An outside-in view of the Business Services Industry and the performance across 8 key sectors

Business services play a crucial role in enhancing operational efficiency and organisational performance across sectors. To continue delivering value, companies need to address the global Megatrends impacting their businesses and deliver differentiated growth.

Macro-economic Megatrends, including inflation, have significantly impacted the business services firms. Rising inflation increases operational costs and pressures businesses to optimise their expenditure. Additionally, economic uncertainty drives companies to seek more cost-effective solutions and flexible service models to navigate fluctuating market conditions.

Technological advancements are revolutionising the industry, with automation and generative artificial intelligence (GenAI) becoming central to business operations. Firms are integrating these technologies to improve efficiency, reduce costs, and offer data-driven insights. In addition, companies are leveraging AI to deliver tailored client solutions and enhance operational capabilities.

Changing customer preferences, influenced by demographic shifts and changing regulations are influencing the industry’s evolution, as clients demand niche and sustainable solutions, with a growing emphasis on customised services. In response, business services providers are adopting strategies that focus on optimising costs, reducing carbon footprints and offering specialised services that align with their clients' expansion goals and unique needs.

In response to these Megatrends, sectors and firms within the business services industry are reinventing their own practices in the areas of technology and specialised offerings, scaling and driving customer growth. To track performance, PwC’s Global Business Services Index will help leaders evaluate the effectiveness of their value strategy.

The GBSI 2024 presents an outside-in view of the Business Services Industry and the performance across 8 key sectors, as indicated in the diagram. The performance of each sector is measured by the ‘Sector Index Score’, which has been developed based on an analysis of key metrics for a sample set of 247 international companies for 2023, as compared to 2019, across four performance dimensions: growth, profitability, productivity and cashflow. 

The GBSI indicates that the overall performance across the business services industry has been robust and resilient, with particular bright spots driven by growth and profitability in logistics and distribution, legal and professional services, and digital and education services. TICC businesses have been highly cash generative over the period, making them attractive to private equity and other investment activity. Productivity remains the most stubborn performance measure to get right across all the sectors, but it has been interesting to research how different approaches that organisations are taking in the best performing sub-sectors such as BPO, might be transferred to others such as BES, Legal and HCM.  

Built environment services sector, wedged in by the COVID-19 pandemic and rising inflation, has seen a moderate improvement since 2019; customer-centric diversification and innovation remain key priorities. 

BES includes organisations involved in facilities management, real estate management, security, catering and waste management. The sector’s index score is 109 (normalised to the base year of 2019 = 100), with the greatest improvements in growth and profitability dimensions, mainly due to inflation-supported pricing strategies as well as growth in sales volumes. BES sector performance, by dimension, is as follows:

• Growth: Facilities and waste management companies have seen a strong recovery post-pandemic, driven by increased cost of services and specialised offerings, respectively.
• Profitability: A rise in restructuring, research and development (R&D) and employee costs put pressure on EBIT margins. Technology investments have supported margin gains, especially for security companies.
• Productivity: Revenues per employee improved through restructuring initiatives but investments in tech (assets) have supported higher returns, albeit proportionate revenues.
• Cash Flow: Rising costs and working capital requirements have put pressure on cash flow, although liquidity positions generally remain healthy with increasing short-term debts.

Priorities for success: Companies have identified investments in advanced technology and climate solutions inevitable for sustained growth. For the full details, download the Global Business Services Index: Built Environment Services report here (PDF)Opens in a new window (file size: 5.5 MB).

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Business process outsourcing thrived despite the pandemic, as customers continue to take to sub-contracting to optimise costs and leverage expertise; aggressive acquisitions and tech innovations fuelled sector growth.

