m.

OUTSOURCING CONSULTANCY IN 1997

We asked about outsourcing consultancy for the first time this year.

It is not a large market and few firms offer the service. Farnham-based Hedra leads with revenues that just narrowly exceed those of Coopers & Lybrand. Last year a number of the Big Five firms claimed sales of this service and some have clearly dropped out of the market, presumably to concentrate of providing outsourcing itself.

CORPORATE STRATEGY AND ORGANISATION DEVELOPMENT IN 1997

Consultancy clients spent another #40m on strategy work last year but, of this, by far the largest share was scooped up by McKinsey. KPMG reported sales of #28m which is a four-fold increase on the amount it reported last year. A large number of small firms also reported gains. However, the large strategy projects continue to go to the dedicated strategy houses which together account for almost half of total strategy fees.

PRODUCTION & SERVICES MANAGEMENT IN 1997

This is a area that has long been dominated by Coopers & Lybrand which has a share of over 60 per cent. Fewer firms reported sales of these services this year, though revenues still rose.

FINANCIAL AND ADMINISTRATIVE SYSTEMS IN 1997

This is another service which has, for a number of years, also been dominated by Coopers & Lybrand. This year Price Waterhouse reported no sales though last year it reported revenues from the sector of some #6m. The market grew, but not across the board. KPMG’s sales of such systems were #6m higher a year ago.

PROJECT MANAGEMENT IN 1997

This area is still very much dominated by CAP Gemini, followed by OSI which has grown partly through acquisitions. One notable newcomer to the list is Arthur Andersen which did not report project management sales in 1996. The figure for Deloitte Consulting is our estimate and may err on the low side.

ECONOMIC & ENVIRONMENTAL STUDIES IN 1997

Only a handful more firms reported sales of these services this year and while the market has grown, it is still dominated by Coopers & Lybrand and ERM, the specialist consultancy.

BUSINESS PROCESS REENGINEERING IN 1997

This year, Price Waterhouse reported a six-fold increase in BPR sales, while PA Consulting Group doubled its figure. Despite being one of the most talked about services in consultancy, surprisingly few firms actually sell BPR.

HUMAN RESOURCES CONSULTANCY IN 1997

Hay takes the lead this year with sales outstripping its nearest rivals, though PA reported a fivefold increase and Arthur Andersen more than doubled its sales. The growth rate of HR consultancy is relative however. There are not many players in the market, though this year a few more reported sales than a year ago.

THE RETAIL INDUSTRY IN 1997

For the first time last year, Arthur Andersen took the largest share of this market with sales growth significantly greater than the other major competitors – in fact it almost doubled its fee income from the sector.

This is particularly impressive because the size of the market has been progressively diminishing in recent years, to the extent that sales have dropped by more than two thirds in two years. The sector is not a major purchaser of IT consultancy and sales from the major IT firms are small.

CENTRAL GOVERNMENT IN 1997

This sector has been the second largest purchaser of consultancy for some time. Large projects still go to the biggest firms but several smaller players have featured for the first time.

LOCAL GOVERNMENT & NHS IN 1997

Sales to local government and the National Health Service in 1997 were at much the same level as in 1996. For some time the market has been dominated by ICL and, as can be seen from the figures, it is not a major market for any of the large consulting firms. In fact, over the years progressively fewer firms have sold consultancy to the sector. However, Arthur Andersen again saw growth

THE TRANSPORT INDUSTRY IN 1997

This sector has never been a major purchaser of consultancy. Last year a number of firms sold less to this market than in 1996 and while the overall value of sales grew, the base is small.

THE FINANCIAL SECTOR IN 1997

The largest market for consultancy, the financial sector spent considerably more last year than at any other time.

THE UTILITIES IN 1997

The utilities bought more consultancy services last year from a larger number of firms. OSI Group is progressively moving up the league table of firms selling to the sector. While there was growth at the top of the table, the overall growth in the sector was actually brought about by smaller firms selling into the market for the first time. New entrants included Rossmore Dempsey, Lucidus and The Smith Group.

COMMUNICATIONS IN 1997

The communications industry is often billed as one of the fastest growing markets for consultancy, and it is living up to expectations. Last year sales grew by over 30 per cent, well above forecasts.

THE CONSUMER GOODS INDUSTRY IN 1997

This is another small market for consultancy which, while growing, does not afford the large projects that would excite the larger firms. Again, this year, more small firms reported sales to this market.

MANUFACTURING INDUSTRY IN 1997

Manufacturing is another sector that grew rather faster than expectations.

Consultancy sales to this market ballooned for the larger companies, to the extent that the list of major players changed considerably.

THE HEALTHCARE & PHARMACEUTICAL INDUSTRIES IN 1997

An interesting market for those that can sell to it, sales to healthcare and pharmaceutical industries grew by some 40 per cent last year. While the number of firms selling to the sector remains much the same as in 1996, there were a few new entrants to this market.

CHANGE MANAGEMENT IN 1997

There were some changes at the top of the list in this sector. Gemini’s figures show a gain while Price Waterhouse reports rather lower revenues this year, in company with Arthur Andersen. Most of the other players show some slight gains. Total sales of change management are at much the same level as reported last year showing that this is one service that did not grow.

LEISURE & TOURISM IN 1997

The smallest market of all for consultancy, last year sales to the leisure and tourism sector reached an all-time high of #6m, spread thinly among a handful of firms. Some firms selling to this market in 1996 had, by last year, given up and dropped out.