Nearly two thirds of small and medium-sized consulting firms in the UK expect to ramp up their recruitment efforts this year. They will however find it increasingly difficult to live up to their hiring aspirations, finds a new report from Prism Executive Recruitment, as they face a climate of talent shortage and growing competition from the ‘big guns’ in the industry.

The UK’s consulting industry is one of, if not the largest, European consulting market – ahead of or trailing Germany based on the source and definitions applied. The industry is estimated to be worth anywhere between £7 billion (according to Source Global Research) and £14 billion (an estimate from US-based ALM), with the Management Consultancies Association (MCA) – the UK’s representative body for the consulting industry– placing a £10 billion valuation on the market.

In recent years, UK’s consulting market has seen buoyant growth, booking growth rates of between 5% and 9%. On the back of the market’s expansion, consulting firms have been increasingly ramping up their recruitment efforts to find the talent to meet growing demand. The growing competition for talent in the top of the industry has been visible for a while, following a similar trend visible across markets and geographies, according to a recent report from Mercer. A new report by Prism Executive Recruitment – a recruitment firm specialised in the consulting industry – reveals that similar signs are becoming visible in the mid-tier segment of the consultancy market. A survey ran last year among small and medium consultancies showed that 64% of consultancies surveyed had accelerated the rate of headcount growth compared to 2014. 27% of firms contacted expected the percentage headcount increase to be at a similar level to last year, with only 9% stating that they foresaw a contraction in the recruitment of consultants.

Prism’s 2016 edition of the survey, released last week, shows that over the past 12 months competition for consulting talent has further intensified. All the consulting firms surveyed indicated that they are continuing to recruit in 2016, of which 63% anticipate a higher percentage increase in headcount vis a vis the 2015 level. In fact, two thirds of advisory firms project a headcount increase of 30% or more for the current year. Most in-demand roles are, according to another recently released study (‘Management Consultancy Channel Report of 2016’), found in the area of Digital, Project Management, Technology, Strategy and BPM.

Most recruitment is expected to occur at the consultant/senior consultant level with 46% of firms surveyed saying that the greatest increase in headcount would be in this category, up from 45% the year previous.

The fact that the market is heating is, according to the authors, also visible when comparing forecasts with actual recruitment data. Reflecting on 2015, 60% of consulting firms surveyed had recruited fewer consultants last year than they had expected. “Most firms which did not meet their target increase believed this was because of the shortage of talent in the market and competition from their rivals,” writes Chris Sale, Managing Director of Prism in the report.

The study furthermore found that, in a bid to adapt to the changing talent landscape, management consultancies are implementing a number of changes to their recruitment process. One of those is that salaries are being lifted, although smaller and midsized firms struggle competing with the likes of the Big Four (Deloitte, EY, KPMG, PwC) and the strategy houses such as McKinsey or Strategy&. “Competition from larger firms and the Big 4 is in some cases driving salaries above ‘market rate’ and some smaller firms find it difficult to compete,” says Sale. Another is that the mix of recruitment channels utilised is undergoing change, with less focus placed on referrals – cost effective and generally high quality but not a method that is inclined to satisfy acute resource needs – and more effort put into in-house recruitment. “Last year 40% of hiring was expected to be referrals, but this year that is reduced to 26%,” comments Sale.

Direct hiring, which includes leveraging in-house recruiters, advertisements and recruitment events, is forecasted to bring in 44% of total hires this year, although Sale has his reservations with the ROI forecast placed on the method by the consulting firms surveyed, describing the figure as “optimistic”, pointing at, among others, the labour intensive and time consuming nature of the method. Interestingly, despite the shortfall in recruitment which many firms experienced in 2015, they do not intend to increase their use of external recruitment agencies, with the percentage stable at around 30%. Key recruiters in the market, besides Prism, include ConsultingPoint, Oomph! Recruitment, BLT, Conway Consulting, Michael Warwick Nicholls, Mindbench and SK Consultancy Solutions.

External agencies

The report highlights that debate exists on the use of external agencies, yet finds that the data reveals that bottom-line, consulting firms acknowledge that external expertise does add value. Firms experiencing fewest problems in recruiting in 2015 had recruited the majority of their hires via agencies, while conversely, those consultancies which reported most challenges last year used agencies either rarely or not at all. Sale adds that it is key that partners at consultancies make the right trade-off, building their decision-making on a solid business case which assesses on the one hand the direct cost and on the other hand the opportunity costs. “If an agency can bring forward the date of hire by, for example, 6 weeks then the recruitment fee could be largely paid for by that 6 weeks’ extra utilisation. The opportunity cost and implications of not fulfilling planned headcount increase may be greater.”

Outlook

Looking ahead, Sale believes that consulting firms will in the current climate of talent shortage struggle to meet their high expectations for headcount increase. “2016 headcounts targets, which are even more challenging than in 2015, will not be met without a significant change in the approach to recruitment and the increased reliance on direct hiring is unlikely to be successful.” One of the key reasons is that, across the board, small and mid-sized consultancies are finding it hard to attract top talent that is both difficult to afford and reluctant to take the risk of moving to a smaller firm. “A key hurdle to recruitment for small / mid-sized firms is brand awareness and the ability to secure the initial interest of candidates.” Other challenges that surface from the survey include the attraction of Millennials, luring more women into their business, and bringing in in-demand consultants, such as Managers / Principals with specialist expertise.

In order to be successful, the report suggests that recruitment should be approached from a wider angle, enabling firms to place more emphasis on the touch points with, among others, talent management (to minimise attrition), coaching (to foster career development) and HR guidelines (e.g. part-time working). “What may be required is a critical review of the way in which companies accommodate their employees’ expectations of career development, monetary reward and work life balance.”

Sale furthermore highlights that small and mid-sized consulting firms can stand out from the crowd by promoting their unique characteristics, “some of the characteristics of smaller firms such as flexibility and a less hierarchical structure could be used to advantage and to differentiate themselves as employers.” A recent study, for instance, shows that best small workplaces outperform the average organisation in the UK across a range of HR and cultural metrics. Among the 20 Best Small UK Workplaces are a number of professional services firms.