BPOs include providers of outsourcing services for tech as well as non-tech functions. The sector’s index score is 119 (normalised to the base year of 2019 = 100), with growth dimension contributing to the strongest improvements in the sector, mainly driven by geographic expansion and acquisitions, and profitability scores being one of the highest, as compared to the other sectors. BPO sector performance, by dimension, is as follows: 

• Growth: Rapid digitalisation has propelled demand for more sophisticated and high-tech services from omnichannel customer experience (CX) solutions to cloud computing, driving growth.
• Profitability: Increased cost pressures translated into higher prices, which improved margins. Reduced subcontractor costs and restructuring initiatives helped manage costs.
• Productivity: While asset downsizing helped as a short-term measure, BPOs are investing in technology and training to drive proportionate revenue growth.
• Cash Flow: Financial stability moderately improved, impacted by growth in businesses, operational efficiencies, and effective management of assets and liabilities.

Priorities for success: The thriving BPO sector remains boosted by strategic investments in technology and talent. For the full details, download the Global Business Services Index: Business Process Outsourcing report here (PDF)Opens in a new window (file size: 4.7 MB).

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Digitalisation of training content and the ever-growing demand for data and intelligence benefitted the digital and education sector significantly, partially offset by the pandemic’s impact on demand for physical training solutions.

D&E includes providers of learning and upskilling services and specialised data companies. The sector’s index score is 118 (normalised to the base year of 2019 = 100), with the greatest improvements across growth and profitability dimensions, mainly due to an increase in online education, growing need for upskilling, as well as continued demand for data analytics and intelligence. D&E sector performance, by dimension, is as follows:

• Growth: Digitisation of educational content, career-focused upskilling, and ever-growing demand for data and intelligence are driving growth.
• Profitability: With higher top-line growth, the education segment saw a higher margin improvement from digital content and recurring business, while data businesses witnessed higher costs associated with increasing scale.
• Productivity: Overall, productivity took a slight downturn owing to investments in technology and acquisitions to enhance service capabilities.
• Cash Flow: Working capital requirements for expansion and investment in technology assets have impacted capital structures; overall averages for liquidity ratios have also decreased.

Priorities for success: Ramped up integration of technology remains inevitable to scale operations and is reshaping workforce requirements for Digital and Education service providers. For the full details, download the Global Business Services Index: Digital and Education Services report here (PDF)Opens in a new window (file size: 4.6 MB).

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As the human capital management sector rebounds after the hiring freezes during the COVID-19 pandemic, the recent economic slowdown once again puts pressure on recruitment needs of businesses.

HCM includes providers of recruitment and staffing solutions. The sector’s index score is 101 (normalised to the base year of 2019 = 100), with only growth and productivity seeing slight improvements. The sector saw hiring freezes during the pandemic, a post-pandemic peak, followed by sluggish economic conditions in 2023. Profitability has seen the biggest decrease due to inflated headcount and operational expenses. After being unable to fund post-pandemic recoveries from operations alone, most players are in a less favourable cash position. HCM sector performance, by dimension, is as follows:

• Growth: Firms have focused on diversifying their market footprint and service offerings such as interim hiring and advisory, to support continued growth and reduce risk amidst global disruptions and inflation.
• Profitability: Profits have suffered due to operational and restructuring costs in response to financial and inflationary pressures and more challenging market conditions.
• Productivity: Businesses have been restructuring headcount and investing in technology to improve operational efficiency, which has limited impact on driving further top-line growth. 
• Cash Flow: Cash flow and liquidity positions took a hit as firms invested in new assets and restructured towards leaner operating models.

Priorities for success: Recruitment firms face pressures after peak demand post-pandemic; Focus shifts to technology and strategic hiring amidst market adjustments. For the full details, download the Global Business Services Index: Human Capital Management report here (PDF)Opens in a new window (file size: 4.7 MB).

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The legal services sector has been riding a wave of massive fee incomes on the back of inflated demand during the COVID-19 pandemic, with recent normalisation due to slowdown in traditional business segments.

