Market Updates | 14th May 2021

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.

Strong performance in the consulting industry in Q1 2021

Anecdotal evidence over the last couple of months has pointed to a strong start to the year for the global consulting industry—and that’s now reinforced by a survey we’ve just conducted with around 80 consulting firms1.

Eight out of 10 firms have seen an improvement in their businesses in Q1 2021 compared to Q4 2020. This is on top of a recovery in the second half of last year, when the proportion of firms who’d outperformed against the same quarter in the previous year rose from 25% in Q2, to 39% in Q3 and to 62% in Q4. Only around 20% of firms said their performance was flat in Q1 2021, and just 1% said it was worse.

The wide geographic distribution of respondents makes it hard to draw definitive conclusions on a regional basis, but it appears that the US, UK, and Nordic markets performed best, while continental European markets such as France and Germany were relatively weak. Asian markets were somewhere between the two.

Clearer, though, are the differences between types of consulting firms. Perhaps because they had a strong end to 2020, the improvement in performance among the Big Four is slightly lower than the average. The same explanation may also underpin the 55% of operations firms who said their performance in Q1 was the same as Q4 last year. Boutique specialists generally said they’d performed slightly better but were the least likely to say it was much better, a testimony to how difficult the last 15 months have been for this segment. By contrast, no reader of our updates will be surprised to hear that technology firms performed relatively well, building on strong results in 2020: Forty-five percent described their results as much better than the previous quarter, compared to 38% of our sample as a whole. However, the strongest performers of all appear to have been strategy firms, the vast majority of whom rated their performance as much better.

Such positive feedback from strategy firms is important for several reasons. Strategy firms traditionally suffer worst at the start of any crisis, as clients cut back on longer-term planning to concentrate on the here-and-now. But they also tend to be the first to recover, so the fact that we see them ahead now suggests that, so far as the consulting industry is concerned, the crisis is in its final stages. However, digging a little deeper into our data yields two other possible explanations for strategy firms’ strong performance.

The first is that strategy firms appear to have been less dependent on existing clients when it came to winning new work in the first quarter. On average, only 50% of respondents from strategy firms said that at least 70% of work won in Q1 came from existing clients, compared to 77% among those from Big Four firms and among those from technology firms it was 73%. While a high proportion of work from existing clients suggests effective account management and cross-selling, it may also create a risk of too great a dependency on established clients. That could be a problem because the final stretches of past crises in consulting have always had a period when clients, who rely heavily on firms they know during times of uncertainty, change tack and actively seek out new suppliers. The Big Four and technology firms will need to ensure that success with existing clients doesn’t distract them from the imperative of developing new ones. It’s also possible that, when these firms do start to engage more with prospects, they may find strategy firms are there ahead of them and have used the tail-end of the crisis to further diversify into new services.

A second explanation may lie with fee rates—or, more precisely, on how consulting firms are responding to the pressure on rates. Increasing push-back from clients on fees is a hallmark of every crisis, including this one. That pressure abates towards the end of the crisis, although history also teaches us that prices very rarely return to their previous norms: Each crisis represents, in effect, a step down in average rates. That plays out in our data: Although 58% of the firms we questioned said that price pressure in Q1 2021 was similar to that of Q4 last year, almost a quarter said that it was less intense. However, strategy firms’ views were the most polarised: They were more likely to say that price pressure had both increased and substantially decreased. These mixed messages suggest that discounting may be a factor here. Strategy firms, of course, have the highest price point, and clients have quickly accustomed themselves to last year’s lower rates. Strategy firms are trying to reverse the latter, but the lower rates may also be proving useful when it comes to winning new work, especially with new clients.

If that turns out to be the case—if strategy firms’ success in Q1 is in part attributable to their willingness to discount, that has important implications for other firms. As the recovery takes on increased momentum, consulting firms may still find that the cost of winning work with new clients is keeping their fee rates low. A booming market, even one where specialist talent is in scarce supply, won’t necessarily translate into a more profitable one.

1 We had 79 responses from more than 20 geographies, covering a wide range of different types of firms, all gathered in early-mid April. We’d like to take this opportunity to thank all the firms who’ve been generous enough to contribute to this and all of our research.

All updates

Professional services firms need to start adapting to a multi-shock world 24th June, 2022
Anticipating a slight slowdown in the rate of growth 10th June, 2022
The impact of the professional services market pandemic recedes, but slowly 20th May, 2022
The outlook for professional services by sector in 2022 6th May, 2022
Strategy consulting in an age of crisis 22nd April, 2022
How the Russia-Ukraine war may change client needs 1st April, 2022
Initial thoughts on the impact of the Russia-Ukraine war 18th March, 2022
Tax services: Who stands to benefit from post-crisis growth? 4th March, 2022
Demand for professional services in the healthcare market: Growth through specialisation 18th February, 2022
Productivity improvement consulting and the impact of an inflationary environment 4th February, 2022
The impact of Omicron—and what this tells us about the professional services market in 2022 21st January, 2022
The top three sectors for professional service firms in 2022 26th November, 2021
What price recovery? 11th November, 2021
Supply chain shocks: What impact will they have on demand for consulting? 28th October, 2021
The Central & South America professional services market: In a permanent state of “recovery”? 15th October, 2021
Delivering a more tangible professional service 1st October, 2021
Professional services in the GCC: Post-pandemic resurgence 17th September, 2021
Trying to solve the consulting industry’s value problem 3rd September, 2021
The post-pandemic financial services market 20th August, 2021
Programme management: Why does a potentially valuable service underperform? 6th August, 2021
The consulting market in H1 2021: Outperforming expectations 23rd July, 2021
Pharma and life sciences: From strength to strength 9th July, 2021
Operational improvement services 25th June, 2021
Important lessons from Australia 11th June, 2021
Betting on risk 28th May, 2021
Strong performance in the consulting industry in Q1 2021 14th May, 2021
A fast recovery in the US professional services market 30th April, 2021
How fast will the public sector market for professional services grow in 2021? 16th April, 2021

See the size and shape of your market as you’ve never seen it before

Our model of the global professional services industry is the most powerful of its kind. It’s built from the bottom up and is fully customisable; meaning you not only get to see your market in greater precision and detail, but also in ways you’ve never seen it before.

Explore the model

Plan for what’s coming over the horizon

Our Market Trends Programme is designed to keep you informed about what’s happening in a wide range of geographical and sector-based markets; while our Emerging Trends Programme helps you to stay ahead no matter where, or for whom, you work.

Explore our reports

Make better investment decisions

Whether you’re a private equity firm looking for commercial due diligence or deal origination services, or a professional services firm trying to work out where to invest for growth, we combine world-class market data and peerless industry knowledge to help you distinguish the next big thing from the last big thing.

Find out more about what we do

If you’d like to hear more about how we can help, call us on:

+44 (0)20 3478 1204
+1 (0)800 767 8058
or email us here