COVID-19 | Update for 29th May 2020

We're all facing unprecedented challenges in the next few weeks and months, in our daily lives, in our communities, and in our businesses. But we're already seeing evidence of how, if we work together, we can make a difference.

It's in that spirit of collaboration that Source has put together an estimate of the impact we think COVID-19 will have on the global consulting industry during the course of 2020. We're very grateful for the input of a wide range of firms from around the world who've helped us do this, providing up-to-the-minute information on how we should adjust our existing model of the industry.

While based on the best information we have at the time of writing, our forecast and commentary are intended to be directional, providing guidance for future planning. In an environment where everything is changing very quickly, our predictions will inevitably change. Over the coming months, we will be updating the forecast on a weekly basis. For more information on our data and methodology, please see the end of this bulletin.

Please help us to help you: We've only been able to pull this forecast together so quickly because of the input of the hundreds of firms from all over the world who responded to our initial survey. Please help us by sending us your updates week by week, by following this survey link. Every single one of these responses helps us improve our forecasting.

Summary: 29th May

Better-than-expected economic news and the easing of lockdown restrictions in some major consulting markets are slowly encouraging clients to start planning for the recovery. The result of this is our most positive forecast to date: Extrapolating from market feedback in the last week, we’re predicting that the global consulting industry will shrink by 17% in 2020, up from -18% last week. But our data also highlights two overarching challenges for consulting firms in the coming weeks: their ability to focus on the relatively strong sectors, and the health of their pipelines.

Pipeline health is critical

Another week; further small improvements. But that’s enough to nudge our forecast across an important Rubicon. Eleven weeks ago, when we started this forecasting exercise, we predicted that the global consulting industry would shrink by 19% over the course of 2020, compared to 2019. We also said that the prospects were likely to get worse, and then get better—which is precisely what’s happened. This week, our prediction of a 17% contraction, while still grim, is the most positive it’s been, and the trends in some quarters are decisively upwards. This is in part driven by improving prospects for North America and the Middle East, while Europe and Asia have stayed the same. Those in Central & South America, and in Africa, where the full impact of the virus, socially and economically, is becoming clearer, are deteriorating but have less of a material impact on our headline numbers.

From a sector point of view, this is now a tale of two markets. For some firms we’ve spoken to the story is as simple as public versus private, reflecting the fact that economic stimulus initiatives have boosted demand for external support in the former, while consulting budgets in the latter have been severely curtailed. Our data suggests a more complex picture, however.

As the following chart that tracks changes in our forecasts since the middle of March highlights, since the point at which the initial fog and mixed messages of the first couple of weeks cleared, some sectors have been on a definite upward trajectory. Particularly notable is the fast-changing situation in the healthcare sector: As the immediate response to the crisis is giving way to thoughts about greater investment in technology and (in the case of the US) restructuring, many consulting firms have seen significantly more activity, but at a very low price point. Pharma companies, meanwhile, are making huge investments in drug research, clinical trials, etc., and can afford to use consultants. Our forecasts for the high-tech and telecoms markets have also gone from strength to strength, relatively speaking, boosted by the huge shift to remote working and the infrastructure changes required to enable this. At the same time, prospects for some parts of the private sector have, indeed, improved by far less, and in some cases have even worsened. The services sector, where an improving situation in transportation and logistics isn’t enough to offset the still-dismal prospects in leisure, is a particular case in point. So too the energy & resources sector, where marginal improvements on the oil price front haven’t been anywhere near enough to reverse its overall impact. Meanwhile, the prospect of some non-essential shops reopening is still too small and too tentative to have an impact on consulting in the manufacturing and retail sectors overall.

What all this points to is just how important it is for consulting firms to be in the right place at the right time. Large firms will have the advantage, because of their broader spread of pre-existing relationships. The experience of small firms is likely to be polarised: If they specialise in areas where the market is relatively strong, they’ll hold up well. Otherwise, they’ll struggle.

But even the biggest, most diversified consulting businesses can’t afford to be complacent—and that brings us to the second theme of this week’s update: pipelines. Consulting has always looked on paper like an insecure business, with little visibility around long-term revenue, especially outside technology consulting. Inevitably the crisis has exacerbated that situation, but not by as much as many firms feared it would. Pipelines aren’t as big as firms would have expected in normal times, but nor are they as bad as many feared they might be. Procurement rules are being simplified or bypassed, speeding up decision-making and bringing down firms’ cost of sales. Less positively, the average size of projects going on pipelines appears to be smaller: Some large opportunities, especially those already in the works before the crisis hit, but paused in its early days, are now converting into sales, but many of the projects that have gone onto firms’ pipelines in the last few weeks have been smaller. They may convert more easily—because tactical projects often focus on brief windows of opportunity and require less discussion— but the prevalence of smaller projects also suggests that clients are trying to do more work themselves. The only work consultants see is the part clients can’t do.