The sector’s index score is 110 (normalised to the base year of 2019 = 100), with strongest improvements in growth, while performance across other dimensions remained relatively flat. Despite growing cost of staff, firms were able to maintain profit margins, due to efficiency improvements. LS sector performance, by dimension, is as follows:

• Growth: Increase in demand for legal services across territories was supported by global expansion of firms tapping into high-growth markets and practices, to further drive fee income and profits.
• Profitability: Rising staff and vendor costs impacting gross margins were offset by improved efficiency and bottom-line performance, resulting in overall profitability score remaining stable.
• Productivity: With revenue growth outpacing headcount increases, fee earner contribution to turnover has improved, though partially offset by footprint expansion decreasing asset utilisation.
• Cash Flow: Liquidity ratios have seen minor declines, as companies are utilising a combination of cash balances and short-term liabilities to fund operations and business expansion.

Priorities for success: Legal service leaders are adapting to demand conditions to grow profits and invest into emerging technologies. For the full details, download the Global Business Services Index: Legal Services report here (PDF)Opens in a new window (file size: 4.4 MB).

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Logistics and distribution sector saw exceptional performance while benefitting from supply chain disruptions during the COVID-19 pandemic; recent normalisation in trends put pressure on capacities.

Logistics and distribution services includes organisations providing transportation, distribution, and wholesale services as well as supply chain and freight arrangement solutions. The sector’s index score is 124 (normalised to the base year of 2019 = 100), with the greatest improvements across growth, profitability and cash flow dimensions, mainly due to supply chain disruptions amidst the pandemic, enabling firms to raise prices and pass inflationary pressures on to customers. Greater income levels have improved liquidity positions and enabled sector leaders to fund expansion from operations. Logistics and distribution sector performance, by dimension, is as follows:

• Growth: Benefits from price surge during the pandemic, but as growth normalises in 2023, firms are looking to grow specialised customer segments and services to stay relevant.
• Profitability: Most businesses saw growth in margins by passing on higher costs to customers and leveraging excess capacity but are investing in tech solutions to stay profitable in the long-term.
• Productivity: Many players began downsizing as demand slowed in 2023 after expanding during the pandemic to support growth. Others are looking into process innovation to drive productivity in the long term.
• Cash Flow: Liquidity ratios increased overall, owing to significant improvements in net incomes and optimised working capital allocation, allowing companies to invest cash in capacity expansion, fleet upgrades and better tech capabilities.

Priorities for success: Technological integration and sustainable services are major growth levers for the sector. For the full details, download the Global Business Services Index: Logistics and Distribution report here (PDF)Opens in a new window (file size: 5.0 MB).

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Professional services sector saw strong organic growth and improved profitability, mainly due to diversification into high-margin, high-growth segments such as energy and cloud technology.

PS includes firms providing consulting, auditing and risk related services. The sector’s index score is 118 (normalised to the base year of 2019 = 100), with the strongest improvements in growth and profitability dimensions. Rise in demand for specialised offerings has prompted companies to provide more niche services to clients at higher margins.  PS sector performance, by dimension, is as follows:

• Growth: Companies witnessed strong surge in organic growth post the pandemic, from high-margin, high-growth segments such as energy and cloud technology, driven by need for cost-cutting solutions.
• Profitability: Increased revenues and lower operating costs during the COVID-19 pandemic resulted in profit gains, partially offset by cost inflation pressures.
• Productivity: Overall, productivity took a slight downturn owing to recent investments in software and acquisitions to enhance service capabilities. These initiatives are yet to translate into benefits.
• Cash Flow: Liquidity positions remain strong, as companies are able to extinguish short-term obligations with cash, and outstanding invoices from available working capital.

Priorities for success: Professional services leaders continue to thrive by embracing innovation and expertise. For the full details, download the Global Business Services Index: Professional Services report here (PDF)Opens in a new window (file size: 4.6 MB).

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While healthcare diagnostics benefitted from the testing demand during the COVID-19 pandemic, inspection and certifications businesses saw a healthy recovery, thanks to the diversification and innovation efforts.

