Market Updates | 4^th September 2020

Back to school … and back to the office too?

For many countries in Europe and the US, the past couple of weeks have heralded a return of children to some sort of normality at school. Politicians have highlighted the importance of this move for the long-term future of children, but will the opportunity it creates for a meaningful return of workers to their offices also provide a much-needed economic boost?

We can’t be sure. But whichever way it pans out, this feels as though it could be an important marker in the crisis; a moment when we test just how close we are to any kind of a return to normal. And whatever we learn from that is likely to present opportunities for professional services firms.

We’ve already talked before about the growth in workforce planning as a service line, but if the return to the office is to be a reality then clients will have a host of issues to deal with that are totally new: creating office bubbles, new office layouts, crisis management planning for a second wave or local lockdowns, occupational and mental health support for those who can’t return to the office, along with procedures for those who are nervous or choose to stay at home, and all this alongside technology solutions that support these variable and potentially unpredictable working patterns. Put all this together and it’s not hard to imagine some sort of sophisticated, multidisciplinary offering—encompassing strategy and risk management alongside a wide range of people-oriented services—that helps clients to respond to the uncharted territory in which they’ll find themselves.

Realising this opportunity won’t be straightforward for consulting firms though, not least because they’ll be dealing with the same issues at the same time. Consultants tend to advise best where they have reference points and right now there are relatively few of those. Indeed, that may spur firms to position themselves at the vanguard of efforts to persuade staff to return to the office. What better reference point than the experience of your own firm? They might also be persuaded by a sense of duty (implicit or explicit) to repay the trust placed in them by governments (in the UK, for example, consulting firms have been awarded upwards of £100m in government contracts) by toeing the party line and leading the way.

For the time being that’s not enough to move our headline figure for the global consulting industry in 2020, which holds steady at a forecast 14% contraction compared with 2019. But there are some important underlying changes. From a service line perspective, our view of the growing importance and complexity of the response work talked about above has prompted us to lift the HR & change management service line forecast once again, from -31% two weeks ago to -30%, particularly where it is offered as part of a broader project rather than as a stand-alone offer. It’s not a big uplift, and the service remains firmly rooted in negative territory, but it’s movement in the right direction nevertheless, and could pave the way for further improvements.

Following on from our last update, we also see strong signs that M&A work will continue its uptick with growing appetite for deals in several industries including telecoms and utilities where the COVID crisis has exposed infrastructure weaknesses and created opportunities for companies looking to boost network coverage and resilience.

From a geographic perspective, continuing uncertainty in the US, exacerbated by an increasingly febrile election build-up, means we expect the consulting market to tread water for the next few weeks and we have retained our -15% forecast for North America. Meanwhile, we’ve shifted our forecast for Europe up from -14% to -13% to reflect governments' desire to boost their economies and the level of business in sectors where European nations are strong, such as pharma and TMT.

However, it is the view by sector that is most informative. Our view of the healthcare and pharma sectors remains bullish: Work in COVID-19 areas is unsurprisingly buoyant, particularly as several vaccine trials show promise, but there are signs of increasing interest and deals in non-COVID arenas too. As such we’re now forecasting 7% growth in the pharma sector, up from 6% in our last update. In healthcare (whose forecast for 2020 has risen from -12% to -11%), longer-term planning is coming into greater focus with governments exploring reforms for state healthcare systems and providers, and the pandemic has also accelerated awareness of the need for mental health programmes in several countries. TMT is another sector where we see an improvement in our forecasts: We’re now forecasting growth of 2% in this sector in 2020, on the back of increasing deal volumes alongside regulatory work to address ongoing concerns around, for example, 5G, Huawei, and TikTok. Demand for video conferencing continues and many providers are bringing out enhanced features that will undoubtedly forge consulting work.

The big question remains whether having children back at school becomes a catalyst for more people returning to their places of work, and whether consulting firms play a big role in helping to make these environments sustainable and future-proofed.

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, and the broader evolving market, 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.