COVID-19 | Update for 19th June 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.

Our forecasts are constantly updated to reflect the latest market data we have available from consulting firms and clients. They’re not intended to be a one-off, static roadmap, but a guide to the rapidly changing conditions and unprecedented challenges of this crisis. Like satnav or a GPS navigator, we’re constantly monitoring the route ahead and that’s why, month to month, and even week to week, our numbers change. We think that the speed with which consulting firms adapt their services to the current crisis will be critical, and that this is the best way to help them do so.

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: 19th June

Although our headline number—a predicted contraction in the global consulting market of 16%—remains unchanged this week, we saw evidence that Q2 will prove to be stronger than many firms had feared. Both the North American and European markets, which currently account for around three-quarters of the global market, continue to improve slowly, pushed up by improvements in healthcare, retail, and manufacturing; and in operational improvement, technology, and strategy work. Clients remain cautious, however.

Cautious progress

As we’ve noted previously in these updates, there are many ways in which the COVID crisis is unlike any other to have hit the consulting industry. Strategies that have worked well in economic crises may be less effective in an environment where we’re unlikely to see improvements follow a consistent pattern. That’s worth bearing in mind where this week’s numbers are concerned.

Our top-line forecast has remained unchanged from last week: We’re still predicting that the global consulting industry will contract by 16% in the calendar year 2020, compared to 2019. The projections for North America have improved slightly, from -16% to -15%, as have those for Europe, from -19% to -18%. Both regions are benefiting from evidence that economic activity is starting up again, as lockdown restrictions are slowly and partially dismantled.

  Region 2019 (US$bn) 2020 forecast (US$bn) % change
North America 77.6 65.8 (15%)
Europe 43.1 35.2 (18%)
Asia Pacific 24.8 21.8 (12%)
Central & South America 5.1 4.0 (23%)
Middle East 3.7 2.9 (21%)
Africa 2.9 2.4 (18%)
  Total 157.2 132.0 (16%)

Chief among the sectors that have improved this week are retail, healthcare, and manufacturing. Throughout the crisis the retail and manufacturing sectors have been tales of two markets. Many companies with a strong presence in food and other staple goods have seen demand soar and have turned to consulting firms to help expand their operations, prevent their supply chains from being overwhelmed, and make better use of technology. For non-essential retailers, and for heavy and industrial manufacturers, the last four months have seen a precipitous decline in demand that has translated into significantly lower spend on consulting services. As one predominately non-essential retailer we spoke to put it, “We plan to use external help only where there is absolutely no alternative.”

The dynamics in the healthcare sector are different, with more thought now going into learning the immediate lessons of the last few months and, as evidence of just how difficult it is for countries to return to normal, planning for a long-lasting, complex health situation. Although our public sector numbers have stayed stable this week—we’re predicting a contraction of 11% in this market in 2020—more work has been going to consulting firms to help develop tracking and tracing systems.

  Sector 2020 forecast
% change
Energy & resources (29%)
Financial services (12%)
Healthcare (16%)
Manufacturing (22%)
Pharma 1%
Public sector (11%)
Retail (15%)
Services (29%)
Technology, media & telecoms (4%)
  Total (16%)

 

Underpinning all these changes, demand for technology consulting continues to improve: We now think that this year will see a contraction of just 6% in this market, up from -7%, and this is a hugely important market, generating almost a third of all consulting revenues. While technology has been a relatively strong market throughout the crisis, strategy started badly, but is now picking up, helped by the extent to which the reconfiguration of fragile supply chains, in parts of the manufacturing and retail sectors for example, is tipping over into restructuring work and paves the way for M&A work later in the summer. These early trends seem likely to turn into a slew of work as the full economic extent of the crisis becomes clear as corporations release their Q2 results. Job losses may not yet have been as bad as feared, but the tapering-off of governments’ furlough schemes will bring further bad news.

These trends are likely to impact consulting demand in several ways.

Research we did last year, analysing Fortune 500 companies, found a strong link between changes in profitability and in headcount, and their propensity to buy consulting services. A sudden and calamitous drop in profits will cause senior executives, under pressure from shareholders, to bring consultants in to stem the losses, whereas a gradual decline in profitability over several years does the reverse—cutting costs usually includes cutting consulting spend. By contrast, sudden cuts in headcount may be the result of consulting advice, but usually lead to a reduction in the use of consultants immediately afterwards, as corporations don’t wish to be seen hiring expensive consultants at a time when they’re firing their own staff. “We’re aiming to do as much work as we can in-house,” said another executive we spoke to this week. “Only where it’s absolutely clear that we don’t have the capability required are we prepared to bring in an expert from the outside.” In the medium to long term as the economic situation stabilises, the impact of headcount freezes that accompany lay-offs leads to an increase in the use of consulting services. Organisations often cut staff but not initiatives and prefer to use flexible resourcing from consulting firms as an alternative to recruitment—a pattern that was very clear in 2009-10, when the “jobless recovery” in the US gave an immediate boost to consulting revenues. Clients, like the retailer quoted above, may be planning to keep their consulting spend low, but may find that hard to sustain in practice.

All this suggests some bumps in the road ahead: Restructuring work may increase demand for consulting support in the short term, but if that turns into large-scale, widespread job losses, the increase may come at the cost of more general consulting work being curtailed or cancelled, at least for a period of time. As economies improve but clients remain nervous, we expect to see consulting demand grow. With this crisis, the factor complicating this otherwise familiar picture is technology. It’s become a truism of the last few months that many organisations have condensed 10 years’ worth of change into as many weeks. In non-crisis times, the time taken to execute change creates space for people to adapt: Jobs lost to technology are replaced by new ones, so the transition from the old economy to the new is usually less socially disruptive than feared. If clients expect technology will mean they won’t replace people when the recovery arrives, where does that leave consultants? There may still be an increase in using consultants to replace permanent employees lost, but if the work has been automated in the meantime, the increase may be significantly smaller than in the past. When it comes to balancing supply and demand, consulting firms will need to be as agile as their clients.

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.