Market Updates | 13th November 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: 13th November
With 2020 crawling towards a conclusion, there are few changes of note to our forecast for the year as a whole; we expect the global consulting market to contract by 13% this calendar year compared to the last. Asia Pacific remains the least impacted region, although here—as in other regions—there are significant variances between individual countries. The Europe consulting market may be in for a few difficult weeks, but that’s unlikely to change our prediction of a 12% contraction there for the remainder of this year. The Middle East market has already started to recover some of the losses in the summer but too late in the year to change our prediction of a 15% fall. The US market, slower to enter the crisis, will also be slower to leave it, so we’re pegging the contraction there at 15% too. The more fragile consulting markets in Africa and Central & South America look set to shrink by 18% and 22% respectively.
The beginning of the end? How the prospect of a vaccine may impact demand for consulting
With only seven weeks to go to the end of 2020, there’s little scope for our forecast numbers to change for this year. Adjustments this week reflected improvements in some areas of strategy, and in healthcare, but only one set of changes—to the energy & resources sector—was significant enough to have an impact on our headline figures. Although still one of the worst-hit areas of the consulting market overall, a combination of cost-cutting and restructuring work, and the easing of budgets in the Middle East, has resulted in an improvement of one percentage point, to a 24% contraction this calendar year.
All eyes are therefore turning to 2021, and the extent and speed of recovery in demand for consulting, assuming that the renewed strictures in many Western economies are short-term. However, one of the key factors in developing a longer-term forecast is the efficacy and availability of a COVID-19 vaccine, dramatic news about which we’ve heard in the last few days. While it’s far too early to register any impact on our numbers for the consulting market, it’s still a good moment to speculate on how the possibility of this crisis having an end may shift client investment patterns and, as a consequence, the demand for consulting services. As we’ve noted in these updates before, consulting work thrives on change, but is depressed by uncertainty. In the spring through to the early summer, uncertainty won. Many consulting projects were paused; those that weren’t and the new projects that were started were in areas where clients were in no doubt that they needed help—reconfiguring supply chains, making the rapid leap to mass remote working, etc. By the late summer, clients were both more confident that they understood what they had to do—reorganise their workforces, cut costs, accelerate technology adoption—and more resigned to the fact that this would be a prolonged crisis.
All of that was captured in our numbers, with the volatility of March-July being replaced by a steadier but less rapidly improving state from August onwards.
The news that there appears to be at least one successful vaccine is likely to impact demand for consulting in three stages.
First, and in the very short term, Western-based organisations will be waiting and seeing. Having experienced multiple disappointments over the last nine months and with rapidly rising infection rates in many major markets, clients are unlikely to react precipitously. Too much uncertainty still remains about the logistics of mass vaccination programmes, and that combined with scepticism around some governments’ ability to manage the roll-out, makes it likely that clients will assume that the current, highly unpredictable operating environment will continue for much of next year. Clients will continue with the changes they’re already making to their organisations but will probably veer away from big decisions that might compromise their ability to recover post-crisis. For consulting, this will result in a renewed slowdown in some areas, but nothing compared to what we saw in the early summer. Projects are likely to be smaller (or broken up into shorter phases) because clients will recognise that they may need to change direction. But essential projects, especially those forced on organisations because they have either too much work to do or too little, will continue.
The second stage will start as it becomes clear that the vaccine does work and can be distributed quickly and effectively. This will raise the tantalising prospect that the pandemic may have a more definite end than many people had feared: Even if some level of infection remains, a combination of high vaccination levels and shifts in people’s behaviour will mean that life can return to almost normal. Some aspects of uncertainty will be reduced (there is an end), but some will remain (what will the end look like?). As a result, businesses will want to do two things: They won’t want to waste what remains of the opportunity to make the strategic decisions about their existing business and operating model that they may have been postponing before the crisis, and they’ll want to gauge the extent to which their markets and customers have been permanently changed during the crisis. This is going to boost demand for strategy work, from scenario planning, market analysis and research to target operating model design—all areas where we’ve been seeing some signs of improvement already, although not enough to make up for the considerable ground lost in 2020.
The third and final stage will begin as uncertainty gives way to change. With both the sense of an end date and a more clearly defined post-crisis world, clients will want to get moving, stealing a march on their competitors if they can. This will, we think, translate into the type of surge in consulting activity seen towards the end of other crises as the pent-up need to change becomes impossible for organisations to contain. Key here will be the ability to deliver results quickly, which means extensive amounts of work around people, processes, and technology.
With all that in mind, our next market update—which will also be the last in 2020—will focus on our early forecasts for 2021, as well as a summary of what we’ve learned this year.
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.
