The 1999 combined earnings for our members were always going to prove a slight disappointment after the huge growth in 1998. Twelve months ago our members were reporting growth in excess of 30 percent with IT consultancy nearly topping £1bn. 1999 revenues reflected the downturn in UK IT consultancy work of 16 percent due to the early completion of key EMU and Y2K compliance projects. Systems development in the UK suffered a worse fall of 22 percent. If, however, you look at the longer-term picture, IT consultancy increased by 43 percent in the 24 months from 1997 to 1999 and systems development by a similar margin. It was not that 1999 was a particularly bad year for IT consultancy but that 1998 was a magnificent one with the exceptional combination of year 2000 and EMU creating a unique opportunity. Outside the UK MCA members’ income for IT consultancy actually increased over this period with the rest of the EU witnessing an rise of 29 percent and noticeable growth in Northern Europe and the rest of the world. It was pleasing to see that in Asia and the Americas UK-based consulting organisations were able to offer comprehensive solutions to clients, including Y2K services to those organisations that may not perhaps have planned ahead as well as their UK counterparts. Global IT consulting revenues actually rose by 9 percent in 1999 to £454m, an increase of over 56 percent in the 24 months since 31 December 1997. Over the same two-year period IT systems development rose by over 30 percent to £383m although this does represent a fall of 24 percent on 1998.
For the first time this year we asked our members to provide an estimate of the amount of e-consulting work that they had carried out in the year. Few firms account for e-business as a separate service offering as it is now so pervasive that it underlies all types of management consulting including systems integration, IT consulting, strategy or marketing. In 1998 the figure was minimal in the UK but in the 12 months to 31 December 1999 our members estimated that nearly £500m of their business had a substantial e-consulting element, almost 17 percent of the total. Indeed for some firms the percentage was much higher.
The rise in outsourcing
The amount of revenue earned by our members for advising on and servicing outsourcing contracts has risen dramatically over the late ’90s. What began as a fringe activity in the early ’90s has now become very big business indeed for a number of consulting firms. The majority of these projects tend to be IT focused and large in scale. Central government remains the most important client in this field and is often ahead of the private sector in terms of innovation and best practice.
There were some surprises within the analysis of public and private sector revenues. Central government continues to be a big purchaser of consultancy largely due to the introduction of several major outsourcing contracts over the year. Member firms also led a number of substantial IT projects for overseas governments, boosting the overall export figures. In 1998 much of the 30 percent overall growth was due to large increases in IT consultancy spend in two main industrial sectors, financial services and the utilities, much of it driven by EMU and Y2K compliance. Unsurprisingly, those record figures of 12 months before were reduced in 1999, particularly in the energy sector, although revenues in financial services held up remarkably well. It was the new economy of telecoms and the old economy of manufacturing that provided the real engines for growth in 1999. Both sectors grew by over 30 percent.
This year we also provide a more comprehensive breakdown of statistics by industry, giving, for instance, a split of the financial services figure into banking and insurance for the first time. Members can get a further breakdown of each industry across service lines from the MCA.
Overall rise in consultants numbers
MCA member firms now employ nearly 15,000 consultants compared to 12,000 in 1998. Numbers increased despite a succession of scare stories that focused on some firms laying off small numbers of consultants in certain sectors and product lines. The fact that they were recruiting in greater numbers elsewhere was usually ignored. Firms suggest that they will recruit just as keenly in 2000.
The longer term
In April 1990 MCA members could congratulate themselves on a highly successful year, and a decade of growth. IT consultancy in all its forms had risen to £177m, while the overall income of the MCA members had risen to £653m. As the 1989 Annual Report stated: “Few expect the growth we have experienced in the domestic market over the last few years to continue at the same high levels.” But that growth continued even more rapidly. A decade later and those figures have increased by nearly five times. And the number of consultants employed has more than doubled. The MCA membership list is very different today. The Big Six mergers had taken place by 1990 but there was no CSC, no CMG, no Sema and no IBM Consulting among our members. It is likely that the next decade will see a far more extensive transformation of the consulting industry as mergers, alliances, partnerships and joint ventures continue to alter the traditional landscape. Growth should continue as long as consultancies remain adept at spotting market trends, attracting high calibre recruits and, above all, being client focused. Despite the attractions of dot coms and stock options, consultancy is still the career of choice in every graduate survey.
There were impressive increases in the more traditional types of consultancy offerings. Strategy consulting revenues were up by 21 percent to £408m while project management rose 45 percent to £235m and marketing rose 51 percent to £94m. Human resource consulting rose 22 percent to £138m, reflecting no doubt much of the merger and acquisition work that has gone on globally over the last 12 months. Management consultancy as an industry goes from strength to strength and its importance to the health of the UK economy is now firmly established.
For copies of the report call 020 7235 3897.