COVID-19 | Update for 15th May 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: 15th May

Our overall prediction of the year-on-year change in the size of the consulting industry has improved slightly in most countries, and globally from -19% last week to -18% this week. Inevitably, that positive change is driven by a number of factors, but key among them are improving prospects in public sector, manufacturing, and healthcare consulting, and in strategy work as a result of early signs of future M&A work.

Clients turn to smart and strategic cost cutting

Our forecasts for the all-important US consulting market, which accounts for 46% of the global total, held steady this week, at -18%. Those for China, while still relatively positive (-12%), are slightly worse than they were last week as the strength of the recovery there remains unclear and the spectre of further waves of infection still looms worryingly close. We’ve also downgraded our forecast for Saudi Arabia, the most important market in the Middle East, where there have been recent announcements around public sector cost cutting—and public bodies, of different complexions, are by far the most important users of consulting services in the country.

Our projections for most other geographies have improved, however, largely as a result of growth in certain sectors and service lines—and more on this below.

As we’ve previously noted in these updates, these predictions are for the consulting market as a whole: We continue to see very strong evidence that larger firms, with longer projects, broader portfolios of services, and multiple, pre-existing relationships are weathering the storm much better than their small and mid-sized counterparts.

In sector terms, our data from the market points to continuing improvements in public sector consulting, this week improving from -15% to -14%. While much of this remains due to the extent to which governments have needed external help in executing their economic stimulus packages and in moving the machinery of government, as well as more public services, online, there are also signs of changing purchasing patterns. With many central government departments struggling to carry out all the work now required to support our increasingly fragile social and economic infrastructures, more work is being devolved to local bodies, and these organisations will also require consulting help. This is still likely to be significant, but the resulting work may not be at the scale of centrally commissioned programmes, so this is inherently a more fragmented market. It may also signal greater pressure on fee rates.

  Sector 2020 forecast
% change
Energy & resources (30%)
Financial services (13%)
Healthcare (21%)
Manufacturing (23%)
Pharma (2%)
Public sector (14%)
Retail (17%)
Services (30%)
Technology, media & telecoms (8%)
  Total (18%)

Other sectors we’ve also seen improve this week are manufacturing (up from -25% to -23%) and retail (from -18% to -17%). Both these consulting markets are highly polarised between consumer-basics companies that are fighting to keep abreast of demand, and non-essential-goods companies that will have had to temporarily close much of their offline businesses. While the former group is using consultants to help them rapidly reconfigure supply chains, find alternative suppliers, etc., the latter is now facing up to the grim reality of an extended crisis, and that’s forcing them to revisit some of their most fundamental assumptions about their businesses.

And that brings us to a broader point, arguably the most important aspect to have emerged from this week’s analysis.

As always, our aim is to model the size of the consulting industry in 2020 based on the evidence we have to hand today—and that means we have to be careful not to run ahead of what’s actually happening. For most firms, pipelines for the rest of this quarter and Q3 remain significantly down—typically between 30% and 50% lower than they would have expected at this point in the year. At the same time, it’s clear that while discretionary work—i.e., non-COVID-related—in the pipeline is rapidly disappearing, it’s being replaced by new work with a potentially higher conversion rate. When we’ve asked firms over the last few days about the types of services clients are now asking for the most common response is cost cutting.

The shift to cost reduction is unsurprising but has important implications. Cost cutting has been a low-growth consulting service in the last decade, the result of a benign economic environment, lack of innovation (Lean and Six Sigma are decades old), and clients who are well equipped to carry out the necessary work without external support. The reversal of that trend is partly the volume of work required: Even organisations with the relevant capability may not have sufficient capacity at a time when senior management attention is stretched across so many challenges. But there was a strong overlap in our survey between cost-cutting and digital transformation work, and this reinforces anecdotal information that at least some digital transformation work is now being repurposed to help take out substantial swathes of cost. Circumstances are forcing clients and consulting firms alike to use technology, such as robotic process automation, more quickly and in innovative new ways—“smart” cost cutting, in effect. But for many organisations now looking to restart parts of their business, even this approach won’t be sufficient, and there are early signs of strategic category management—top-level decisions to cut entire product ranges or services because they’re unlikely to be profitable in a semi-locked-down environment. This, in turn, is leading to conversations—for the moment, not much more—about divestments and restructuring. To sell an asset you need a buyer, so what “smart” cost cutting and category management point to is increasing M&A activity later this year—and that will inevitably stimulate demand for consulting services.

All of this adds up to an improving picture this week in our numbers for full-year predictions for operational improvement, up from -21% last week to -20% this week, boosted by stronger demand around supply chains, and for strategy work, up from -29% to -28% and continuing the slow but steady stream of positive news in recent weeks. Technology work remains by far the least impacted of all services and remains expected to shrink by around 8%.

  Services 2020 forecast
% change
Financial management (29%)
HR & change management (37%)
Operational improvement (20%)
Risk & regulatory (17%)-
Strategy (28%)
Technology (8%)
  Total (18%)

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