Market Updates | 18th February 2022
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.
Demand for professional services in the healthcare market: Growth through specialisation
Sixty-nine percent of senior executives1 expect to spend more across a wide range of consulting and other advisory services in 2022. That proportion rises to 82% in the healthcare2 sector. Fifteen percent of all clients expect their expenditure to increase by more than 20%. What’s driving this, and what are the implications for the entire professional services sector?
The healthcare sector generated a huge amount of consulting activity in 2020, but much less in the way of profits as healthcare providers benefited from heavy discounting and pro bono work. At the same time, the absolute focus on responding to the pandemic eclipsed longer-term investment: Although some existing technology programmes were repurposed to deliver more services remotely, other non-essential work was put on hold. In 2021, the return of elective surgery helped boost revenues for professional services firms, as did early signs that public healthcare organisations were beginning to engage with the structural issues highlighted and amplified by COVID. Our provisional figures for the year suggest growth of around 20%, almost twice the global average, in a market worth around US$70bn. That market excludes the cost of hardware and software, but if it feels low that’s because fee rates for professional services here are among the lowest of any sector. Healthcare providers have often been reluctant users of external support and have historically found it hard to justify expenditure that doesn’t directly and immediately benefit patients. But the pandemic has challenged that thinking.
So, where should we expect to see the most growth? Around 37% of the market is technology-related, including systems integration, technology consulting, cybersecurity, and software engineering.
Decades of under-investment in IT infrastructure means that growth here is likely to be high: 40% of clients we surveyed anticipate spending at least 10% more in this area in 2022-23, with roughly the same proportion saying that they’ll also spend at least 10% more on digital transformation, and 43% saying they’ll spend 10% more on artificial intelligence (19% of clients say they’ll spend more than 20% more on the latter). Expect to see a significant number of big-ticket, multi-year transformation programmes, most of which will be won by large-scale technology firms.
But technology won’t be the only opportunity in this sector.
One of the lessons of the pandemic was that many organisations, not just healthcare ones, discovered that their ability to gather and analyse data was woefully inadequate: Faced with extraordinary levels of change, many organisations were reduced to making rapid decisions based on instinct, rather than evidence. We estimate that the healthcare data & analytics market was worth around US$5bn in 2021, equivalent to just 6% of the total market, and growing at over 15%. Eighty-five percent of clients expect to use consultants more this year and next; a sixth think demand will grow by at least 20%. The data & analytics market is also important because demand is widespread: Mid-sized healthcare organisations need help in this field just as much as large ones.
Operations consulting and productivity improvement represents an even smaller part of the healthcare market—it was worth just US$3bn in 2021—reflecting the level of sector-specific knowledge required to drive up efficiency. However, if we look at the data from clients in terms of where they’re most likely to invest and where they’re most willing to use external support—the two factors that, combined, are the immediate drivers of growth in the professional services sector—the biggest overlap is around productivity improvement. More than 85% of clients say they’d be willing to use consulting support in this area. This is quite a different market to that of large-scale technology services. Historic price pressure meant there’s been little incentive for suppliers to innovate, but complexity and specialist know-how create unusually high barriers to entry.
The key to success for professional services firms already operating in the healthcare sector or contemplating investing there, therefore, will be to link highly specialised suppliers in areas such as data & analytics and operational improvement, to the generalist technology firms tasked with implementing transformational change. Mutually beneficial ecosystems will be crucial, with large firms needing to secure scarce specialist expertise, and small firms needing cost-effective channels to market. Each one of the opportunities we’ve outlined—technology, data & analytics, and operational improvement—is likely to grow at above average rates in the next two years. Combine them, and you get a multiplier effect that will push growth considerably higher.