The consulting arms of U.S. accounting firms grew by 10.2 percent to $21.5 billion in 2016, compared to growth of 7.1 percent to $58.7 billion in in the overall consulting market, according to a new report.
The report, from Source Global Research, found a combination of organic and inorganic growth, making consulting the fastest-growing firm type on the market last year.
“The U.S. consulting market is growing 7.1 percent, which is similar to the global average, but that’s quite impressive, given it accounts for about 43 percent of the global consulting industry,” said Fiona Czerniawska, director of Source Global Research. “It’s a big, mature market, and all kinds of economic theories say it should be growing more slowly, but actually the consulting market is proving to be incredibly robust. Not just this year, but this is probably the eighth consecutive year of significant growth in the U.S. Most consulting markets don’t grow for more than about seven years. There’s a cycle to them, so either the U.S. has got some exceptional robustness at the moment or it’s living slightly on borrowed time.”
Part of the growth came from mergers and acquisitions, including Deloitte’s purchase last year of the digital creative agency Heat. The report also found a decline in regulatory demands on U.S. consulting firms in general as the approach of several critical 2018 compliance deadlines meant a number of major initiatives wrapped up late last year. “Work from the Foreign Corrupt Practices Act fell away in 2016, and regulatory-related projects ebbed a little,” said KPMG vice chair of advisory Carl Carande in the report.
One of the leading factors driving demand for consulting at the Big Four and other accounting firms is technology consulting, particularly in areas such as cybersecurity.
The Trump presidency has also been a major topic among consultants, although opinions are divided on whether the new administration is ushering in a business-friendly era or a period of ongoing uncertainty.
Automation has been playing a strong role in driving the consulting market at professional services firms, Czerniawska noted, although even accountants are finding their functions becoming increasingly automated. “When you consider consulting, even a year ago you would say there’s no way this could be automated, but in practice one of the key trends that we’ve seen and talked about in the report is the market splitting between low-cost consulting and high-value traditional consulting,” she said. “You’ve still got to have the human element, but there are certain aspects of consulting that do lend themselves to greater automation, and there are some bits that don’t. I can’t see where we’ll ever get away with robot consultants.”
While the Big Four firms have been seeing huge growth in their consulting practices, midsize U.S. firms have also been doing well, particularly in consulting for privately owned businesses. “I wouldn’t say we’re seeing a huge amount of growth in very small firms with fewer than 50 people, but there’s a kind of Goldilocks position for midsize firms with between 50 and 2,000 people,” said Czerniawska. “The U.S. market is big enough to support midsize firms.”
In many other countries, however, such as France, the market is much smaller and can only support the largest consulting firms.
Even for the smallest firms, there can be opportunities for consulting. “It depends on who they are and where they are,” said Czerniawska. “It’s a bit like the real estate agencies. It’s the sector you’re dealing with and the issue you’re dealing with.”
The large firms are not in danger of splitting off their consulting arms, as they did after Enron and WorldCom in the early 2000s. “When we speak to clients, they want to buy services from a small number of firms,” said Czerniawska. “That means firms with a broad range of services, so why would you split things off? It’s not necessarily one-stop shopping. I’ve never found a client who wants to buy everything from one firm, but they certainly want to buy more from a smaller number of firms.”
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