TICC includes organisations offering healthcare diagnostics as well as testing, inspection and certification services. The sector’s index score is 116 (normalised to the base year of 2019 = 100), with the greatest improvements across growth and cash flow, mainly due to an increase in PCR-testing demand during the COVID-19 pandemic and complementary, high-growth segments for inspection and certification. TICC sector performance, by dimension, is as follows:

• Growth: The COVID-19 pandemic bolstered growth in diagnostics in 2020-22, but other segments are diversifying into emerging areas alongside the sustainability trend and niche offerings to drive future growth.
• Profitability: Most firms managed to see stable profits by raising prices owing to inflationary pressures on material, personnel and travel-related costs, offset by increased costs of investments for expansion.
• Productivity: Productivity only marginally improved despite businesses optimising their assets. Increases in revenue led to proportionate increases in headcount and investments in technology and partnerships.
• Cash Flow: Liquidity metrics improved on average, with disciplined spending on acquisitions and investments in new technology, supported by higher cash flow during the COVID-19 pandemic for diagnostics companies.

Priorities for success: High-tech acquisitions, sustainability offerings and strategic partnerships, inevitable for growth within the TICC sector. For the full details, download the Global Business Services Index: Testing, Inspection and Certification report here (PDF)Opens in a new window (file size: 4.3 MB).

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Business services firms are playing a crucial role in supporting industrial companies aiming for differentiated growth by offering solutions that help streamline operations, optimise resource management, and enhance strategic planning. With this, organisations can focus more on core activities and innovation as well as access advanced technologies and leading practices that drive efficiency and competitiveness. This would enable them to respond more swiftly to market changes and customer needs, fostering a more agile and growth-oriented business model.

With increasing complexity of doing business, coupled with the impact of disruptive Megatrends, leaders in industrial companies have an urgent need to explore opportunities to reinvent their businesses, across multiple dimensions. Click here (PDF) (file size: 9.4 MB) to download our report on how Business Services can play a crucial role in supporting industrial companies aiming for differentiated growth by offering solutions that help streamline operations, optimise resource management, and enhance strategic planning. 

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Leaders are focusing on these key priorities to enable differentiated and resilient growth:

• Using technology for enhanced operational efficiency by automating processes and tasks for employees to focus on high value-added activities.
• Recruit and cultivate a future-proof workforce to develop advanced technological capabilities and meet evolving organisational needs
  
• Companies are offering innovative solutions, to help their clients develop a strong climate mandate to stay relevant.
  
• Experiencing an increasing level of volatility and uncertainty, firms are expected to build a thorough risk management practice to seize opportunities.

The adoption of technology has emerged as a pivotal factor for business leaders aiming to excel in today's competitive landscape. By integrating advanced tools, companies can optimise operations, leverage data-driven insights, and drive both top-line and bottom-line growth. Embracing these innovations not only helps enhance operational efficiency but also fosters scalability and adaptability, positioning firms for sustained success in an evolving market.

While a vast majority of business services leaders acknowledge the importance of GenAI, only 37% of them have adopted GenAI in their operations, according to PwC’s 27th Annual Global CEO Survey. This mismatch in recognised potential and adoption highlights the scope for further integration of GenAI into existing operations to drive efficiency and growth.

As corporates navigate rapid technological advancements and growing sustainability demands, skilled talent is crucial. Companies, however, often face challenges with hiring and relating talent with in-depth subject matter and industry knowledge. Attracting versatile, forward-thinking professionals is key to addressing these evolving challenges effectively.

There is a growing importance of having a strong climate mandate in view of global developments and net zero commitments. Several business services companies have already undertaken efforts to improve energy efficiency and innovate new climate solutions and support clients in their climate action journeys.

Effective risk management is crucial for stability and growth as it helps shape and guide the future trajectory of growth. It identifies and addresses threats like geopolitical tensions, which can disrupt supply chains; cyber risks, threatening data security; and climate change, impacting operations. By proactively managing these risks, businesses can safeguard assets, achieve regulatory compliance, and maintain operational resilience.