COVID-19 | Update for 9 April 2020

We're all facing unprecedented challenges in the next few weeks and months, in our daily lives, in our communities, and in our businesses. But we're already seeing evidence of how, if we work together, we can make a difference.

It's in that spirit of collaboration that Source has put together an estimate of the impact we think COVID-19 will have on the global consulting industry during the course of 2020. We're very grateful for the input of a wide range of firms from around the world who've helped us do this, providing up-to-the minute information on how we should adjust our existing model of the industry.

While based on the best information we have at the time of writing, our forecast and commentary are intended to be directional, providing guidance for future planning. In an environment where everything is changing very quickly, our predictions will inevitably change. Over the coming months, we will be updating the forecast on a weekly basis. For more information on our data and methodology, please see the end of this bulletin.

Please help us to help you: We've only been able to pull this forecast together so quickly because of the input of the hundreds of firms from all over the world who responded to our initial survey. Please help us by sending us your updates week by week, by following this survey link. Every single one of these responses helps us improve our forecasting.

Summary: 9th April

Our estimate of the likely overall impact of the COVID-19 virus on the consulting industry remains similar to last week. With demand in the all-important US market deteriorating relatively slowly and government initiatives likely to increase the public sector’s need for external support, our 2020 growth projections for the US have remained steady at -19%. There are small changes, too, in client behaviour that suggest the top leadership teams of some organisations may be starting to move out of immediate crisis management into planning for mid-term resilience, and thinking about the operational and financial changes they’ll need to make to adapt to a locked-down/semi-locked-down world and beyond. To borrow Churchill’s famous phrase, “This isn’t yet the beginning of the end, but it might mean that we’re starting to see the end of the beginning.”

Are we seeing tentative signs of the end of the beginning?

Like many business people, we expect the COVID-19 crisis to have three distinct phases.

In the first phase, clients’ attention has been almost entirely absorbed by formulating a response to the immediate crisis, whether they’re an airline rapidly mothballing the bulk of their operations and looking for financial support, or a food retailer struggling to meet massively increased demand during the lockdown. Decisions about existing and new consulting projects are largely put on ice. This means that many firms remain busy but have seen rapidly shrinking pipelines for future work.

In the second phase, clients have the measure of what they need to do to manage the immediate crisis: They may still be preoccupied and, at senior management level, frantically busy, but they now know what they’re doing. The key to their thinking here will be medium-term resilience, how to keep their businesses going in an unpredictable world in which many of the operational norms have disappeared. Well before the end of this second stage in economic terms, many clients will start to think about what the post-COVID-19 world will look like, and they’re unlikely to expect, perhaps even want, to turn their organisational clock back.

The third and final phase sees the desire to plan for a different future taking hold, not just in terms of client activity but also emotional and imaginative engagement. Lessons will have been learned during the crisis about what it’s possible to achieve in terms of productivity change, the speed and ways in which you can make use of new technology, and how long-held assumptions can be successfully challenged.

Most of the changes we’ve made to our model this week are still a reflection of the rapid fluctuations that are an inevitable aspect of the first phase. That our projections for the entire calendar year 2020 versus 2019 have improved slightly, from -20% last week to -19% this week, is largely down to taking account of the work that some consulting firms are now doing to support government initiatives, whether that’s project-managing the building of massive field hospitals or working with governments and banks on the rollout of economic stimulus packages. As a result, we’re more positive about public sector consulting, where we expect the contraction to be 18%; a single percentage point improvement on our previous forecast. A note of caution here, though: Some of this work is being done for free, and where it is being done on a more commercial basis, fee rates—always relatively low in this part of the market—are likely to be at rock-bottom levels. Consulting firms, rightly, don’t want to be seen as exploiting the crisis, but it does mean that greater activity in the public sector won’t automatically translate into revenue. It’s worth recognising, too, that this work won’t be evenly distributed: Public sector clients, as much as their private sector equivalents, are likely to turn to large firms, partly through risk aversion, partly because of the scale of the work. Large firms can also afford to work for free, or for much lower rates.

Government initiatives will have a knock-on effect on other sectors, which is one reason why our forecasts for financial services and healthcare are also slightly more positive. Manufacturing has improved from -27% last week to -26% this week, but there are significant differences with consumer product companies likely to need consulting to help manage and reconfigure their supply chains, while industrial manufacturing and automotive have got worse, both of which have implications for OEMs, etc.

  Sector 2020 forecast
% change
Energy & resources (28%)
Financial services (11%)
Healthcare (27%)
Manufacturing (26%)
Pharma (7%)
Public sector (18%)
Retail (18%)
Services (32%)
Technology, media & telecoms (13%)
  Total (19%)

From a service line point of view, we’re retaining our highly negative forecast for HR & change management work, although some firms have reported relatively strong demand for change management relating to helping workforces adapt to online working, with work being won by both technology firms and HR specialists. Although in the grand scheme of the overall HR & change management market, the impact of such programmes is relatively small, it does add weight to an increasingly important trend: Where consulting firms can reconfigure their services to be more closely associated with technology, demand is less negatively impacted. The prognosis for technology consulting itself has improved, to -9% for 2020 as a whole, largely as a result of clients wanting help implementing new technology. Our current forecast has strategy shrinking by 30%, but, based on the pattern of previous crises, we still think that this area is likely to recover ahead of many other types of consulting work as clients start to plan for the future.

  Services 2020 forecast
% change
Financial management (29%)
HR & change management (40%)
Operational improvement (19%)
Risk & regulatory (20%)
Strategy (30%)
Technology (9%)
  Total (19%)

Going beyond this immediate story, we’ve seen tentative signs this week, based again on the feedback we’ve gathered from consulting firms, that we may be moving towards the end of the first phase of the crisis, with clients. We’ve heard of instances where the expert staff augmentation we predicted a couple of weeks ago, in which clients use consultants to help plan for their mid-range operational resilience, is starting to happen, and also of senior leadership teams reaching out to experts they trust to start conversations about what the post-COVID-19 future may look like. However, there isn’t any evidence that the latter is translating into sizeable—or even small—consulting projects yet, nor would we expect it to. Our reading of the situation is that clients want to explore ideas with people they trust, outside of the conventional client-supplier setting. This won’t be a market for inexperienced, junior consultants.

Even as we move, in the next few weeks, from phase one to phase two, consulting firms should expect shorter projects, where they’re expected to deliver individuals or very small teams. Consultants will be expected to add immediate value either by rolling up their sleeves and taking control of functions or business units that clients don’t have the capacity to manage, or by being able to have low-key, intelligent, and informed conversations about what a post-COVID-19 world may look like.

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 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.

Please help us to help you: We've only been able to pull this forecast together so quickly because of the input of the hundreds of firms from all over the world who responded to our initial survey. Please help us by sending us your updates week by week, by following this survey link. Every single one of these responses helps us improve our forecasting.

All updates

Update 11 29th May, 2020
Update 10 22nd May, 2020
Update 9 15th May, 2020
Update 8 7th May, 2020
Update 7 1st May, 2020
Update 6 24th April, 2020
Update 5 16th April, 2020
Update 4 9th April, 2020
Update 3 3rd April, 2020
Update 2 27th March, 2020
Update 1 20th March, 2020
Our approach 13th March, 2020