Market Updates | 4th August 2021

The pandemic is accelerating the pace of change right across the professional services sector, amplifying pre-crisis trends as well as triggering entirely new ones. We’ll be keeping tabs on these over the coming months: We’ll be reporting back on what clients are telling us and how we see different segments of the professional services sector perform, as well as highlighting emerging opportunities and challenges. As always, we’ll be taking a fact-based approach. Our market sizing data comes from our unique model of the professional services sector, with more than $1tn of revenues broken down by sector, geography, and capability. Our forecasts are constantly updated to reflect the latest market data we have available from firms and their clients. Client data comes from our rolling programme of quantitative research and interviews.

Programme management: Why does a potentially valuable service underperform?

One of the complaints we most commonly hear from the clients of professional service firms, in the course of our research, is that projects don’t deliver the expected benefits. Of course, it takes two to tango—or in this case, to fail to tango: Clients aren’t always clear about what they want, neither are they very clear about things that turn out to be unimportant. Professional service firms, concerned that their margins will be eroded by scope creep, may focus on what they’ve been contracted to do, not on what’s actually needed in practice. Not surprisingly, clients, emerging from the pandemic, claim to be scrutinising more than ever the return that professional firms promise to deliver.

Against this backdrop, you’d think that programme and risk management—the use of external experts to help understand and mitigate the risks in large-scale initiatives and to ensure that their benefits are realised—would be one of the fastest growing areas in the professional services market. But it’s not: We estimate that this year, at a time when the overall market is expected to grow by around 11%, demand for programme management and risk will increase by a meagre 6%.

The reasons why this market performs badly takes us to the heart of one of the fundamental problems that besets professional service firms and investors—the importance of labels in this very fluid market.

For evidence of this, we can turn to our model of the global professional services sector—on which all our forecasting and commentary is based—that divides the professional services industry into 29 different types of firm. These need to be treated with caution: A firm that’s classified as a strategy firm, based on its heritage and the way it positions itself in the market, is highly unlikely to just provide strategy consulting. Client demand for multidisciplinary solutions has driven convergence right across the professional services space, forcing firms to offer services they hadn’t done in the past (strategy firms consulting on technology, for example). All 29 of those types of firm offer programme management support. Unsurprisingly, technology firms account for around half the market, and the Big Four, with a strong track record in risk more broadly, account for almost a fifth. Civil engineering firms, which have to take responsibility for enormous, complex construction projects, have a 6% share. But that still leaves a sizeable part of the market made up of firms that you wouldn’t necessarily expect to see in this space, such as public relations firms.

This proliferation of activity stems from the loose use of the term “programme management”. That expert engineer, who’s just masterminded a massive building project, would baulk at being compared to the “programme manager” of a mid-sized technology project.

“Programme and risk management” means different things to different firms, which, in turn, drives commoditisation. “Programme management office” (PMO) is a commonly-used label for work that involves little more than relatively junior people updating GANT charts: Useful, but not a premium-priced skill. However, the existence of PMO as a service makes it hard for both the demand and the supply side to identify the much rarer and more value ability to deliver the benefits of large-scale projects. That clients are familiar with the PMO market also brings down fee rates for all types of programme and risk management, limiting the growth of the market. Clients often resent buying PMO-related work precisely because they can see it’s a commodity skill and something that they would be capable of doing themselves if they had more capacity. It’s not viewed as a scarce skill, and therefore can’t command a premium price point.

For the programme and risk management market to grow at the above average rates client need suggests it should, the professional services sector needs not a new service, but a new term.

This highlights one of the fundamental problems with the professional service’s market from an investor’s point of view. A services business is inherently harder to manage than a business that makes physical products. It’s difficult to ensure consistent quality and is harder to scale because you’re relying on people who are quintessentially non-standard. A professional service is worst still: At least with—say—a hairdresser, there are some physical components: Hair is cut and it’s immediately obvious whether it’s been cut well or badly. But there’s very little physical about most consulting work outside the technology space, which means that a consulting service is, ultimately, what you say it is. Labels matter—we’ve seen this with digital transformation and analytics—because they attract clients’ attention and can give the impression of weight and importance to even the most embryonic service. Get the name wrong, however, and profits nosedive. “Programme management” was a term deliberately coined by engineering firms about 20 years ago to put space between the management of large, strategic and complex initiatives and management of small, tactical pieces of work, which continued to be called “project management”. Almost overnight, a new, higher margin market had materialised, eclipsing the older, more commoditised one.

This process needs to be repeated again with “programme management”. With strong latent demand for this type of support among clients, it needs to be re-labelled for a new, post-pandemic era. The canny investor will find a firm that specialises in programme management, buy it, and rebadge it. This will take it from a capability that most firms have, to one done by a small number of experts, and will transform its growth potential.