WHEN the Management Consultancies Association (MCA) was established in 1956, fee income generated by its member firms was pounds 6 million and the total number of consultants employed 1,500. As the MCA's newly released report on the UK consultancy industry in 2003-4 shows, those figures have now swollen to nearly pounds 6 billion and 40,000 - the highest on record.
The corporate aid and advice sector has become a substantial industry in its own right, important particularly for its consumption and generation of some of the country's most skilled manpower. But it is also eagerly watched for another reason: as a unique barometer of the temperature of British business, holding up a mirror to management's - and, increasingly, the Government's - main concerns and preoccupations.
Working with consultants on a daily basis is no longer just for senior managers in PLCs. One of the big stories of the last year is the rapid rise of the public sector as a consultancy consumer as the pressure for service improvement grows. Another is the explosion of outsourcing, the implications of which touch employees far down the employment scale.
Both these trends have been building for years and the extent of their implications are only now becoming clear, for clients as well as for the consultancy industry itself.
In the past, says Fiona Czerniawska, head of the MCA's think-tank and the author of the report, the public sector has always been a countercyclical - even residual - user of consultancy, taking advantage of slack periods when prices soften and doing without when demand from the private sector (and prices) increase.
This time, however, the pattern may be different. For the moment at least, the balance between public and private has substantially shifted. The pounds 1.3 billion shelled out last year for consultancy by the public sector was nearly double the figure for 2002. With three-quarters of that total, central government has become the UK's largest single consultancy buyer.
The public sector's unprecedented demand accounted for all of last year's 13 per cent overall rise in British consultancy income - like-for-like revenues from the private sector actually shrank by 4 per cent.
Where does the money go? In contrast to the private sector, much of the growth in the public sector is attributed to consultancy around some very large IT projects (notably NHS computerisation), but clients also bought increasing amounts of traditional strategy and HR advice.
Given the political importance of public sector reform, consultants are likely to remain a familiar presence in Whitehall and local-authority offices at least until the election, Czerniawska believes. If last year's tentative private sector recovery continues, there could be greater competition for consultancy services. Although prices have fallen by 15 per cent in the last couple of years, a public sector constrained by efficiency measures might find it hard to outbid the private sector for resources in particular areas.
How far is the public sector simply following the consultancy fashions set by private sector companies several years before? Inevitably, says Czerniawska, this is partly true. The public sector has found an appetite for IT-related consultancy, previously the staple of the private sector customer relationship management and e-business services are also in demand while they have fallen sharply in the private sector.
Czerniawska notes that over the last decade the life-cycle of new consultancy products has accelerated, the curve of adoption and tail-off becoming noticeably steeper. 'It's hard for the public sector not to follow the same cycles,' she says, although she believes managers are trying hard to learn from the mistakes of the early adopters. They may also be getting better at negotiating contracts.
If past patterns of adoption hold true, then the wave of outsourcing that has engulfed the private sector still has a considerable way to run.
Outsourcing has been around for a decade, but income from this source grew by 46 per cent last year. Note that the MCA figures only represent income for consultancy, not provision of the service itself, which would add several billion to the total. Even so, one-third of all consultancy activity now concerns outsourcing of one kind or another. So far, most of the projects are in the private sector, but given the public-sector pro jects presumably in the pipeline, demand for outsourcing has probably not peaked, says the report.
This raises important questions about the shape of the industry in the future. Technology now dominates the British consulting industry. Taken together, outsourcing, IT and programme management account for almost three quarters of consulting-fee income.
Czerniawska is not alone in seeing an industry polarisation looming. 'There's a sense that as the industry comes out of recession, it is finding itself in a quite different landscape from when it went in,' she says. At one end of the scale, clients will face a few very large outsourcers and firms capable of handling big technology projects and at the other, a large number of smaller companies providing traditional advisory and management consultancy. 'We've reached a fork in the road where ways of working move apart. The mid-ground may be quite a scary place to be.'
However, she cautions that there is no such thing as a consultancy product that doesn't have a shelf life - except, ironically, the traditional strategy and advisory lines that have recently been taking a back seat to technology. Will the outsourcing vogue eventually hit the buffers, as appears to have been the case with IT-related consultancy and CRM? If so, then more industry upheaval could be in the offing, although few people would bet against technology continuing to be a dominant factor.
Meanwhile, industry gossip is that having spun off or otherwise disengaged their consulting arms in the wake of the recent series of corporate scandals, the big accounting firms such as PWC, KPMG and Deloitte are now quietly re-forming them.
This is a scenario that has been played out many times before and is almost inevitable given the low returns from auditing relative to consulting. Also inevitable, despite the proscriptions of America's Sarbanes Oxley Act, will be new areas of controversy over how far accounting and consulting can be kept separate.
Even leaving aside economic vicissitudes, with markets evolving as fast as industry structures, a quiet life is unlikely to be the lot of either the consultants or their clients in the coming decade.
WORKING WITH MANAGEMENT CONSULTANTS, Special Report, The Observer 25 April 2004