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Industry Outlook -- Services: BUSINESS SERVICES

BUSINESS SERVICES

Offering a broad menu of services around the world will be a potent weapon as service companies compete for talent, especially affordable talent

Advertising executive Bruce Mason likes what he hears from global companies like IBM and Mattel Inc. They're spending more of their advertising bucks on worldwide messages and using fewer agencies. That favors his far-flung company, True North Communications Inc., parent of advertising agency Foote, Cone & Belding. "Our destiny is tied to the success of global companies," says Mason, True North's chairman and CEO. Two-thirds of True North's revenue and earnings come from 20 international clients. For ad agencies with global reach, he predicts, revenue growth in 1997 could hit nearly 15%, double the industry average.

Much the same is true across the sprawling business-service industry, which includes legal services, accounting, advertising, personnel supply, engineering, architecture, research, and consulting. Companies offering a broad menu of services around the world should do best. Overall, the industry's revenue should grow about 7.3%, to $882 billion, according to DRI/McGraw-Hill.

FRENETIC MARKETS. To hold on to or expand business, service companies will have to add sizzle and scope--and not expect to raise prices. At Big Six accounting firm Ernst & Young, Vice-Chairman John F. Ferraro says his clients want everything from an assessment of risk to advice on mergers. Law firms are competing fiercely for business ranging from initial public offerings to litigation, and their fees may be fixed or capped.

Lawyers are benefiting both from merger activity around the world and frenetic financial markets in the U.S. "If the markets continue strong in 1997, there's a very good chance large law firms will continue to do well," says Duane C. Quaini, incoming chairman of 462-lawyer Chicago firm of Sonnenschein Nath & Rosenthal. Consultants, too, will benefit from rapid change. CEO Fred G. Steingraber of A.T. Kearney Inc. figures his $850 million company will hit $1 billion in revenues in 1997.

Temporary-help companies are becoming virtual human resource agencies, with multiyear contracts to place employees from the factory floor to the executive suite. Growth in 1997 should again reach 8% to 10%. The industry will continue to shift to higher-qualified, higher-paid placements. At Manpower Inc., growth in demand for technology workers, at more than $50 an hour, is running three times the growth in demand for factory employees.

A big challenge for business-service companies in 1997 will be finding affordable talent. For example, wages for new lawyers in big-city firms are rising again. "Competition for people is tougher than competition for clients," says Steingraber of Kearney. Then again, hiring people is a better problem to wrestle with than firing them.By Richard A. Melcher in ChicagoReturn to top

TABLE

Prognosis 1997

POSITIVES

-- Tight labor markets will lift demand for temporary help, while restructuring will help lawyers and accountants

-- Large international providers of business services should win lots of "outsourcing" deals

NEGATIVES

-- With clients winnowing suppliers of business services, price competition between suppliers is heating up

-- Finding highly trained talent at the right price is a growing challenge as markets tightenReturn to top

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