However, while small projects might convert more easily, the big unknown is how many of them will convert at all, and at what rate (pressure on fees is inevitably increasing). Are clients simply testing the water to see whether they actually need outside help? Does the high level of uncertainty mean that a client might ask for a proposal, only to have moved on and forgotten about it the following week? To compound the problem, the normal routes by which consulting firms would be able to gauge and reduce uncertainty aren’t open to them: Virtual coffees aren’t the same as real ones, and it’s difficult to offer discounts when the rates you’ve quoted are already lower than you’d like.

The net effect of all this is to shift the shape of the crisis. The second quarter of 2020 may turn out to be less bad than firms had expected because enough opportunities hit the pipeline and convert into chargeable work to keep consulting businesses ticking over. But small, tactical projects and limited budgets suggest that the recovery for consulting firms may take longer than they’d originally hoped.

Further questions

We've included details of our model and forecasting methodology below. If you'd like to know more about how we've created our forecasts or want to understand how the year is likely to play out at a more granular level for your firm, please contact charis.buckingham@sourceglobalresearch.com.

Methodology

In order to calculate this forecast, we've taken the most recent forecast from our model of the consulting industry, which was prepared pre-crisis, in early January 2020. This unique model is built bottom-up, by estimating the number of people employed by several thousand major and mid-sized firms across 84 countries, 29 industries, and a range of services. We then apply a series of metrics and adjustments around the revenue per consultant. Where possible we validate this data against published sources and interviews with senior people in the firms concerned. Although some of our 10 million individual data points and assumptions may be wrong, when aggregated, they provide a robust view of consulting markets around the world. Moreover, because of the way this model has been built, we can adapt it to take account of new scenarios—as we have done here. In order to understand the likely impact of COVID-19 on the consulting industry, we've developed forecasts at the level of individual service lines, quarter by quarter, then modified these depending on industry and country. Please note that all the data in this bulletin is for the calendar year 2020 and is in US dollars. We've calibrated our assumptions with a number of major and mid-sized firms.

Definitions

One of the greatest challenges with sizing any part of the consulting industry is that "consulting" means different things to different people. Over the last 12 years, Source has adopted a consistent definition, and this underpins all our published material about the consulting industry. It includes traditional management consulting services (strategy, HR & change, operational improvement, risk & regulatory work, and technology consulting), but does not include systems development and integration, and outsourcing services.

Scope

Our model also focuses on what we call "big consulting", work done by consulting firms with more than 50 consultants typically for clients with a turnover in excess of $500m.

About Source Global Research

Source Global Research is the leading provider of research about the professional services market. Founded in 2007, we serve the world's leading professional services firms and their clients with expert analysis, data, and insights. Firms come to us because they know we offer transparency in a notoriously opaque market. We provide direction and evidence about changes in the marketplace, helping firms cut through what can sometimes be intractable discussions around future direction by being objective and honest.

Data sits at the heart of what we do, and our model of the professional services market is the largest and most sophisticated in the world. Data in the model comes from extensive desk research, and interviews with over a thousand senior partners from around the world. It feeds into our customers' business strategies and helps them prepare for the future. We also place a strong emphasis on the views of clients of professional services firms (we conduct some of the largest interviews on this sector in the world) and listen to what clients need, and how their views are changing in the marketplace.

Please note that, because we work with such a wide range of firms, we take confidentiality very seriously. Our ongoing research programme, including interviews, and customised project work with individual firms, gives us an extensive foundation of knowledge and allows us to work on some of the most confidential issues these firms have.

Our independence and knowledge of the professional services industry means that we're trusted to set our work within the wider market context, helping firms make the most of the opportunities on offer. Our customers would tell you that we have a strong commitment to doing the very best for every firm we work with, and are thoughtful, friendly, and easy to work with.

Please help us to help you: We've only been able to pull this forecast together so quickly because of the input of the hundreds of firms from all over the world who responded to our initial survey. Please help us by sending us your updates week by week, by following this survey link. Every single one of these responses helps us improve our forecasting.