Being a compliance solutions supplier is one of the safest places to be in a recession. Look what happened last time. Recession means the national economy is going backwards; but between 1999 and 2002:
- the safety specialists market grew by 16 - 18% pa or added in effect between £33m and £54m net new business each year;
- HR & Payroll services grew by 8% - 13% or added £37-66m net new business each year;
- SME regulatory and HR consultancies grew by between 22 - 24% or added between £21m -£41m net new business each year.
Why? Because in hard times the shakeout from internal rationalisations speeds up.
Yes – some regulatory impacts, notably Y2K, Coshh and Asbestos regulations in ‘99-‘02 helped buck the national trends, but not always positively. Y2K, for example, sucked resources from other IT issues significantly. Ultimately businesses of all sizes had to focus on “their knitting” and this meant getting specialists in to do the compliance thing.
Small businesses especially cannot spare the time, and the vast majority have now signed up with one of the regulatory consultancies. For some reason institutes and lawyers are beginning to worry about whether they have missed the boat here. The short answer is that they have. Government keeps sending out research teams to see what sources of advice or web help small businesses want. But would you really take their advice on touchy subjects like salaries and dividends balancing from people who’ve been in the public sector all their life?
Frankly I’m tired of hearing how government departments and, indeed, private practice accountants should be the first source of business advice. Each to their own – I would ask an accountant about a tax rate – not how to get CHAS or NICEIC certification. I would ask the government if any EU grants are available – not whether contract staff on piece work are contravening the minimum wage.
Institutes and lawyers have equally missed the boat. As a reselling channel for insurers, some institutes are better than others, and when it comes to bespoke work, lawyers are simply seen as too expensive and, frankly, not that expert anymore. Will more spend on government web sites, outreach grants for regional quangos or VC funding for mid-market lawyers make any difference? No. But they’ll do it anyway, no doubt.
The driver in the market is fairly priced “bespoke” compliance services.
The best firms at knowing not only when clients need professional compliance - but also when they need to outsource it - are the compliance consultancies. They have two tricks which are singularly hard for other specialist rivals to master. First - they have the same level of trust as professional trainers, the credibility of accreditation suppliers, the solution mentality of software teams, the knowledge of the publishers and the fail-safe long stop of the insurers. Secondly, they are able to reinforce this with a management system which confers compliance on the client while allowing the consultancy to manage its footfall proactively rather than reactively.
These simple benefits are the difference between closing rates of 1:4 instead of 1:7 on tenders, and 65% and 85% utilisation rates – it’s worth 10%-15% on most gross margins, more if managed well. Some will say it’s just cross-selling; some say it’s shrewd marketing – but the fact is – those firms with real insights into client processes will find more business now more than ever.
This is the only way you can explain how regulatory compliance services profitability (not just sales) increased during the last recession by 300% - yup trebled. Economics is hard to argue with (although we keep trying), but the fact is - the compliance services market should continue to grow strongly between now and 2010. It’s likely to see a drop in growth rates from 2010 to 2012 if the ‘87 and ‘99 recessions are anything to go by – but this is still going to be a period of well above inflationary growth.
Some sectors are flying on their own merits. Just as in 02 the asbestos boom was just kicking off, current spend on IT budgets for larger firms is typically twice the rate of inflation. Construction and compliance are the most likely enterprise IT sectors to continue seeing growth. Construction overall is fairly robust, as is fire safety, and public sector spend in social housing, the health service and particular issues such as occupational health within government departments should stay strong. Employment dispute resolution procedures are also getting an overhaul this year and confusion is always good for compliance demand.
So will more free advice, web services or grants to business links etc from the government make any difference? Nope.
Will the EU shutting up shop and forgetting to push through more regulations for a while make a big difference? Nope (but hell will freeze over before...)
How about accountants and lawyers getting in on the act as their other consultancy and M&A work dries up? Nope. When Grosvenor loses a compliance deal to KPMG I’ll eat my hat.
What if all the various business institutes pitch in with compliance solutions too? Bring it on – they usually help open up markets as much as close them off, and teams such as the EEF actually help set standards in consulting compliance in the long term.
Will lawyers backed by VCs transform this compliance market? Nope. Too little too late.
Will insurers finally get it right and learn how to manage large teams of consultants so that they are cost effective? Nope. Their business development budgets are simply not run that tightly.
Will even big conscientious firms still manage to drop the ball every now and then? Yup. In-house is not always a guarantee of “better” when actually at a very basic level simply spreading the PI risk can be more effective.
Will all firms have to stick to their commercial knitting and outsource more and more compliance processes?
You bet.
