The fragmenting market for digital transformation

  • Fergus Navaratnam-Blair

The story of consulting over the past decade is, in many ways, inseparable from the story of digital transformation; the transformation agenda has played a central role in dictating how clients use consulting services and where they are willing to spend money. Despite perennial fears that we may have reached “peak digital”, the market for digital transformation consulting services has continued to grow and expand, drawing more and more firms into its orbit in the process. This is a vital arena for firms to be able to compete in; but it’s also an increasingly crowded one. Rising to the top of the digital transformation market is, therefore, a more challenging prospect than it’s ever been.

Back in 2018, when we looked at the question of who was leading this market, we noted that Accenture had the biggest share of the market (9.9%), followed closely by Deloitte, which represented 8.9% of the global market. Since then, however, Deloitte has knocked Accenture off the top spot, despite seeing a drop in their market share in absolute terms: Our latest data suggests that, globally, 7.6% of digital transformation work is carried out by the firm.

In many ways, this speaks to the continued success of Deloitte’s brand strategy. They were one of the earliest firms to recognise the long-term growth potential of this market; and, by setting up Deloitte Digital back in 2010, they became one of the very first to create a distinct sub-brand to house their digital work. Since then, many other firms have followed suit and launched their own digital sub-brands. It’s unclear, however, how much longer the sub-brand strategy will continue to be a viable one. As clients increasingly take the view that more or less every consulting engagement needs to have some kind of digital dimension, the relevance of sub-brands may be starting to wane. In Deloitte’s case, however, the fact that they were so early to the game gave them a strong first-mover advantage—an advantage they have continued to build on through robust investment in key digital capabilities like cyber risk management and data & analytics consulting.

The second most successful firm in the digital transformation space now appears to be IBM; our data suggests that they currently own 6.2% of the total market. In part, this is a testament to the strength of the “halo effect” generated by the firm’s technology offerings: IBM’s strong reputation for the quality of its technology products and IT outsourcing services has provided the firm with a solid base of tech credibility from which to sell more complex digital consulting work—ranging from strategy all the way through to implementation. Moreover, they’ve been one of the main beneficiaries of increased client interest in artificial intelligence. Over the past few years, clients have finally started to realise that AI is not just a distant prospect on the horizon, but instead a factor that ought to play a central role in their digital transformation agendas. And thanks to IBM Watson, IBM had unquestionably one of the highest-profile and most sophisticated AI offerings on the market, making them perfectly positioned to take advantage of this shift in client thinking.

The starkest difference, however, between the digital transformation of today and the market of 2018 is not the identities of the top firms; it’s their collective market share. Back in 2018, Deloitte and Accenture combined controlled 18.8% of the total market. Today, Deloitte and IBM, between them, deliver just 13.8% of digital transformation work. In other words, the top two firms have a 27% smaller market share than they did back in 2018 (as illustrated by the graph below). That’s a sizable drop, and one that suggests the market has become a lot more fragmented than it was three years ago.

Market share for digital transformation consulting

So, what’s caused that fragmentation? In part, it’s the result of more firms within the professional services market attempting to compete in the digital arena. This is no longer just a market for the top players and firms with long-standing tech capabilities; mid-tier firms with historical competencies in areas like tax consulting, audit and assurance, and risk have taken significant steps to develop their digital offerings in recent years. Grant Thornton, Crowe, and Marsh—to name just a few—have all established a foothold for themselves, with each of those firms controlling between 0.4% and 0.6% of the market.

To a large extent, this is a reflection of a broader convergence within the professional services sector; a trend that was already evident back in 2018, but which has accelerated dramatically in the years since. Clients, over that time period, have come to adopt a more holistic and expansive understanding of digital transformation. They have more of an appreciation, these days, for the role that services outside of the technology space (such as risk consulting, for example) can play in enabling the transformation of their organisations; and that’s created natural opportunities for firms that play in those areas to develop digital offerings. So, in that sense, the digital transformation market becoming less top-heavy is a natural result of the fact that more firms have the ability to compete in it.

At the same time as the lines have started to blur within the professional services sector, we’ve also seen a breakdown of the boundaries between this sector and adjacent ones—a factor which has further contributed to the fragmentation of the digital transformation consulting market. More and more tech vendors have started to intrude into the consulting space; software providers, systems integrators, and cloud services providers have all started looking at the digital transformation market as an opportunity for growth. In many ways, it’s a natural extension for these types of companies; they can bundle an advisory offering alongside their core technology products and services, giving clients the convenience of a true one-stop-shop for their digital and technology needs. Arguably the most successful tech vendor to make the jump into the consulting market has been Alibaba Group. Despite the group’s limited presence outside China, they now control 2% of the global digital transformation consulting market—making them a bigger player in this market than many of the companies we would have traditionally thought of as top-tier consulting firms.

Their success in this market is yet another illustration of the extent to which the traditional axes of competition within professional services have been upended and reoriented by the growth of the digital transformation market. For firms like Deloitte and IBM, it isn’t enough anymore to know how to win work when bidding against their traditional rivals. Instead, they have to be capable of competing against everyone from huge global tech vendors to mid-tier risk consulting firms to specialist digital boutiques and agencies. Moreover, this ongoing fragmentation of the market shows no signs of slowing down any time soon. That means it’s more important than ever for consulting firms to have a digital proposition that is strongly differentiated from those on offer elsewhere; one that clearly communicates to clients how your approach to transformation stands out from the myriad of other options now available to them.