Australia’s largest sector for consulting services contracts – as the overall consulting market’s performance falls way behind the growth seen elsewhere…

The Australian consulting market grew by just 2.4 per cent in 2014 as a sluggish economy and falling commodity prices led to low demand for consulting services, according to a new report by Source Information Services (Source).The market is now valued at just over $4.2billion.

The report highlights that overall market growth was hampered by the performance of the energy and resources sector. As Australia’s biggest sector for consulting services (worth $1,048million), energy and resources was the only sector to contract, shrinking by 0.7 per cent as falling commodity prices forced the sector to curtail spending. In stark contrast, technology, media and telecoms - up 5.7 per cent - was the fastest growing sector.

After growing at around 2 per cent for the last two years, the Australian consulting market continues to underperform compared to many of its western counterparts. For instance, last year the US consulting market grew by 9 per cent and the UK market by 7 per cent.

Edward Haigh, Director of Source and author of the report, said:
“2014 started off well enough with post-election optimism running high, but confidence fell as many in the business community quickly became disillusioned with the new government. Falling commodity prices have also been keenly felt in this resources-driven economy, significantly contributing to the economic malaise.

Neither the political situation nor the ultimate fate of the commodities market seems likely to be settled anytime soon, adding to the market’s general lack of confidence and direction.”

Big Four firms gain market share – growing twice the market rate
Type A firms – which include the Big Four – had far and away the best year of any firm type, growing at 4.5 per cent to $1,724million. Clients remain impressed by their international scope, wide-ranging services, and concept-to-execution delivery. Type A firms were also highly acquisitive in 2014, with 86 per cent of consulting M&A deals in Australia driven by the Big Four.

Digitisation picks up
Better news for consultants is that digitisation work is finally beginning to pick up in Australia. For now, projects tend to be small and aimed at solving specific business issues, but interest in wholesale transformation is growing.

Technology remains the most popular consulting service in Australia with strong demand across most sectors. It was also the fastest growing service line in 2014 - expanding 3.3 per cent to $1,292million as clients start to view technology as the answer to a variety of business problems. The report says that this service line stands to become even more competitive, with strategy players, the Big Four, technology firms, and specialist players all competing in the same space for the same projects.

Ian Hancock, MC Lead, KPMG in Australia, who was interviewed for the report, said:
“Technology is a big driver across all sectors, perhaps less around technology strategy and more on the detailed deployment of planning, how to deal with multiple providers, etc. The focus is on the details of how to implement: how to link emerging SaaS platforms, and shifting to a best-of-breed approach, for example. And of course everyone is concerned about risk and cybersecurity issues.”

The growth of other services lines was largely consistent with overall market performance, but the HR and change management service line shrank by 0.1 per cent to $169million.

The Source report says that this service line has been having a tough time as traditional HR consulting work around recruitment and remuneration has all but disappeared as clients turn to low-cost online solutions. Clients are also looking to take more of their routine HR and talent management tasks in house, expecting their consulting partners to work with them to ensure that they can still achieve quality analytics and outcomes.

Bridget Beattie, Executive Vice President Asia Pacific Middle East, Right Management, highlights this drive towards data and analytics, by saying:
“We've seen an uptick in demand for assessment work, with organisations essentially trying to decide whether, in selecting people for future leadership development, they're backing the right horses. They're trying to pull together more real-time data on the individuals, how they're likely to perform, whether they're improving, and how teachable they are. That's not an easy task.”

Ed Haigh concluded:
“So far, 2015 isn’t shaping up to look much different from 2014. The general consensus of consultants we spoke with seems to be that little is likely to change until after the House and Senate elections in 2016. We foresee another two years of slow but steady growth in this market.”

For more information on Source reports contact alice.noyelle@sourceforconsulting.com or telephone +44 (0)20 3700 5462 or visit www.sourceforconsulting.com.