How fast does the consulting market move?

It's been widely reported that Volvo trucks suffered a potentially catastrophic fall in demand in the third quarter of 2008: from around 40,000 trucks a month, sales fell to around 100. Clearly, the owners of big fleets of trucks are trying to save money by running their vehicles for longer.

Could consulting services suffer from the same rapid shifts in demand?  I suspect the figures for 2008 will show that the industry continued to grow, albeit at a much lower level than previous years.  However, many firms report a significant downturn towards the end of last year which, if continued, could cause problems in a few months' time.  Some also said that, in the midst of the September financial crisis, most of their banking clients rang up asking them to remove their consultants straight away.  Although projects have re-started, it's still a demonstration of how quickly clients can, if they choose, turn off the consulting tap.

Consulting firms (unlike IT services or outsourcing companies) run on an incredibly short order book: three months is not untypical.  The bigger the firm, the larger the projects and the longer the order book, but the same underlying principle applies.  As one senior partner put it to me, any consulting firm looks bankrupt six months out.  So firms aren't just vulnerable to the sudden cancellation of a project, but to new prospects drying up.  Another consultant I spoke to recently recalled the 2002 downturn: "The phone didn't ring: it was scary."

Both these scenarios are possible.  But the biggest issues at the moment appears to be coming from somewhere else - "speculative buying".  Many consulting firms talk about projects they've won but haven't started or clients who want to talk about opportunities but aren't serious about buying.  It could be that clients are genuinely uncertain about whether they have the budget in practice.  Or perhaps, like the people who drive Volvo trucks, they're finding they can keep the same consultants for longer.