The uncertainty over Brexit had a negative impact on the performance of consulting firms in the United Kingdom last year, including the Big Four, according to a new report.
The report, from Source Global Research, found that the U.K. consulting market grew by 5.6 percent to £8.2 billion ($10.7 billion), a steady decline in the growth rates seen in 2017 (6.1 percent) and 2016 (7.5 percent). Revenue growth at what the report labels “Type A firms,” which are dominated by the Big Four, declined from 7.3 percent in 2017 to growth of 6 percent to £3.2 billion ($4.2 billion) in 2018.
Even though the U.K. consulting market grew more slowly last year, some consulting firms reported a big year, while others found the market more challenging amid ongoing uncertainty.
However, Brexit uncertainty did drive operational improvement work as clients sought to reduce their costs and simplify internal processes. Operational improvement work grew 6 percent to £1.6 billion ($2.1 billion), and work in 2019 in this service line is expected to grow at a rate of 11 percent.
“Many clients are seeking to reduce costs substantially in order to fund highly customised, targeted growth ambitions and invest in emerging technologies and infrastructure,” said Richard Hammell, U.K. head of strategy and operations at Deloitte, in a statement.
The report pointed to a few reasons why Big Four firms barely managed to grow faster than the market. “Slowing growth in financial services — the traditional heartland of these players — was a factor, as was a loss of client appetite for very large transformational programs,” said Zoë Stumpf, head of market trends at Source Global Research. “However, widespread convergence in the market also means that they are competing with virtually every other firm type, and this is impacting margins.”
The report also found that clients are continuing to invest in technology services, with digital work now making up for nearly half of all consulting revenues in the U.K. Despite Brexit-related market pressures, clients are buying more digital services to address customer needs more effectively and to optimize their back-office operations.
“The dash for digital has been slow to deliver from an ROI point of view, largely because it was initially seen as an enterprise challenge,” said Lisa Heneghan, head of digital transformation at KPMG UK. “Organizations are now starting to see benefits and as such are demanding that they get on with digital and deliver results.”
Source Global Research anticipates this year will be slightly better than last year, forecasting a 7 percent growth rate for both the U.K. market and Type A firms such as the Big Four as a result of the many disruptive forces that clients are having to deal with.
“We share the view of consultants that growth is likely to be reasonably positive in 2019, but we do have concerns for the health of the U.K. market in the longer term, given that Brexit has the potential to have a further negative impact on the economy and that clients could be so busy dealing with the fallout that they may lack the energy for wider — and demand-generating — transformation work,” said Stumpf.
