Why is the US consulting market growing so substantially?

Our forthcoming report on the US consulting market reveals just how much it continued to defy accepted thinking in 2012.

For the last few years a simple dichotomy has held sway: consulting markets were either large, mature and low-growth, or they were small, emerging and high-growth.  Some parts of this equation are true: consulting in the Gulf, a market which is just approaching the $2bn mark, expanded by 20% in 2012.  But, at $39bn (remember, we focus on what we call ‘big consulting’, ignoring the long and unquantifiable tail of work done by very small firms and freelance consultants), the US market should be hitting growth rates of 1% or 2% at best.  But it’s doing 3-4 times that: the question is why?

The first and most obvious reason is the economy.  Barring a few stutters around the fiscal cliff at the back of 2012, the US clients we’ve spoken to have been gaining in confidence over the last 12 months.  Consulting is, as we’re all aware, discretionary expenditure, so an organization has to feel pretty comfortable that it will get a positive return before it’s prepared to bring consultants in.  As one CIO put it: “There are a lot of things we want to get on with, in some cases major projects to renew platforms which, in normal circumstances, we’d have done a couple of years ago but which we didn’t feel then were the right things to do.  Now we think it could be.”

Then there’s the labor market.  Many of the people we interviewed, typically very senior people in multinational corporations, said that their organization had restrictions on headcount so that, although they needed to get a lot done, they couldn’t recruit full-time employees to do the work.  So they’re using consultants, sometimes in the form of straight-forward staff substitution but also, in other cases, because they’ve redefined what they mean by their core business and are carving out processes and other areas of work to be done by external suppliers.

Finally, there’s technology.  Big data, analytics and now digitization are creating what will probably be the biggest wave of demand for consulting seen in the US (it’s much less marked in Europe and in other parts of the world) since the dot com boom of the late 1990s.

We’d argue that this analysis is fine as far as it goes, but it doesn’t go far enough: we’re only looking at the market through one lens – the reasons for growth.

During the Second World War some clever mathematicians at Columbia University realized that if the commanders of Allied operations wanted to understand why some bombers came home safely while others were shot down, they shouldn’t just look at where the planes that made it back had been damaged.  This was ‘survivor-bias’, the danger of interpreting the causes of success by looking only at examples of success: as they obviously couldn’t examine planes which had been shot down, the military boffins examined where the surviving planes hadn’t been damaged, hypothesizing that these were the crucial parts of the planes’ structure.

So, applying the Columbia approach, what are NOT the reasons why the US consulting industry is growing?  The answer here is devastatingly simple: the US consulting market is not growing because US-based clients have a more positive attitude towards using consultants.  In fact, our research suggests that they’re no more or less positive than clients in those slow-growth European markets.  In other words, if the consulting market in the US is growing, this is something consulting firms can take advantage of, but not the credit for.