COVID-19 | Update for 26th 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: 26th June

The more positive news of recent weeks has slowed this week. Although the second quarter of this year is likely to prove better than feared, the absence of the fast, V-shaped recovery many clients and consulting firms have been hoping for is dampening the prospects for growth in demand later in the year. A further complication is rapidly growing pressure on consulting prices.

The price isn’t going to be right

At the highest level our forecast hasn’t changed since last week: We expect the global consulting industry to contract by 16% in 2020, the same level of contraction as we were expecting last week. But high-level numbers can give a misleading impression: Beneath the surface, there have been a range of different factors pushing our more detailed numbers up and down. That one is cancelling out the other shouldn’t blind us to the uncertainty and unpredictability being felt right across the market.

That sense of jitteriness has been palpable in the US this week. Early relaxation of lockdown restrictions and political wrangling have led to increasing infection rates, further damaging business and consumer confidence. This has a direct bearing on clients’ willingness to invest, including in consulting support. However, from research we’ve undertaken in the past, we also know that US executives remain more likely to invest in technology—even during a crisis—than their counterparts in other countries. As noted in last week’s commentary, digital transformation is being repurposed for the crisis, and nowhere more so than in the US. The fact that significant technology projects are being won by firms, and new opportunities are being added to their pipelines, is offsetting clients’ nervousness, leaving our predictions for the US market overall—that it will contract by around 15% in 2020 compared to 2019—unchanged this week.

Where we have seen a deterioration is in Central & South America. More specifically, the rapidly rising level of infections in Brazil, combined with political and social turmoil, is creating an environment in which normal business, including consulting work, is becoming increasingly difficult. We forecast that this market, which accounts for around a quarter of the region, will contract by 27% this year. By contrast, the Mexico consulting market is predicted to fall by 19%, Argentina by 23%, and Venezuela (where COVID is only the latest addition to an already chaotic situation) by 25%. Week-by-week changes in these countries tend to be small, but the decline in the Brazil market is, if anything, likely to become even sharper.

  Region 2019 (US$bn) 2020 forecast (US$bn) % change
North America 77.6 65.6 (15%)
Europe 43.1 35.2 (18%)-
Asia Pacific 24.8 21.8 (12%)-
Central & South America 5.1 3.9 (23%)
Middle East 3.7 2.9 (21%)-
Africa 2.9 2.4 (18%)
  Total 157.2 131.8 (16%)

Although we haven’t seen a material change in our numbers by sector this week, consulting firms are reporting an uptick in activity in the retail sector. As shops reopen in many Western economies, retail sales are starting to pick up again but pictures of people queuing to go into shops aren’t blinding anyone to the fact that sales are still nowhere close to pre-crisis levels, and a socially distanced world means that sales per square metre are likely to remain significantly lower than some retailers need them to be to survive. On the other hand, online shopping continues to thrive—and that’s translating into more investment in consulting support around technology.

Overall, we expect that technology consulting will contract by 6% this year, and by only 4% in the US. By contrast, the uncertainty in the US has prompted us to marginally downgrade our global forecast for strategy work. Based on the information we have at the moment, we predict that this market could contract by as much as 27% this year, compared to 2019. But—as previously noted in these updates—many hopes are pinned on an increase in M&A activity later in the summer, and a worsening situation in the US will make investors and corporations more cautious. Conclusions of high-profile deals, like LVMH’s US$16.2bn acquisition of Tiffany, the US jewellery chain, announced in November last year, will be important indicators of what’s to come.

  Services 2020 forecast
% change
Financial management (26%)
HR & change management (34%)
Operational improvement (18%)
Risk & regulatory (14%)
Strategy (27%)
Technology (6%)
  Total (16%)

Increasingly though, we’re having to take another factor into account when forecasting consulting firms’ future revenues: fee rates.

For the last three decades, economic crises have impacted firms’ prices more than their utilisation. Clients have still needed help, so there has rarely been a shortage in overall demand, but they may not have had the wherewithal to pay for it. Consulting firms, anxious to cement their position in key accounts and to keep their best staff busy, have been prepared to accept lower margins. While this crisis appears to be following this broad pattern, it’s also starting to look different in three key aspects.

The first is that clients appear to be becoming very aggressive in asking for discounts. “We want your COVID price” is something many firms are hearing: “The term ‘COVID-19 discount’ seems to be being thrown around very liberally,” commented one contributor to our ongoing survey. That sounds like procurement talking—and it’s quite clear that procurement teams, who were often kept at arm’s length in the early stage of the crisis, are once again playing an important role in the negotiations around new projects. But the trend isn’t confined to procurement: Strategy firms, for example, may be doing an excellent job in staying close to their most important clients—but those clients are now asking for free support.

The second issue is that many consulting firms have gone into this crisis with narrower margins than they would have had historically. It’s extremely hard for firms to push up fee rates once they drop, so past crises have taken their toll. By contrast, salary inflation never abates, and investment demands, especially around technology, have been growing.

Third, we see no material shift towards the types of outcomes-based pricing that might have allowed clients to manage the risks involved in commissioning large-scale consulting projects, and consulting firms to recoup margin that’s lost in lower daily rates.

At the heart of this is a bigger worry: that consulting firms are losing the argument about value. Even before the pandemic, our research suggested that clients were much more likely to have positive views about the quality of work consultants do than they were about the value the latter add (71% spoke positively about quality, compared with 40% about value). Because this is a social crisis as much as an economic one, it should be an opportunity for consulting firms to demonstrate how they can help businesses—and some firms will undoubtedly emerge stronger because they have succeeded in doing so. But there’s a growing risk that the industry as a whole comes out, yet again, at a lower price point.

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.