It’s a $155bn question, as that’s how much organisations across the world spent with consulting firms in 2018. The answer, based on data gathered from indirect procurement teams in around 100 major companies*, is that three-quarters of private sector organisations spend between 2% and 5% of their costs on consulting support. Thirteen percent spend more than 5%; 10% spend less than 2%.
But averages always cover a multitude of sins.
Large organisations (those with more than 5,000 employees) are more likely to spend 4-5% than mid-sized ones (1,000-4,999 employees). Energy and resources companies tend to spend less, suggesting that the fall in the price of oil and other commodity prices has continued to depress expenditure on consulting services. Interesting, after a decade of relentless regulatory change that has boosted spending on consulting work in financial services, and especially in the retail banking sector, companies there are now spending slightly less than the average—a data point that reinforces anecdotal feedback we’re getting from consulting firms themselves. The biggest spenders are healthcare companies, which have effectively inherited the regulatory mantel from financial services, and which are struggling, right across the world, to meet expectations at a time of rising costs and aging populations. Technology, media and telecoms companies are also relatively high spenders: Some of this reflects the pace of technology change, cross-sector convergence, and responding to new competitor threats, but concerns about security and data privacy are driving up demand for risk-related consulting work. TMT companies are also likely to fall into the very heaviest spenders: Eighteen percent say that more than 5% of their costs go on consultants. We were slightly surprised to see that that’s also true for retailers, which tend to have a reputation among consulting firms for being comparatively tight-fisted (low margins in the sector make clients reluctant to pay more than they have to). However, expenditure in this sector appears more polarised: The higher proportion of companies spending a lot on consulting is partially offset by a higher proportion that don’t spend much.
The lesson we take from this is that, while there’s inevitably variation between sectors as much as between individual organisations, the complexity of the world we live in makes it hard for any company to operate without some consulting support. Up to 5% of costs going in this area isn’t unreasonable, but if you’re spending more than that, it’s worth trying to understand why.
*Please note that our data is for private sector organisations only. Public sector ones generally operate under pre-set expenditure limits.