COVID-19 | Update for 22nd 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: 22nd May

With 10 weeks of tracking data, we’re now able to put this week’s updates in the context of longer-term patterns. Although our headline number for the impact of COVID-19 on the consulting market remains steady at -18%, the forecast for the US market has improved with the prospect of increasing economic activity. Just as important are the continued improvements in technology and operational improvement consulting, with some clients restarting digital transformation projects and increasingly looking to consultants to help cut their costs. These improvements will, however, depend on consulting firms’ ability to deliver tangible results at breakneck speed.

Ten weeks on: Taking stock, taking control

For the last 10 weeks, we’ve been analysing how the trends we’ve seen over the previous seven days would play out if extrapolated to the end of 2020. This is not a best- or worst-case scenario but an extrapolation of what the global consulting industry will look like if the pattern of the previous few days continues to the end of the year. It’s also a picture of the market as a whole: The impact of the crisis will be different for every firm, depending on where it’s based and, more importantly, its size and the mix of its services. This is therefore a good moment to take stock of the changes we’ve seen and some hope from the patterns that are emerging.

What we’re tracking here is now not simply the impact of the crisis, but the extent to which consulting firms have begun adapting to changing client needs.

Although our overall forecast of the likely contraction of the consulting market as a whole has stayed the same (-18%), this week saw an improvement in prospects for the US market, as many states moved towards reducing restrictions, thus paving the way for greater levels of activity and effectively prioritising economic recovery over minimising the risk of successive waves of infection. With unemployment rates rising steeply and a fragmented healthcare system, the US consulting market is by no means out of the woods, but it took a small step in the right direction: We’re now predicting that the North American market will contract by 17% during the course of this year, compared to 18% this time last week.

The forecast for continental Europe, taking its own cautious steps back to the new normality, also improved: We’re now predicting, for example, that the German consulting market will contract by 18%, up from -20% last week and from around -30% in the first few weeks of the crisis. However, the forecast across Europe as a whole stays the same, brought down by a deteriorating situation in the UK, where lack of clarity and coherence in government planning has left business and the general population anxious and confused. We’ve consequently downgraded our UK forecast, which originally started out more positive than that of Germany, from -20% last week to -22% this week.

  Region 2019 (US$bn) 2020 forecast (US$bn) % change
North America 77.4 64.4 (17%)
Europe & Russia 43.2 34.4 (20%)
Asia Pacific 24.8 21.3 (14%)
Central & South America 5.1 4.0 (22%)
Middle East 3.6 2.8 (23%)
Africa 2.9 2.4 (18%)
  Total 157.1 129.3 (18%)

From a sector perspective, the important changes this week were in healthcare, up from -21% to -19%, and in the public sector, up from -14% to -13%. Both reflect the increasing levels of consulting activity, as governments and (largely) public healthcare systems make rapid changes to working practices and introduce new technology—the overhaul of the French healthcare system, recently announced by President Macron, being a good example. Some of the large firms we speak to say they’ve seen year-on-year growth in the amount of work they’re doing in these sectors, but that doesn’t hold true across the market as a whole and may not take into account huge pressure on fee rates. But, looking back over the last 10 weeks, the pattern is clear: Both sectors have seen improvements of around nine percentage points.

The TMT sector also continued its upward trajectory. That the sector as a whole is still expected to shrink, by 6%, up from -8% last week, is largely due to the expected poor performance of the media sector. By contrast, we expect the high-tech sector to grow by 7% in 2020.

  Sector 2020 forecast
% change
Energy & resources (29%)
Financial services (13%)
Healthcare (19%)
Manufacturing (24%)
Pharma (1%)
Public sector (13%)
Retail (18%)
Services (30%)
Technology, media & telecoms (6%)
  Total (18%)

But the most interesting numbers are the trends now emerging about consulting services. Changes this week were again modestly positive, but the accumulation of marginal gains over the past 10 weeks tells an increasingly clear story.

HR & change management remains the most seriously impacted area of consulting: The surge of interest from clients in workforce planning over the last 2-3 weeks is having an impact but much of that is being felt in operational improvement and technology work. Workforce planning has, in effect, become the latest example of a multidisciplinary service: Consulting firms who are adopting an innovative, multifaceted approach are seeing faster take-up than those sticking to more traditional methodologies. The prospects for technology consulting are improving, with the market expected to contract by only 7%, compared to 8% last week. Digital transformation projects that were paused at the start of the crisis are restarting as clients increasingly recognise that the changes they were trying to make before the crisis are now even more urgently required. As a result, the current forecast for the all-important US technology consulting market is a contraction of just 5%, and in some countries, where consulting expenditure will shift even more towards technology work, demand is expected to grow. Looking back over the last 10 weeks, the comparative resilience of technology consulting has become very clear, and we expect further improvement in this area.

But the biggest positive change over those 10 weeks has been a significant improvement in operational improvement consulting. After a certain amount of panic in the first two weeks of our tracking, when many projects were paused while it was unclear how much of this work could be done remotely, both clients and consulting firms have quickly adapted to the new situation. There’s been a surge of demand for supply chain support, and that’s now being matched by activity around cost-cutting. As a result, while this market initially looked as though it could contract by as much as a third over the course of the year, we’re now predicting it to shrink by 19%—and, if the current trajectory continues—that figure is likely to improve further.

Just one note of caution here. The continuation of existing digital transformation projects and the commissioning of new supply chain and cost-cutting work will all depend on clients’ confidence in the results. Never has consulting firms’ ability to deliver—and deliver far more quickly than clients can—been more important. The economic environment remains hugely uncertain, but consulting firms that can demonstrate this will be better positioned to exert some degree of control over it.

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