Annual league table - Winners & losers
The top firms saw exciting growth last year, with revenues up by#520m. But, says Philip Abbott, the boom is making the recruitment ofquality staff difficult.
The top firms saw exciting growth last year, with revenues up by#520m. But, says Philip Abbott, the boom is making the recruitment ofquality staff difficult.
Last year, the revenues of the Top 100 firms grew by an astonishing 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. [HH] Profile: James Martin & Co – The technology of change. [SH] James Martin & Co uses technology to create business value and prepare organisations for the “wired” world. Mary Huntington spoke to worldwide president and CEO Ben Levitan. [PP] 28 [PL] UK
Since its humble beginnings in a small office in Wimbledon 17 years ago, james martin & co has come a long way: in 1992 it sold off a large part of the company, James Martin Associates, but now has nearly 700 consultants, 28 offices worldwide and revenues approaching $90m. The company was founded to change the way software was created but with growth has come a broader mission: now it aims to change the way corporations view technology by using it to create business value, and prepare them for the “wired” marketplace.
Says Ben Levitan, who became worldwide president and CEO in January, the firm offers “end-to-end thinking”.
Levitan, who previously worked for Andersen Consulting and Cambridge Technology, joined as North American chief operating officer and president in 1997 after the company had “skinned its knees” on a warehousing project with a large car manufacturer, losing a couple of million dollars. He recalls: “I was taken on as a cross between a turnaround artist and a next generation leader.”
Four years with Cambridge Technology had taken him to senior vice president corporate officer but his view of the future tempted him to move on.
“I thought the game was changing from technology to change and saw the chance to make a bigger impact,” he says. “Cambridge focuses on technology while jm&co is much more broadly focused on change.”
A youthful, energetic and charismatic man, Levitan obviously hit it off with the firm’s eponymous founder, IT guru Dr James Martin, and within a year had been offered the global role.
His first priority was to set up a fishnet strategy, organising the firm’s work in a global project activity matrix, both horizontally, across geographic areas – US, London, Amsterdam, Hong Kong, Manila and Sydney – and vertically in sectors, primarily government, utilities, insurance, banking and finance and supply chain.
Projects include IT consulting, Internet/ intranet development and Year 2000 solution services, data warehousing, process reinvention, financial application package development and implementation and customer information services.
Says Levitan. “We’re getting called a lot about next generation business platforms where we work on a stream of business activity which is underperforming, launching new digital businesses with new processes, new social and customer relationships.” He adds: “It is about value creation rather than cost cutting – which is a lot more fun.”
This “value stream” approach is fundamental to the company’s “Cybercorp” concept which combines corporate change with innovative technology and creative software solutions to optimise businesses for “cyberspace”.
The jm&co business model, says Levitan, has two interrelated threads: creating business value through the innovative application of technology; and owning business change by creating an environment to support continuous change and improvement.
Levitan cites a project to set up WIN, a worldwide insurance network.
“We were dealing with an outside market-changing event: broking in the insurance business. Four firms came together to deal with risk management and how to put together a bid and ask system for insurance indemnity.
We built a network which allows industry lines to be redrawn around technology: it was about facilitating strategic thinking, understanding each stakeholder’s priorities and putting that thinking together and implementing the network – applications, processes, procedures and the launch.”
This end-to-end thinking characterises the company’s work, says Levitan, which tends to involve global activities.
With a presence in 12 countries, an Internet development centre in Virginia, USA (alongside its HQ), a rapid development centre in London and an offshore development facility in Manila, the firm is well placed to handle global work.
North America contributes the largest chunk of the company’s revenue at about 59 percent, but Asia Pacific is a rapidly expanding market, with revenues growing by 62 percent in 1997 and making up the bulk of jm&co’s overall revenue growth for the year of 30 percent.
Recent work in the area has included a ground-breaking smartcard project for the Hong Kong Transportation Authority. Says Levitan: “We were retained after two other vendors had failed. The cost of maintaining the read/write machines for boat, underground and bus tickets was greater than the cost of a new smartcard system. We stepped in and looked at the situation, applied our productivity tools, methodology and our muscle in Manila and got the job done 18 months ahead of schedule.’
And the smartcard system has been so successful that it is scaling up much more quickly than anticipated, he says, with an estimated 85 percent of the travelling public in Hong Kong using the card within the first four months of operation.
“It is the only contactless smartcard system in the world of that scale,” says Levitan, “and it is a game changer: now people are looking at alternative applications around the world, such as parking systems. The people that run the system are the fastest growing bank in Hong Kong because it’s a debit card. You have all that float sitting on all those cards, which is incrementally worked off each day by travellers.”
The project, he says, illustrates one of jm&co’s business drivers: “Because of the scale of business in systems integration consulting more mistakes are being made. We are getting called in increasingly as project doctors.”
Industry change is also contributing, he adds. “We picked the right industries to focus on,” he says. “Globally government is changing dramatically and the same is true in the finance sector, especially in Europe with the Euro. Our industry expertise is driving the business.”
The proliferation of technology in everyday lives, from the Internet to smartcards, is also a business driver, he says. “We are in a sweet spot because people are increasingly relying on technology. There are a bewildering array of choices for executives – that works for us.”
The company’s approach, he says, is that it is not just about technology but also about business objectives. “We say to a client: what’s really valuable to you? Stop and think about how you want your business to operate and what your customers want.”
