COVID-19 | Update for 12th 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.

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: 12th June

Although the market situation remains volatile and consulting firms rightly cautious, we see increasing evidence of more predictable demand around a “COVID response” solution, combining a range of different capabilities. This has translated into an improvement in our forecast: We now expect the consulting industry to contract by 16% in the course of this calendar year, up from -17% last week. The emergence of this service will, however, require firms to change how they work, and challenges remain around whether clients will purchase new, comprehensive programmes or will buy piecemeal.

The strategy for strategy consulting

One of the most important questions we posed early on in our weekly updates was whether client demand would coalesce around a specific group of capabilities, which would eventually turn into a “COVID response”. Over the last few weeks it’s become increasingly obvious that this is happening, and that this development is creating a greater sense of stability and predictability in the consulting market. It is not, however, without some drawbacks.

Comparing the results of our ongoing survey of consulting firms from early April with those of the last couple of weeks demonstrates the extent of the change. Two months ago, almost every consulting firm we spoke to saw a rapidly and significantly deteriorating situation; now the majority say that market conditions are either stable or improving slightly. There is still geographic variation, but the overall picture is calmer and more positive. But it’s recent feedback about the types of consulting services clients are looking for that’s most revealing. Eighty percent of firms said that they've seen demand for digital transformation work, with 50% saying that clients are looking for help adapting to working in an online environment. These are linked: The immediate shift to remote working was faster and less painful than many client organisations expected (and consulting firms for that matter), and once teething problems had been solved, it became clear that people can work very productively in this way. As a consequence, many of the digital transformation projects that were in progress at the start of the crisis, some of which were initially paused, have been re-scoped and restarted, often with a strong focus around changing supply chains in the broadest sense. If anything, clients are anxious to get more results more quickly.

Forty-five percent of consulting firms report a spike in demand around cost-cutting. From an economic standpoint, this is no surprise—many organisations will emerge from the crisis with lower levels of profitability. However, it bucks recent trends in consulting, in which clients have tended to do this type of work for themselves. Combine cost-cutting with digital transformation, however, and we can see that a key part of the emerging “COVID response” is to deliver more radical savings through technology.

Another significant component of the “COVID response” is strategy. A third of the consulting firms we’ve surveyed in the last couple of weeks have seen increasing demand in this area, suggesting that senior client executives are now finding the mental space to think about the future. We remain cautious, however: Past crises have seen strategy consulting bounce back quickly, but without a clear, predictable path out of our wider economic and social crisis, clients are telling us that they will want to carry out the strategy component of their planning in multiple, much shorter bursts, repeating the process in response to unforeseen changes in their operating environment. While there will always be exceptions to this, and while other factors (increasing M&A activity, for instance) may lead to a more traditional resurgence in strategy work later in the summer, it looks as though the improvement in demand will be more gradual than it has been in the past.

There’s also a people component: Although our data for HR & change management consulting overall, which includes a host of organisational design, development, and remuneration work, still shows that this is by far the worst-affected part of consulting, a quarter of firms have seen an increase in demand for workforce planning—helping organisations work out the number and types of employees they’ll need—and for behavioural change around technology adoption. Finally, there’s an analytics component: In what remains an appallingly uncertain environment—and in this respect this crisis is very different to the global financial crisis of 12 years ago—the ability to gather, analyse, and act on new types of information, gathered on a real-time basis, will be critical.

Put all this together, and we think the emerging “COVID response” consulting solution will look like this: the reinvention of digital transformation, with cost-cutting, strategy, people, and analytics components.

Like other higher-growth services of recent years—cybersecurity, analytics, and of course the “original” version of digital transformation—success will depend on firms being able to weave together different disciplinary threads. That’s something that, according to clients before the crisis, consulting firms still need to work on. What’s also not yet clear—and this is potentially the biggest fly in the ointment—is how willing clients are to buy this as a single package of work. For the moment, we’re hearing them talk about adopting a modular approach: do some of the work, evaluate the benefits, decide how to proceed. That has obvious implications for the length of projects and therefore for the strength of firms’ pipelines; it may also drive up firms’ cost of sales.

All the above is reflected in this week’s forecast, which sees operational improvement, strategy, and HR & change management all improving by one percentage point each. The forecast for financial management has also improved on the back of increasing work around liquidity planning and cash-flow management.

  Services 2020 forecast
% change
Financial management (27%)
HR & change management (34%)
Operational improvement (18%)
Risk & regulatory (15%)-
Strategy (27%)
Technology (7%)
  Total (16%)

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.