American management consultants may be upbeat but the UK industry has less reason to be cheerful. British consultants' fee income rose only 4 per cent to £10.1bn ($19.2bn) last year and much of the growth came from outsourcing work rather than the dispensing of advice to senior managers.
Indeed, it is unclear whether many of those who describe themselves as management consultants these days are really management consultants at all. According to a report by the Management Consultancies Association, about 40 per cent of its members' income now comes from outsourcing. That includes providing advice on how to outsource, but much of the work consists of consultants providing the outsourced service themselves.
Many of the consultants not involved in outsourcing are putting together computer systems. Information technology-related consulting and systems development accounted for about 25 per cent of MCA members' fee income. Traditional management consulting made up only 33 per cent and has fallen for two successive years. The MCA said its members saw fees for traditional consulting fall 8 per cent last year after dropping 9 per cent in 2003.
Not all management consultants are members of the MCA. The association estimates that its members account for 65 per cent of the UK industry's fees. Among the notable absentees are the large strategy consultants, who say they are doing far better. But MCA members make up the majority of UK management consultants and what happens to them is an indication of wider industry trends.
Does it matter that their business has moved away from old-fashioned consulting towards outsourcing and IT? Are not the consultants who have made the move merely following the advice they give to clients - to be flexible and fleet of foot and follow the market as it changes? In part, yes. Outsourcing has grown quickly and consultants would have been foolish not to have grabbed the opportunity to be part of it. The problem is that growth in outsourcing appears to have peaked. The MCA says that outsourcing fee income increased by 18 per cent last year. In 2003, it grew by 46 per cent.
Much of the new spending on management consultancy is coming from government rather than from the private sector. The MCA said that its members' fee income from public sector consulting rose 42 per cent last year, compared with an increase of only 4 per cent from the private sector.
There is nothing wrong with public sector work - at least not from the management consultants' point of view. Large projects, such as building a modern IT system for the National Health Service, have provided consultants with valuable work.
The problem is that many public sector consulting projects have been controversial and there is some public and press resistance to the government spending too much on consultancy.
What has gone wrong for UK consultants? First, clients are becoming much more sophisticated about bringing in the consultants. They understand the consulting business far better than they did - partly because so many of the client managers are former consultants themselves. Bruce Tindale, chief executive of PA Consulting, says around 30 per cent of the client managers his firm deals with are former consultants.
The reason so many consultants now work for client companies should worry the industry: the consultants who leave for clients do so because they find the demands of consulting, and the toll on family life, too heavy. "There are problems with recruitment and retention," Mr Tindale says. "We are noticing, and so are many in the industry, pushback from consultants, who are saying: 'I'm not prepared to subsume my life any more.' We're losing people to clients because clients offer stability. People are saying: 'I might not earn quite so much but I get some balance back in my life.' " That has not stopped consultancies from recruiting. MCA member firms employed more than 45,000 people in 2004, an increase of 9 per cent over 2003. At the same time, revenue per consultant fell more steeply last year than in any other recent year - down 11 per cent to £167,000.
Fiona Czerniawska, who wrote the MCA report, suggests several reasons why revenue per consultant might have fallen. Changes in MCA membership, particularly the increase in the number of smaller firms, may have depressed the figure, as smaller consultancies tend to charge less.
"It's also possible that the changing mix of services provided by the MCA member firms has had an impact. The growth in outsourcing and IT-related consulting, both of which have lower average revenue-per-consultant figures than traditional management consulting services, certainly accounts for part of the drop in the overall average," Ms Czerniawska says.
But the likeliest explanation for the fall is the increase in the number of consultants. Why have firms been hiring if that has been depressing revenues per head? Because so many consultants, inveterate optimists, believe sales are about to increase. Many consultants over-recruited during the internet boom at the beginning of the decade and Ms Czerniawska says: "There is evidence that, having taken a cautious approach to recruitment in 2003, consulting firms have perhaps not entirely learnt the lessons of 2001."
Mr Tindale, who insists his own firm's revenues and profits showed healthy growth last year, says consultants need to learn another lesson: to provide their clients with a better value-for-money service than they did in the past. "It's a matter of keeping and sustaining trust among clients. It's very difficult because they think they got screwed by us - not always, but quite often. They look at those bills and say: 'What are we getting for this?'"
