COVID-19 | Update for 31st 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: 31st  July

The consulting industry needs help. Its prospects for 2020 are improving, but slowly. Although there’s been an improvement of three percentage points in our forecast over the last 10 weeks, our latest forecast still predicts a 15% contraction in this calendar year, compared to 2019. Increasingly this is a tale of two markets, in which some sectors have seen much more rapid improvement in their forecasts than others. The problem, though, is that the sectors whose forecasts are improving more slowly amount to 60% of the market. This creates two strategic challenges for consulting firms. They’ll face intense competition in markets whose forecasts are improving more quickly, putting them under pressure to develop better and more differentiated solutions. But the fortunes of the markets whose forecasts are improving more slowly need external stimulus. In past crises, this has taken the form of regulation; in this one, much will depend on post-summer levels of M&A activity.

A waiting game

Ten weeks is a long time in a crisis.

In the last 10 weeks, we’ve seen the overall prognosis for the global consulting industry improve from a predicted contraction of -18% in week 10 (the week ending 22nd May) to -15% this week (week 20).

Over that period, there’s been positive news in many areas. From a regional perspective, the forecast for Europe has moved from -20% to -16%, as economic activity has picked up. On a country-by-country basis, there’ve been significant improvements in the forecasts for Italy and Spain, bolstered by smaller improvements in the main European markets—the UK, Germany, and France. The forecast for the Middle East has gone up from -23% to -19%; after the initial shock around the fall in oil prices, client activity is recovering, with new projects being commissioned. Although the recent surge in infection rates threatens client confidence in the US, North America’s prospects have risen from -17% to -15%. However, those of Central & South America and Africa have deteriorated somewhat, both down one percentage point to -23% and -19% respectively. The picture in Asia Pacific is more mixed—most countries were in a more positive position in late May, and have seen only smaller improvements since then; however, the prognosis for some, such as India, hasn’t changed.

However, looking back at the performance by sector over the last 10 weeks, it’s also become clearer that the consulting market is dividing into two groups.

The first of these is a group of relatively strong-performing markets. Pharma continued its rise this week, improving by one percentage point such that it is now forecast to achieve 4% growth this year. The TMT sector, buoyed by huge demand for high-tech and telecoms services also improved: As a whole, this sector is predicted to be the same as 2019, up one percentage point from last week and from -6% 10 weeks ago. But, once we take out the poor-performing media part, the picture is even more positive: The consulting market among high-tech companies is expected to grow by 12% and telecoms by 7%. Although not changing this week, the manufacturing, retail, and healthcare sectors have seen substantial gains of four to five points in the last 10 weeks.

Improvements over the 10-week period have been more modest in the second group. After an initial and rapid boost to consulting demand in the public sector in the earliest weeks of the crisis, improvements in the last 10 weeks have been small—just two percentage points. The havoc wreaked by the virus and its broader economic impact continues to significantly depress the forecasts for consulting demand in the energy & resources sector and the services sector. The forecast for financial services holds relatively steady, as it has done since mid-March, when we started our modelling.

  Sector 2020 forecast
% change
Energy & resources (28%)
Financial services (12%)-
Healthcare (14%)-
Manufacturing (20%)-
Pharma 4%
Public sector (11%)-
Retail (14%)-
Services (28%)-
Technology, media & telecoms 0%
  Total (15%)-

Comparing the predictions for these two sector groups today with those on the 22nd May, those for the first group have improved roughly three times faster than those of the second group. For consulting firms looking at which areas to focus on and where to allocate their resources for the rest of this year and into the next, it would make sense to maintain their presence in the financial services sector and public sector, because the overall level of forecast contraction here is relatively modest, but to also concentrate on identifying and nurturing opportunities and relationships in the pharma, healthcare, high-tech, and telecoms sectors, as well as in the manufacturing and retail companies that have seen huge increases in demand during the crisis and/or are changing their business model in the light of shifts in consumer buying behaviour.

But the sensible courses of action may not be sufficient.

In good economic times, most sector consulting markets grow—certainly not equally and some (such as the public sector) have countercyclical tendencies—but enough to mean that firms can operate across multiple sectors and expect growth from just about everywhere. In this crisis, the markets whose forecasts are improving the fastest—our first group of sectors—account for 40% of the market, which means that firms looking not simply to survive the crisis but grow, will face much tougher competition. The industry will, in effect, be trying to squeeze more supply into a small demand space. Moreover, falling average project values will make it harder for any firm to win large-scale, “flywheel” projects designed to transform entire organisations. Changes in market share are likely to be incremental: “Owning” a client will become more challenging. Being successful in this environment will depend on firms having a good understanding of how their competitive landscape has changed, and on having better, more distinctive solutions.

Where our second group is concerned, even innovation from consulting firms may not be enough—and here the consulting industry may need some outside help. One of the main reasons why it has been able to withstand past crises comparatively unscathed is because they resulted in regulation—and that created demand for consulting support to help organisations understand and then implement new sets of rules. But this is not a banking crisis, and although some regulation is likely to be created as a result, it’s not immediately obvious what form it will take. Another critical source of consulting work in past crises has been M&A-related, generating strategy, due diligence, and financial work for consulting firms in the short term and, potentially, years of post-merger technology and operational integration work after it. There is no reason to assume that the COVID crisis is exceptional in this respect at least. Many of the consulting firms we speak to report having conversations with clients in this area, which they expect to convert into substantial projects in the future, and these will have a significant impact on our forecasts for the strategy and financial management markets.

The expectation is that things will start to move after the summer: For the moment, it’s a waiting game.

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.