Can the US consulting market keep growing at its current rate?

Nothing lasts for ever, certainly not upswings in the economic cycle. Yet the US consulting market, despite its size and maturity, has been growing faster than the average global rate for the last five years – and looks set to exceed the latter again in 2015 (our latest report on the US market predicts 10% growth, led by risk and regulation, and technology). To put it in perspective, the amount of new consulting work being commissioned in the US every two years is equivalent to the entire German consulting industry (the third largest in the world, just a whisker behind the UK).

But can it go on? Put simply, there are three reasons why the US consulting market has been growing so quickly: the underlying strength of the US economy; clients who ‘get’ consulting; and technology, particularly digital transformation.  Most GDP forecasts peg growth somewhere between 2% and 2.5% for the next few years, so it doesn’t look as though there’ll be any shortage of money to invest in consulting services at least in the near-term. US executives aren’t likely to change their attitudes about using consultants either, although the longer economic growth continues, the more confident they’ll be about recruiting full-time employees, so we should expect to see some contraction in the use of consultants as staff substitution. But the deciding factor here will be technology (the risk consulting market may grow more quickly but it’s much smaller and, in any case, by far the biggest area of growth is in cyber security, so technology is key here, too). We’ve been here before, of course: the dotcom enthusiasm of the late 1990s (which, interestingly, also ran in parallel with risk concerns – remember the Y2K anyone?) created a consulting boom which inevitably turned to bust. So, is history about to repeat itself? A recent article in The Economist argued that there are some key differences between 2015 and 2001, notably the fact that today’s tech start-ups are selling services and products to a much larger market, and there’s a smaller number of investors involved (albeit with deeper pockets). This means that the risks being taken are different and that, if a start-up fails, the collateral damage will be more contained.

But how different is the situation from a consulting firm’s point of view? Like everyone else, consulting firms took a beating in 2001. Many had invested directly in start-ups: that’s happening today, but the investments tend to be far more focused and often take the form of acquisition, ideally picking up companies at the embryonic stage that bring useful capabilities and intellectual property to bolster a firm’s traditional offering. By and large, consulting firms aren’t pretending to be venture capitalists – and that’s a good thing because 2001 proved that they’re not.

Consulting firms are also not – today – doing much work for start-ups, a point I made in a previous article: if all the companies that have started-up in the last five years failed tomorrow, it would have no discernible impact on consulting revenues. In 2015, the consulting opportunities are focused on the digital transformation of big, traditional organisations – the kind that, as long as they’re making money, are accustomed to using consulting services. Where the dotcom boom was based on breadth (‘we can revolutionise the entire way you do business’), today’s investment is focused on depth – the  search for ‘natural monopolies’ (a point The Economist also mentions) means that investors and incumbent players are prepared to bet the bank on ‘owning’ a unique approach to specific processes (think Uber and taxi booking). That prompts large-scale investment by the former and far-reaching digital transformation programmes by the latter, meaning that activity is more concentrated, more based on expert understanding of the opportunities – and a world away from the type of opportunistic, jump-on-the-bandwagon approach that characterised the dotcom boom. Some (perhaps many) failures are inevitable, but surely the crucial difference this time around is that there are likely to be winners (the winners of the dotcom era – think Amazon – only became apparent much later). And while clients can see that one company has succeeded, they’ll be keen to use consultants to help them replicate that advantage: don’t expect demand for digital transformation to evaporate – or the US consulting market to slow down – any time soon.