DACH consulting patterns as economic indicators (or a Big Bang theory of cost cutting)

By B.J. Richards

Germany, Austria, and Switzerland continue to be bright spots in a largely bleak European economic landscape, whether we’re looking at the macro level or drilling down (as we tend to do) to look specifically at the consulting market.  This, of course, is largely owing to the region’s enviable weathering of the global financial crisis -- it’s not that these markets didn’t take a hit, it’s just that they recovered a lot more quickly than most of their neighbours.  As we recount in our recent report on the DACH consulting market, this rapid rebound is reflected not only in their strong growth numbers (the value of the DACH consulting market grew nearly 6% last year) but also in the specific ways clients here are using consultants.

For just as scientists can trace the Big Bang by studying the gravitational waves it left behind, we can trace DACH’s ongoing economic recovery by studying the waves of consulting use left in its wake.  (And, yes, these two things are entirely comparable, and Source analysts are basically astrophysicists.  Our mothers said so.)  Perhaps the most interesting of the observable consulting phenomenon radiating out of the recovery is the way DACH clients are approaching cost cutting these days.

When we asked DACH clients what’s on their agenda for 2014, their number one answer was simplification, with cost cutting lagging a bit behind.  We take this as an excellent sign because simplification projects can be thought of as kind of a ‘last stop’ on a road many clients go down during tough times.  The first stop is cutting costs – stripping expenses down to the bone in a bid survive reduced revenues.  Next up are efficiency improvements as clients try to figure out how to keep the business running in its newly slimmed-down state.  Finally comes simplification when clients have a chance to step back and ask how this (perhaps dramatically) changed organisation might run a bit more smoothly.  Simplification projects are not for clients under immediate duress but those with the luxury of catching their breath and starting to think about the way forward.  So, whenever we see simplification projects ranking ahead of cost cutting, we know we’re looking at a market that’s out of danger and doing alright.

But when we ask clients which of their 2014 projects are most likely to result in the hiring of consultants, guess what – cost cutting comes in at #1 and by a pretty good margin.  If an overall lack of emphasis on cost cutting is a good sign, what does it mean that this is where clients want to put their consulting dollars?  Well, actually, we take that as a good sign, too.

In markets that are still under a lot of pressure, cost-cutting consulting services are beginning to fall out of demand, and there are a couple reasons for that.  The first is simply that in struggling markets, many organisations are finding that cost cutting options have nearly been exhausted – organisations have done nothing but slash expenses since the crisis hit, and many can slash no more.  The second reason is that even where clients do still have costs to cut, they’ve learned so much watching consultants do it for the last few years, they no longer feel they need for external support and are confident taking these projects on in house. But in DACH, demand remains strong precisely because these better-off clients weren’t forced to make draconian cuts in the immediate crisis aftermath and are now hiring consultants to help them trim expenses in a more deliberate, thoughtful way as part of a larger efficiency agenda.

And so the hypothesis of DACH’s robust health finds proof in its 2014 agenda and plans for consulting use.  Now, where’s our Nobel Prize?  Surely we’re at least as deserving as those premature publishers at BICEP2 . . .