Market Updates | 21st January 2022
The pandemic is accelerating the pace of change right across the professional services sector, amplifying pre-crisis trends as well as triggering entirely new ones. We’ll be keeping tabs on these over the coming months: We’ll be reporting back on what clients are telling us and how we see different segments of the professional services sector perform, as well as highlighting emerging opportunities and challenges. As always, we’ll be taking a fact-based approach. Our market sizing data comes from our unique model of the professional services sector, with more than $1tn of revenues broken down by sector, geography, and capability. Our forecasts are constantly updated to reflect the latest market data we have available from firms and their clients. Client data comes from our rolling programme of quantitative research and interviews.
The impact of Omicron—and what this tells us about the professional services market in 2022
Preliminary numbers for 2021 suggest the year was one of exceptional growth, with revenues increasing due to a combination of pent-up demand from 2020 and a wave of investment from clients that have emerged from the crisis with more ambitious corporate goals (our latest research indicates that around 75% of clients have more ambitious corporate goals than pre-pandemic). Will the Omicron variant, currently driving record infection rates in many countries including the all-important US market, change this?
In late December, we carried out a “pulse” survey of around 80 consulting firms around the world. While not statistically robust, we’ve found surveys such as this to be helpful indictors of change, almost as it happens.
The first point to note about clients’ response to Omicron is how fast they’ve been to return to remote working. In some countries this is the result of government advice and/or other restrictions, but it’s often also a choice that individual organisations are making for themselves; the best way to manage risk to their workforce—and consequently the business as whole—is to get people to work from home. A third of consulting firms said their clients had done this to a large extent; only a quarter of consulting firms said there had been little change. The return to remote working has been higher in Europe than in North America, and it’s generally lower in Asia.
Should professional services firms be concerned about this return to remote work? Eighty-five percent of the firms we surveyed said that the return to remote working had had no detrimental impact on clients’ willingness to use consultants. However, that proportion fell to 64% in North America, which at the time of the research was just starting to experience its current surge of Omicron cases, having watched the variant quickly and dramatically take hold in other geographies—most notably in Europe. We can conclude from this data that clients will be at their most nervous in the early days of a new variant and that their most likely response to renewed uncertainty will be a rapid shift back to remote working. Levels of office-based work may increase as the picture becomes clearer, but we shouldn’t bet on it being permanent, and professional services firms need to anticipate and be prepared for constant change.
The second key message from our survey is that Omicron is having an impact on clients’ investment decisions. The good news is that this is relatively limited: Almost three quarters of firms said that investment and other decisions that might have translated into consulting work were not at all impacted, with just under a quarter of firms experiencing work being put on hold “to some extent”, and vanishingly few saying this was a serious concern. Again, the proportion was higher in North America, where 45% pointed to at least some delays in decision-making, in contrast to 23% in Europe. This was accompanied— and probably driven—by a discernible shift in clients’ thinking from the long- to the short-term. Overall, 39% of firms said that their clients were more focused on immediate issues, with firms in the US more than twice as likely to say this is the case than their counterparts in Europe (74% to 30%).
A greater focus on short-term issues is a double-edged sword for professional services firms, as the spring of 2020 demonstrated. It can lead to urgent requests for help and support, but may also result in some longer-term, less critical projects being deferred. Now, with all the hindsight clients have gained from dealing with the consequences of the pandemic, a surge in urgent work is much less likely. To take the most obvious example, few organisations will need help moving to remote working this time around. The more waves of infection we have, the less the need for urgent help. As a consequence, professional services firms should expect a slow-down in the number of large-scale projects coming to the market, at least for the moment.
But more of a concern—and this is the third key message from our research—is that consulting firms told us that around 20% of clients are cutting back their expenditure on consulting services because they don’t have the budget. This is higher than the proportion of firms who saw cutbacks as a result of the return to remote working, and suggests that some of the long-term economic damage wrought by the pandemic, but hidden by government subsidies, is starting to become apparent.
While professional services firms will probably ride out the Omicron wave without seeing a significant impact on the rate of growth, they may need to keep a watchful eye on longer-term budget-tightening from their clients.