COVID-19 | Update for 3rd July 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.

Summary: 3rd July

As the consulting market slows, consulting firms will have to speed up. With our overall prediction for the likely contraction in demand for consulting staying unchanged (-16% for 2020 compared to 2019), it’s becoming clear that the consulting firms that will perform best during this crisis will be those that adapt quickly to meet the needs of three, increasingly distinctive client groups.

The need for speed

Time, it’s said, waits for no one. And time is turning out to be a critical factor as the global consulting industry tiptoes its way through the COVID crisis.

At first glance, time appears to be slowing down: The dramatic changes we saw in the early weeks of the crisis have steadied into consistent patterns. This week—and for the previous three weeks—our headline prediction, that the global consulting industry will contract by 16% in the calendar year 2020 compared to 2019, has remained unchanged. If we compare the last three weeks (19th June–3rd July) to the first three weeks in our model (20th March–3rd April) the extent of this slowing-down of change becomes clear. Across our first three weeks, the standard deviation of the change in our regional forecasts was four percentage points; across our three most recent weeks, it was only one percentage point.

  Region 2019 (US$bn) 2020 forecast (US$bn) % change
North America 77.6 66.0 (15%)
Europe 43.1 35.5 (18%)
Asia Pacific 24.8 21.8 (12%)
Central & South America 5.1 4.0 (23%)
Middle East 3.7 2.9 (20%)
Africa 2.9 2.3 (19%)
  Total 157.2 132.5 (16%)

The growing number of COVID cases in the US hasn’t had an immediate impact on consulting expenditure. We’re still predicting that it will contract by 15% in 2020 overall, with some services—notably technology and risk & regulatory consulting—significantly outperforming this. Although the forecast for Europe as a whole remains unchanged at 18%, that masks improvements in Italy and Spain, as these countries’ economies start to emerge from their enforced hibernation. The Middle East consulting market, while still overshadowed by the dramatic falls in oil prices earlier on in the crisis, has seen increasing economic activity in some states translate into more consulting work. By contrast, the overall figure for Asia Pacific, which has held steady at 12%, conceals small deteriorations as localised surges in infection rates and the resulting, sporadic lockdowns make clients nervous. But the biggest drop this week was in Africa, down from -18% last week, to -19% this time, reflecting data from consulting firms in the region describing an environment of growing chaos and falling expenditure on consulting services.

Less change over a longer period of time might be good news, because it generates a sense of predictability that might aid clients’ decision-making. But here we’re starting to see consulting divide into three distinct groups:

Some of the senior executives we’ve spoken to or surveyed recently say they’d like to wait a few more weeks to get a sense of what they should do. But there’s a risk that waiting turns into paralysis—and that, in turn, would make the swift recovery consulting firms are hoping for less likely. In such circumstances, the burden will fall on consulting firms to make the case for investment: Consultants won’t be able to ride a wave of growth that’s generated by clients but urgently need to do more to stimulate underlying demand. Publishing research, innovative ideas, and other thought leadership will be key, because simply having their senior partners ring up their closest clients offering sympathy and general help won’t be enough. Especially in this remote, online environment, having a distinctive point of view, backed up by hard evidence, will be essential if uncertain executives are to be nudged into making decisions.

But there’s another group of clients who simply can’t afford to wait—and for them, speed is everything. Increasing activity in retail, and by extension in manufacturing, improved the prospects for both sectors by one percentage point, to -14% and -21% respectively. Although the level of consulting activity here remains heavily dictated by the extent to which a client is involved in consumer staples and other non-discretionary areas of expenditure, the opening-up of non-essential shops in Europe and North America is slowly starting to close the gap between the two. Moreover, retailers and manufacturers, who had mothballed much of their capacity, have been keen to get back to normal as quickly as they can and are turning to consultants to help expedite the process.

  Sector 2020 forecast
% change
Energy & resources (29%)
Financial services (12%)
Healthcare (14%)
Manufacturing (21%)
Pharma 2%
Public sector (11%)
Retail (14%)
Services (29%)
Technology, media & telecoms (4%)
  Total (16%)

Consulting firms’ message to these clients should be different. Historically, one of the main, underlying reasons why organisations use consulting support has been that consulting teams, focused on a specific area and unencumbered by internal politics and other distractions, can act more quickly than in-house teams. But the last decade has tested clients’ patience: As consulting firms have grown and become more complex, they’ve started to look more like their clients and move at the same rate. To overturn this perception, consulting firms must demonstrate their ability to put experts—not junior people or generalists—on the ground (virtually or otherwise) at short notice, and show that they have adapted their implementation methodologies to deliver concrete results in short order despite not being able to work on clients’ sites.

Finally, there are clients who have been waiting in the hope that demand and the broader economic environment will improve but who will be unable to do so for much longer. While some jobs are being (re)created as the services sector picks up, the announcements of job cuts by major corporations—and some consulting firms—are mounting. This is only going to increase as national furlough schemes come to an end and as companies start to realise that the crisis is likely to last much longer than they’d originally predicted. Executives who worked through the global financial crisis will recall that more companies went bust six months after the peak of the crisis than during the peak itself. This realisation has already triggered a sharp increase in restructuring work, but is translating into more demand for strategy consulting and for broad-based analysis around risk and resilience. Time that is working against clients may work in favour of consultants over the summer months.

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.