Market Updates | 18th September 2020
We're all facing unprecedented challenges which will continue in the next few weeks and months in our daily lives, in our communities, and in our businesses. But we’ve also seen evidence of how, when people work together, they can make a difference. It's in that spirit of collaboration that we’ve been publishing regular updates and forecast data around the performance of the consulting market in 2020.
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 rather a guide to the rapidly changing conditions in the market. Like satnav or a GPS navigator, we’re constantly monitoring the route ahead and that’s why 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: 18th September
The prospects for both HR & change management and strategy consulting have improved in the last two weeks, although both are likely to remain negative for the year as a whole. Clients have a growing recognition that people, just as much as, if not more than technology, have a critical role to play in their organisations’ recovery, driving increasing interest around workforce planning. Strategy consulting is less likely to sit alongside digital transformation, as it would have done before the crisis, and more likely to be linked to cost-cutting and risk. Although neither of these changes was enough to improve our overall forecast, which stubbornly sits at a 14% contraction for the calendar year 2020, compared to 2019, both point to increasing resolve among clients: a willingness to adapt to the crisis, rather than a hope that it will dissipate.
Strategy consulting: First to suffer in a crisis, first to recover?
Regular readers of our market updates will be aware that the rate of change in our forecasts for the global consulting market in 2020 has stabilised over the last two months. There’s a growing sense that, while the pandemic is far from over, client organisations increasingly have the measure of what’s likely to be required for at least the next 12 months: the ability to repeatedly reconfigure services, operations, workforces, and technology based on rapidly changing market conditions.
Research we undertook in August found that dealing with an operating environment in which work is more unevenly distributed between people, with some working extremely hard and others underemployed, is the biggest challenge organisations face.1 This has been fuelling some recovery in the prospects for HR & change management consulting, resulting in an improvement of one percentage point in our forecast for 2020. However, solving this multifaceted problem requires a range of different capabilities, not just people-specific ones, including operational scheduling and technology. HR & change management consulting is therefore only one of the beneficiaries of this type of work, which is why we still think the HR & change market could contract by around 29% this year, compared to last.
| Services | 2020 forecast % change |
|
|---|---|---|
 |
Financial management | (26%) - |
 |
HR & change management | (29%)↑ |
 |
Operational improvement | (17%)- |
 |
Risk & regulatory | (12%)- |
 |
Strategy | (21%)↑ |
 |
Technology | (5%)- |
| Total | (14%)- |
But the bigger story here is about strategy consulting. We’ve seen further, steady improvement in the prospects for this area—the forecast for the strategy service line in 2020 has also improved by one percentage point, from a projected 22% contraction this year to -21%. The good news for strategy consultants is that there are likely to be further improvements to come in the last few months of the year, which aren’t yet reflected in our real-time forecast. Private equity activity is picking up, fuelled not just by the amount of money looking for investment, but also by the increasing number of good deals being explored. Demand for due diligence and corporate strategy work is up.
The only surprise about this is how long it’s taken to happen. The pattern of past crises suggests that strategy is first to suffer, and first to recover. At the outset, uncertainty makes clients reluctant to take investment decisions. The high price point for strategy consulting also makes consultants especially vulnerable to clients who want to cut costs. But as the size and shape of the crisis become clearer during its course, it becomes easier for clients to plan—and, of course, they also have a better idea of what the potential worth of any consulting work will be for them, so strategy consulting tends to start picking up at that point. That’s the general trend and a useful description of where we are now, but the current crisis is also unusual in three respects.
First, uncertainty has lasted longer and as it's receded it’s left the distinct feeling that, in fact, the only certainty is continuing uncertainty. We spoke to clients earlier in the year who were implicitly, and sometimes explicitly, saying that they didn’t want to have to change, and change again. Now, most accept that they’ll have to change far more often than they would like. It follows from this recognition that clients are planning more, and demand for strategy support is rising.
Second is the extent to which clients have moved on, from thinking about strategy and execution as separate entities that need to be linked, to seeing them as two sides of the same coin. If the defining characteristic of your environment is constant change, then the only strategy can be one in which plans are developed through implementation.
Finally, and perhaps most importantly, is the way in which the crisis appears to be changing the nature of strategy consulting. Research we did two years ago highlighted the extent to which, in clients’ eyes, the boundary around strategy consulting was becoming blurred, overlapping with large-scale digital transformation programmes, with increasingly widespread use of analytics, and with execution. The fact that strategy consulting was effectively being stretched into these areas raised the question of whether it would ultimately cease to exist. We argued that it wouldn’t, but it would in the future be far more focused around capabilities that tend to be found in consultants who do strategy: the ability to think creatively and solve problems on the fly, to orchestrate other capabilities, and to accelerate decision-making. Strategy now, as a result of the crisis, is being pulled in a different set of directions. It’s one of the areas that overlaps with workforce planning, because the latter raises profound questions about how organisations will be structured and will work. But clients are also taking a more strategic approach to cost-cutting and productivity improvement. The fact that clients are asking for consulting support in this area at all suggests that the solution won’t be as simple as taking 10% of costs out everywhere—certainly not if their main problem is that the balance of work has shifted. How to reduce costs consequently becomes a more strategic question, in the sense that it can only be solved by looking at what an organisation is in business to achieve, and how it plans to achieve it profitably. Less urgent in the short term but more important thereafter is risk and resilience—another area of consulting work that is being transformed by the crisis into a board-level issue.
This doesn’t point to the end of strategy consulting any more than our original analysis did. Indeed, the core skills of the strategy consultant we envisaged two years ago—creative thinking, problem-solving, the ability to orchestrate different capabilities and to speed up decision-making—all remain as important today, if not more so.
But it does raise some questions around where those strategy consultants work. Our research suggests that traditional strategy firms have not done as well as other firms when it comes to securing their reputation through the crisis. Strategy consulting may therefore be on the road to recovery, but it's far from certain which firms will benefit.
1Based on a sample of 104 senior executives in Europe, Asia-Pacific, the Middle East, and North America carried out in August 2020. For more information, please visit: https://reports.sourceglobalresearch.com/report/6946/the-financial-services-consulting-market-in-2020.
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.
