COVID-19 | Update for 24th 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: 24th  July

Improvements in the prospects for consulting services in healthcare; the public sector; and the technology, media & telecoms sector weren’t enough to change our overall forecast this week for the consulting industry in 2020, which remains a 15% contraction compared to 2019. The unfolding health crisis in the US is starting to depress the prospects for this market, which not only accounts for 46% of all consulting work but also acts as a bellwether for clients and investors globally.

Money and innovation: The consulting market needs both

Comments this week by Jonathan Haskel, a professor at London’s Imperial College and senior policymaker at the Bank of England, provide a good starting point for our update this week. Responding to the latest GfK Consumer Confidence Barometer (a widely respected monthly survey of consumer sentiment), which showed confidence petering out in July, despite rising in May and June, he said that “the path of recovery crucially depends on the fear of infection, which in turn depends on the mix of public (track and trace) and private (screens in shops) health measures undertaken. It also depends on the fear, or realisation, of unemployment, as weak activity and capacity constraints on the operation of surviving businesses, and insolvencies, translate into a fall in the demand for labour.”

Our research is not, of course, focused on consumer behaviour, nor is it confined to the UK. But the senior executives who buy consulting services the world over are consumers too, and confidence is also a key factor in their decisions. Like the GfK Barometer, our forecasts have been flatlining: What felt like a relief a couple of months ago, following the chaotic ups and downs of the pandemic’s first few weeks, is starting to become a cause for concern. Executives, like consumers, appear to be holding their breath. Nowhere is this more apparent than in firms’ pipelines: These continue to be strong—some are stronger than they were the same time last year—but price pressure is intensifying as decision-making is slowing.

Consequently, our overall forecast remains that the global consulting industry will contract by 15% in the calendar year 2020, compared to 2019. Improvements in the prospects for some European countries, particularly Italy, have resulted in an improvement of one percentage point across Europe as a whole, taking it from -17% to -16%. We also saw an improvement of one percentage point in the Middle East market, stemming mainly from increasing public sector activity—a point we come back to below. These were offset by marginally worse prospects in the US: Although this market is still expected to perform fractionally better than average, the rapidly increasing number of COVID cases presages the type of depressed confidence Haskel is referring to.

On a brighter note, we saw increases of one percentage point in the prospects for the healthcare, public sector, and TMT markets. Since the initial acute phase of the crisis has passed, healthcare organisations in Asia and Europe have had time to start planning for possible future waves, and the lessons from the first one have been far-reaching in terms of policy (the crucial role of residential care homes in spreading the contagion) and practice (the rapid adoption of new technology for managing patient interaction, etc.) While fee rates remain rock bottom in this sector, both aspects are driving up demand for consulting support. A similar story holds in the public sector: Immediate COVID response work is giving way to planning for the autumn and winter. We now expect the technology, media & telecoms market to shrink by only 1% this year—and it’s only negative because of the poorly performing media sector.

  Sector 2020 forecast
% change
Energy & resources (29%)-
Financial services (12%)-
Healthcare (14%)
Manufacturing (20%)-
Pharma 3%-
Public sector (11%)
Retail (14%)-
Services (28%)-
Technology, media & telecoms (1%)
  Total (15%)-

That highlights the importance of looking at the market at a more detailed level—by sub-sector. With a forecast of 11% growth, the high-tech sub-sector is the best-performing consulting market, as companies in this space expand in response to high consumer and corporate demand. Logistics—a mature and hardly stellar consulting market in the last decade—is expected to grow by 10% this year. The telecoms market is expected to grow by 5%, and pharma by 3%.

Although these aren’t the largest markets—they accounted for US$20bn in 2019, just under 14% of the global total—they’re important in what they tell us about the conditions for growth. All four markets share two characteristics: money and innovation. The search for a vaccine and effective treatment regimes is triggering huge innovation in the pharma sector and attracting funding from governments and investors. The consulting market in the logistics industry is being boosted by the need to rethink supply chains in response to rapidly changing patterns of demand. High-tech and telecoms companies have enjoyed strong growth in demand with rising share prices as investors flock to what often feels like the one sure bet in the current market.

Consulting firms might therefore do well to focus on sectors that combine these two factors—money and innovation. The problem is that many sectors have one, but not the other. No one would argue, for example, that airlines aren’t being innovative in the extent to which they’ve having to rethink their operations in the light of the catastrophic falls in demand they’ve experienced. However, while government bailouts and restructuring plans may give them some room to manoeuvre, they won’t have the money to spend on business-as-usual consulting services. The financial services sector has consistently hovered around the -12% mark in our forecasts—indeed, it’s only improved slightly from its nadir over the last 19 weeks compared to the 19 percentage point increase in healthcare. A key reason for this appears to be that while there is money—more so in insurance and capital markets than in retail banking—this hasn’t often coincided with innovation.

Consulting firms grow in a crisis by adapting their products and services to meet rapidly changing conditions: We saw this in the global financial crisis in 2008-09 and again when the price of oil dropped in 2014-15. But this strategy only works if clients themselves are prepared to buy new services, and what appears to be happening as a result of the unique circumstances of the pandemic is that those with (some) cash to spend on consulting work are being highly risk-averse. Consulting firms will have to work extra hard, this time around, to persuade clients that, in such an uncertain environment, it will pay to take a risk.

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.