Time for consulting to re-balance?

THE MCA’S LATEST DATA for the UK consulting industry, looking at performance in 2011, show that the industry responded well to the dramatic fall-off in public sector work that it has experienced in recent years, especially since the general election of 2010.

Clearly, Britain’s consulting firms have reacted swiftly and effectively to the challenge of austerity, and the wider business and economic challenges.

While it is good news that consulting firms’ fee income has now recovered to the levels last seen before the financial crisis – not least because it is a signal that UK plc is thinking about opportunities for growth as well as surviving the downturn – there may well be further tough times to come.

The bounce back in private sector consulting work was led in 2010 by the financial services sector and much of that growth continued through 2011.

The added and very positive ingredient last year was a healthy increase in consulting for manufacturing companies. Consulting can be a leading indicator of future economic activity, so this could be a sign that Britain’s manufacturing companies are getting themselves better prepared for opportunities in the up-turn.

But this balance of fee income by sector, while a tribute to the industry’s skill and dexterity, also means that it is heavily exposed to the financial services sector and, in particular, to the banking industry.

The challenge for 2012 and beyond is to ensure that management consultancy can re-balance itself or, more appropriately, sell a diverse portfolio of services to a larger number of clients outside the financial sector.

Reducing the relative proportion of fee income – though not the absolute total – that flows from the financial services sector will be one of the key tasks for an industry that must manage its financial and business risks carefully in what remain difficult economic times.

Increasingly, clients understand that spending on consulting is an investment that generates a valuable return. And they are looking at their purchasing decisions in that light. Consulting firms that deliver high returns and focus their efforts on value will be well placed to prosper in uncertain times.

Alan Leaman is chief executive of the Mananagement Consultancies Association

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