The company’s ability to service clients operating globally also contributes to its success. “People are looking for the global view but they don’t want to deal with eight partners,” says Levitan. “Customer intimacy is important.”
And the strength of jm&co’s relationships with customers, which include Merrill Lynch, General Accident and Chubb, is demonstrated by the fact that they come back for more.
In 1996 over 60 percent of revenues came from clients with whom the company had worked in 1995, and in 1997 the figure rose to 75 percent.
Says Levitan: “We don’t just give clients what they want to hear. Our people are thoughtful but candid and very committed to results.”
Around 35 percent of jm&co’s recruits are college graduates but the company is increasingly looking for industry experts as its growth continues.
“We would be interested in somebody who can help conceptualise what the equity business is going to be like in Hong Kong in 12 months’ time, for example,” says Levitan.
According to director of growth Stephen Izatt: “We look for a strong willingness and ability to learn, people with a real passion for developing themselves. And we use competency-based recruitment techniques. Skills and experience are just the tip of the iceberg; below the surface are the core competencies and behaviours: the way people do things.”
Once in, the recruits are taught the jm&co way: “We are very results-oriented, and innovative,” says Izatt. The company invests heavily in training, he adds, and has doubled the amount it spends in the last year.
New recruits get five weeks’ training and development at induction centres in Fairfax, Virginia or Manila while experienced people get three. Recruits choose a career mentor and work out a personal development plan with their performance manager.
Every quarter the company undertakes a global employee attitude survey to find out what’s on people’s minds.
Knowledge sharing is important and all employees have access to the company’s intranet, the Wave, which is also, incidentally, its logo. “Consultants can plug into a set of processes and productivity tools that reflect ‘best practical’,” says Levitan. “We are the leading methodology company in the world, according to the Gartner Group.”
Built around these processes and tools, he adds, is a shared community with values based on collaboration, best practical and results. “Lastly we have a focus on key industries: finance, utilities, supply chain and government. Unlike our competitors we don’t have a world domination strategy, we focus on finding and generating value in industries we want to understand – industries that are subject to radical change. The Internet, for example, changes everything about supply chain.”
The company is not looking to move outside its traditional markets at the moment but it may do so in the future, says Levitan.
Growth is very much on the agenda, however, and the company is looking at business opportunities in Northern Europe on a regular basis. “But,” he says, “our expansion plans are more driven by industry skill and focus than by geography now – we are seeing borderless projects increasingly dominate the business discussion. So a sign of our strength is the distribution we have in terms of the increasing accessibility to global talent on an economical basis.”
Joint ventures are an important part of the strategy for growth and have been undertaken in Japan, South Africa, India, Latin America and Japan.
Says Levitan: “We’re finding that the policy of a joint venture which later moves into a subsidiary-type relationship works. The Asia-Pacific currency crisis is giving us new opportunities – in Korea and Indonesia, for example.”
The company takes a fairly sanguine view of the problems in the Far East, where it has seen consistent and substantial growth in revenues. Says Izatt: “We will continue to see peaks and troughs in the region with increasing market rationalisation and a much more Asian-wide approach to doing business, spreading the risk.”
He admits that Jakarta and Bangkok have been pretty tough markets this year and that jm&co has wound down its activities there to tickover, moving staff into other areas.
Many of the firms jm&co is dealing with in the region are global players keen to take advantage of the crisis through acquisitions and mergers.
In Japan, for example, where a number of banks are in imminent danger of collapse, jm&co has seen its highest growth in the last three months, says Izatt. “We have also been working with Japanese clients who wish to improve their business processes and take advantage of Western experience.”
Elsewhere in the region, the firm is actively seeking entry to the Chinese market. “We are looking at Beijing and Shanghai where we are doing some work on distribution networks,” says Levitan. However, he adds, the number of cities is small and the focus is going to be on education and restructuring state industries. “Next generation BPR thinking is highly thought of by the Chinese hierarchy but it’s going to be a long process. It takes a long time to build relationships there: they view everyone as exploiters. But I think China is going to be an important new geography for us.”
He anticipates aggressive growth continuing in all geographic areas with staff growth to match. “We are at the strategic inflexion point,” he says, “where we start to accelerate.”
Vital to jm&co’s plans is its development facility in Manila, where process design and systems work is undertaken for the whole firm, as well as international training. The centre, which was set up in 1985, is expanding and, says Izatt, is the highest quality software production environment that auditor ERG has ever tested.
And the strong work ethic of the staff is matched by an attitude of collegiality and respect, says Levitan. “We are one of the few companies in Manila to give staff stock options.
“If you’re in the technology area and you can’t show how you create high-quality software on a global basis in a lower cost but higher productivity environment like Manila, India, or Ireland – I don’t think you’re in the game.”
Mary Huntington is a freelance journalist
BEN LEVITAN: A LIFE IN 10 QUESTIONS
1. What company would you most like to run, apart from your own?
Patagonia – I love their products (technical gear for outdoor sports) – or Hasbro Toy.
2. What would you do with an extra hour in the day?
Play with my three children, aged seven, five and three.
3. What is your greatest professional regret?
Not predicting that the Internet would change everything.
4. What has given you most satisfaction in your career?
Being asked to become CEO of james martin & co.
5. What was your last cultural experience?
1998 Hong Kong Sevens Tournament.
6. What book are you reading at the moment?
Personal History by Katherine Graham, president of Washington Post Company.
7. Who has had most influence on your professional life?
Too many excellent mentors to name one.[