COVID-19 | Update for 10th 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: 10th  July

For the fifth successive week, we’re forecasting that the global consulting industry will contract by 16% in the calendar year 2020, compared to 2019. This should not, however, be mistaken for stability, as improvements in some areas of the market are being offset by deterioration elsewhere. Moreover, clients, who need external help in the current environment, may not always be turning to consulting firms to provide it.

Clients want external support, but is that consulting?

Like the progress of the virus itself, the impact of COVID on the consulting industry is neither consistent nor predictable—it’s one of the key reasons why this crisis differs from earlier ones. In the global financial crisis in 2007-09, there was huge initial uncertainty around the extent of the damage to the world economy, but once that question was answered, investors and businesses could be reasonably confident that the only way was up. During the course of modelling this crisis, we’ve already been through three distinct phases. For the first six weeks (starting from 20th March), our numbers moved up and down, reflecting the wildly different experiences of consulting firms and resulting in an average weekly deterioration of 0.2%. Between weeks 7-14, the picture steadily improved, by an average of 0.5% per week. In this and the last two weeks, the average change has shrunk to +0.1%, suggesting that, while the overall prognosis for the industry is significantly better than it was at its nadir (-20% in week 3), the pace of improvement is slowing.

We think there are three reasons for this.

The first and most obvious reason is the caution that any business person would feel when looking at the progress of the virus globally. Europe continues to improve, up this week from -18% to -17%, as economies there continue their small, careful steps to relax restrictions. Rising infection rates and increasing restrictions in some parts of the US are denting corporate confidence, but the biggest consulting market centres around New York, where the situation is improving. Mixed news from Asia Pacific has less impact on our global numbers, as this accounts for 16% of the market (North America and Europe account for 77% of it), but the rate of improvement in our forecast for the region has gone from an increase of five percentage points in weeks 6-13 to virtually no change in the last four weeks.

  Region 2019 (US$bn) 2020 forecast (US$bn) % change
North America 77.6 66.1 (15%)-
Europe 43.1 35.6 (17%)
Asia Pacific 24.8 21.7 (12%)-
Central & South America 5.1 3.9 (23%)-
Middle East 3.7 2.9 (20%)-
Africa 2.9 2.3 (19%)-
  Total 157.2 132.7 (16%)-

The second reason is that the devil of this crisis lies in the detail. From a sector point of view, the forecast for the public sector is down, from a predicted 11% contraction to -12%, which is partly the result of a deteriorating situation in some emerging consulting markets (such as Indonesia and the rest of South East Asia).

  Sector 2020 forecast
% change
Energy & resources (29%)-
Financial services (12%)-
Healthcare (15%)
Manufacturing (21%)-
Pharma 2%-
Public sector (12%)
Retail (14%)-
Services (28%)
Technology, media & telecoms (2%)
  Total (16%)-

But look below these high-level numbers and we find fortunes being reversed, for good and bad. Education makes up 2% of the global consulting market. Up until recently, our model was predicting that global demand for consulting in the education sector would grow by around 3% in 2020, compared to 2019, buoyed by strong demand among schools and universities for support in moving almost all teaching activity into an online environment. However, many universities face funding deficits as lucrative overseas students, who were planning to start in August and September, defer their studies or decide to stay much closer to home. That’s already resulting in cost-cutting programmes and redundancies, making it much harder for organisations in the industry to justify bringing in expensive external consulting support, except in the direst of circumstances. Our model is now predicting a 3% contraction in this market. The consumer electronics consulting market was hit early in the crisis as China went into lockdown, leaving companies floundering to find alternative suppliers for key products and components. Things eased as lockdowns did, but renewed concerns about the virus, combined with a recognition that efficient supply chains were also fragile supply chains, has stimulated ongoing demand for supply chain consulting support.

The solution to this second issue is for consulting firms to micromanage their portfolios, ensuring they can react quickly to spikes of demand in specific sectors, while simultaneously retaining the ability to shift resources elsewhere as the market changes, and changes again. More easily said than done of course.

Our third reason why the pace of improvement is slowing should give consulting firms pause for thought. Research we carried out last year highlighted the extent to which clients in the US expected to buy in more services—rather than use their own, in-house resources—largely because so much of what they do now depends on rapidly changing technology capabilities. The COVID crisis appears to be accelerating that process. Technology is even more critical in an environment where far more office work is done remotely and where organisations are looking to automate processes rather than replace jobs. Wholesale and selective outsourcing is back on the corporate agenda, as organisations need to make immediate reductions to their cost base. “We don’t have time to change the cost base of parts of our business,” commented one client we spoke to recently. “We’ve no choice but to get rid of it entirely.”

There’s a risk here for consulting firms that this trend, assuming it continues, will eat into demand for conventional consulting. It both puts the clock back (a return to much, and rightly, maligned 10-year outsourcing deals) and pushes it forwards (clients are now even more interested in a new generation of managed services). Thirty years ago, when this last happened, the gains for the conventional consultants, who advised on big deals, were much smaller than those for the IT services industry. For consulting firms to ensure their success both through the immediate crisis and over the next five years, they will need to have a clearer and more comprehensive strategy for responding to this opportunity than they had the last time around.

Next Wednesday 15th July, we’ll be hosting a webinar looking at the ways in which clients’ make-buy decisions have changed. Sign up here.

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.