Top firms capitalize as US management consulting market explodes to $58 billion

20 July 2017 10 min. read
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US-based clients have an appetite for digital transformation that has seen the domestic management consulting market soar in value. Spending on advisory services has shot up by over 7% and shows no signs of slowing down, according to new analysis.

Digital transformation and cybersecurity demands among clients have helped management consulting in the US evolve into a market worth almost $60 billion. Consultants have been rewarded with lavish attention from the retail, financial services, and Technology, Media and Telecommunications (TMT) sectors. Prospects for further industry growth in the consulting economy are bright. 

Analysis from and Source Global Research support the conclusion that the US advisory industry is in rude health. With a total value of $58.72 billion, the US commands a 46% share of global consulting business. Vastly more consulting sector mergers and acquisitions activity takes place in North America than in any other region. 

Size of the US management Consulting Industry

Industry indicators

Retail, financial services and TMT have gained the most from consultancy partnerships. Clients in retail represent one of the fastest growing advisory areas. Creating alternatives to, or aligning with, digital disruption is a matter of life and death for major retailers in the Amazon era. 

Unsurprisingly IT consultants enjoyed an outstanding 2016 as clients rushed to modernize their digital infrastructure. Strategy consultants were in high demand among clients keen to realise ambitious growth models while future-proofing their business. 

US management consulting industry - by industry

In the financial services industry spending on consultancy services soared by more than $1 billion to reach $14.8 billion and a 25% share of the entire US management consulting sector. Technology is reshaping financial services at an exponential rate and clients are demanding elite expertise in implementing robotics, AI, cognitive computing and RegTech just to maintain their competitiveness. 

In digital consulting the statistics speak for themselves. Globally the market for digital transformation generates five times the value of China’s entire domestic consulting industry. In the US it is estimated that $1 in every $6 spent on professional services consultation is earmarked for digital development. Cybersecurity consulting has risen from a niche market to generating revenue in excess of $7 billion. 

Size of US technology and digital consulting industry

Strategy on top

Despite the irreversible rise of new types of consultancy, the industry’s largest firms have maintained firm control over the sector. The top ten firms account for almost 60% of the entire market, according to Source research. The Big Four have cornered 21% of business, with Deloitte along commanding a 12% share of the market. Outside the Big Four professional services firms, Accenture and McKinsey are the strongest players on the field.

Strategy consulting giants may prove to be the biggest beneficiaries of the digital revolution. Initial speculation that specialized start-ups would begin undermining the old hierarchies with cutting edge technology has faded. Instead, as advanced digital transformation expertise becomes the norm among consultancies, the impact of strategy and harmonious board relationships becomes more pronounced. 

This is old news to thought leaders at the strategy consulting behemoths which tower above the US market. Two years ago much of Booz & Company digital was snapped up by BCG as it launched BCG Digital Ventures. McKinsey Digital, Bain Digital and PwC’s digital dallying with Strategy& are all well-established examples of strategy consulting expanding its technology footprint. 

Barring a financial meltdown or major disruptive innovation, business will not be slow. Source researchers found that 70% of all organizations are adamant that manipulating digital technologies to transform their business models is at the core of future planning. Among the larger companies surveyed this figure rose to 86%. Former buzz phases - customer engagement and operational efficiency to name a few - have taken a backseat in the corporate vocabulary. 

Consultancies ranked

With clients expecting digital mastery from their consultants as par for the course, management consultancies are being assessed on the quality of their performance and strength of their partnerships. Source Global Research conducted a poll of the largest clients in the survey to gauge their overall satisfaction with their consulting partners, and to rank US consultancies on this metric. 

The top 40 management consulting firms in the US

The results were positive. North American clients were more likely than those in other regions to congratulate consultancies on a job well done. Among the 19 consultancies assessed, 18 could boast an overall client satisfaction score of between 70% and 79%. Clients were most enthusiastic about IBM Global Business Services - which scored an average of 79% for its work across ten separate consulting services. 

Analysis of consultancies’ performance across a range of services is useful as clients increasingly expect a full-spectrum problem solving approach to their needs, rather than specialized attention from ten independent consultants. Package deals are also beneficial to consultancy firms keen to develop long lasting partnerships and integrate lower-paying services into a lucrative bundle. In this general evaluation of services McKinsey and A.T. Kearney ranked second and third behind IBM’s consulting wing. 

Broken down by distinct services offered, IBM excelled in thought leadership and resilience. Deloitte ranked highest for differentiation, while Oliver Wyman, PwC, and EY won plaudits for research reports and white papers. Interestingly, in the research field the client satisfaction performance of several industry leaders fell short of their reputations. McKinsey’s legendary Global Institute, Roland Berger, and Bain all failed to crack Source’s top five for research. 

Recommendations and referrals are the lifeblood of the consultancy economy. US clients were most likely to recommend IBM and Accenture, followed by Deloitte, Bain & Company, McKinsey and KPMG. A closely related metric is reputation. Forbes, Statista and analysis indicates that the biggest players still enjoy the best overall reputation among clients. 

Deloitte, McKinsey, PwC, BCG, and Accenture were indistinguishable, sitting pretty at the top of the reputation rankings with a perfect 100% score. Fellow giants KPMG Advisory, EY, Bain & Company, and A.T. Kearney enjoy a near-perfect reputation. Firms that don’t offer the full range of consulting services - covering everything from strategy to HR, supply chain, operations, sales and IT - tend to land lower on the list. Functional specialists like Hay Group and Gallup scored anywhere from 30% to 50%. Oliver Wyman - which offers a broad but incomplete range of advisory services - was scored 77% on reputation.  

Consulting’s M&A boom 

The US consulting market has generated headlines with huge M&A activity in recent years. North America alone accounted for 1,271 deals among the 2,902 sealed within the global professional services landscape in 2016. In the management consultancy sector there were 946 deals concluded worldwide last year, 450 of them in North America. Closest rival Europe recorded 323 deals. 

Number of mergers & acquisitions in the global consulting industry

The average North American consultancy M&A deal in 2016 was valued at $12.2 million. Within management consultancy the median value rose to $15.1 million. Concerning volume 2016 marked the first time in a decade that consultancy M&A activity reached pre-crisis levels. A low point was marked in 2009 when just over 2,000 deals took place worldwide. M&A activity in the US is projected to grow courtesy of a buoyant economy and bullish investor confidence. 

M&A in the management consulting industry

That optimism is clearly shared by the US-based clients of the world’s leading consultancy market. The good news for US management consultants is that, after growing the domestic market to almost $60 billion, clients have expressed an unmistakable desire to up their spending on consulting services. More than eight in ten (82%) of American clients said their consulting budget will rise through to June 2018, compared to 70% worldwide. Just 12% of US-based clients reported that consulting spending will drop over the next few years. 

US management consultancies will have to keep their eye on the ball, however. While revenue growth is a near certainty, sharper client scrutiny of consulting budgets may impact net profits. Almost two third of clients have questioned whether management consultancy fees outweigh the overall benefits of external advisory services. That trend will be one to watch but, broadly speaking, with the rapid demand growth for digital transformation, US consultancies have every reason to stay confident. 

* The sizes of the US consulting industry for 2015 and before are estimates from based on growth data previously released by Source Global Research. Note that Source may have restated baselines figures in the meantime, which may lead to discrepancies in total market values.