US consulting industry grows to $55 billion market size

The US consulting market grew strongly last year, posting 8% growth and reaching a market value of $55 billion, according to new data. Digital and technology consulting – the market’s largest segment – remains the fastest-growing service line; risk and regulatory consulting also enjoyed a banner year in 2015. Consulting activity is, however, expected to slow slightly this year, suffering the effect of lower business momentum due to the US election season.

The management consulting industry traces its roots to the United States, where many of the world’s leading firms were established in the early decades of the 20th century, including the likes of Booz Allen Hamilton (1914), A.T. Kearney (1926), and McKinsey & Company (1926).  Arthur D. Little – generally recognised as the oldest modern day consulting firm – was established earlier than the other firms, in 1886. In the 1960s and 1970s, the large American management consultancies expanded into Europe, bringing their management models and expertise to the continent – a move which served as the basis for the evolution of Europe’s own consulting industry.

Owing to the fact that consulting was “invented” in the US, and because the US retains the world’s largest economy, the US consulting industry has always been the world’s largest and most developed one. Recently, the US has even managed to extend its lead on other mature markets – including the European powerhouses of the UK, Germany, and France – following a succession of years where its consulting industry has posted bullish growth. In 2012, the top segment of the US management consulting market was worth $44.1 billion*; after seeing 6% growth in 2013, the market surpassed $50 billion for the first time in 2014 with 9% growth. New data from Source Global Research, a UK-based analyst firm, reveals that growth remained healthy in 2015, as the consulting market grew by 7.7% to reach $54.7 billion.

Financial services remains, by far, the US consulting market’s biggest spending client. Banks and insurance companies, among others, spent nearly $14 billion on US consultants in 2015 – an increase of 9% from 2014. Retail was the fastest growing client – growing by 11% to approach $4 billion – as retailers boosted their digital investments in order to address the rise of e-commerce and omnichannel demands. Consulting in the public sector remains a small slice of the industry, with 2.6% growth to $6 billion, as public sector investment has sunk to the lowest level in over 60 years. The US energy and resources consulting market grew by 5% to $7.3 billion, while pharma grew by a solid 10% to $1.7 billion – despite mounting pressure in the industry from an intense debate surrounding drug pricing practices.

In terms of functional segments, technology was consulting’s biggest and fastest-growing service line in 2015:  it grew 11% to $14.4 billion, driven by clients’ voracious demand for service offerings such as digital transformation, e-commerce, Internet of Things (IoT), and Industry 4.0. 2015 was also a strong year for risk and regulatory consulting, which grew 7.8% to $14 billion, fuelled by cybersecurity concerns and the usual regulatory load. According to the analysis, ‘cyber’ is the particularly hot product of this line, with a number of consulting firms forging M&A deals and alliances in order to strengthen their cyber services offerings.

“Cyber and cybersecurity are still concerns for a lot of people,” comments Tracy Benard, a Managing Partner in KPMG’s Advisory practice. “From a technology perspective, augmenting the workforce with robotics and cognitive capability may be an opportunity to cut costs and decrease some risk exposure, but it also poses new risks that we are helping clients address.”

John Romeo, Oliver Wyman’s Managing Partner for North America, adds, “Cyber is a significant issue at a board level. Discussions often tend to start and finish in the very technical space, but organizations need to develop a broader risk management approach in which they can identify risk, model scenarios, quantify, and stress test, in order to develop an organizational strategy.”

The ‘Big Four’

More than a decade after the traditional accounting giants were forced out of the consulting industry in the years after the Enron scandal and the subsequent 2002 Sarbanes-Oxley Act (except Deloitte, which retained its advisory business Deloitte Consulting), the Big Four have come roaring back onto the consulting playfield. The Big Four – Deloitte, EY, KPMG and PwC – have expanded their market share, growing their combined consulting revenues by 11% to $19.6 billion. Risk & regulatory services (including cybersecurity) was the source of much of the Big Four’s advisory work.

“The Big Four have about 35% of the entire US consulting market share, which is extraordinary,” claims Edward Haigh, Director at Source Global Research. “That replicates what we see elsewhere as well, and their growth is higher than anybody else’s.” In addition, the Big Four also outperformed overall consulting market growth in the UK, increasing revenue last year by 12% versus 8% across the market.

Much of the Big Four’s growth stems from their aggressive follow-through on acquisition plans. Deloitte, for instance, acquired Monitor Group in 2013, renaming it Monitor Deloitte. Meanwhile, PwC bought Booz & Company in 2014, renaming the strategy house Strategy&, while EY purchased The Parthenon Group in 2014. In recent years, KPMG has bought up Beacon Partners and Willis Towers Watson’s Human Resources Service Delivery practice. Globally, the Big Four closed over 35 high-profile deals in 2015.

Overall, the US consulting industry completed 1,092 M&A transactions last year, which accounted for 91% of industry deals in North America and 45% of the global total. 85% of deals were completed in the US market, while the UK and Canada were the second and third most active target countries.

2016’s outlook

Though 2016 has started reasonably well for US consultancies, the researchers note that growing market anxiety is threatening to dampen the mood. An increasingly unstable global economic and geopolitical landscape is taking a toll on client confidence, while mixed signals from the US economy have put some investors on edge. In addition, just as in the case of UK national elections last year, the tumultuous presidential race is predicted to negatively impact spending on consultants.

“We expect that the rather unusual U.S. election season will have a bigger impact on the second half of 2016 than anyone is currently ready to accept – or at least admit,” says Haigh.

Ravi Chanmugam, Managing Director at Accenture Strategy, says that he is starting to see the impact of the presidential cycle on the industry, stating, “There's some slowdown in decision-making and a question of whether this is a good time to invest.”

* The market data by Source focuses on consulting done by mid to large-sized consulting firms (those with more than 50 consultants) and typically includes work that they have carried out for mid to large-sized clients. The actual value of the entire US consulting industry is much higher. ALM Intelligence, a US-based analyst firm, for example, values the total market at more than $93 billion.