Market Updates | 27th 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: 27th November

In this penultimate market update we take a step back to review the consulting industry in 2020. It was a year that saw the consulting market shrink by an unprecedented amount—a contraction of 13% compared to 2019, far greater than the industry has suffered in any previous crisis. It could have been worse: Although some sectors (energy, most service sectors) and service lines (HR & change, strategy) have shrunk by more, others (pharma, high-tech, telecoms, some parts of consumer goods and retailing) have grown. Technology, which accounts for a third of the total market, has held relatively steady. Against this backdrop, the consulting industry has demonstrated an extraordinary ability to adapt. But the year has also exposed structural weaknesses that firms have shied away from addressing in the past and which, we think, now demand urgent attention.

2020: The year that wasn’t

Business mythology has it that consultants will thrive in any circumstances, but this crisis has shown that’s not true (the Global Financial Crisis did as well, a point many firms had forgotten by the start of this year). In April to July, the pandemic wreaked havoc, especially in Europe, the world’s second-largest consulting market, as many client organisations had to make changes in weeks that would, in normal times, have taken years. There was neither the time nor management capacity to involve consultants; moreover, the decisions being made, while immense, were also simple: Cut this; close that; furlough those. Overwhelming uncertainty made more complex, long-term decisions impossible: Having reacted fast, many organisations found themselves in a period of stasis, unable to go back, unwilling to go forward.

Some of the opportunities consulting firms might have expected, based on past crises, haven’t materialised. Government support programmes have allowed many client organisations to kick the corporate can down the road and avoid the difficult decisions that would, in a “normal” crisis, have resulted in restructuring and deals. Regulation, the saviour of the consulting industry in the later stages of the Global Financial Crisis, hasn’t been a feature of this one—although we are now seeing demand for compliance work picking up.

Without question, consulting firms’ ability to carry on delivering their services remotely, rather than in their clients’ offices, saved the industry from catastrophe. It allowed projects, which might otherwise have been summarily cancelled, to continue. That in turn meant that many large firms, with long-term contracts, didn’t feel the full impact of the crisis until the late summer. If MS Teams, Zoom, etc., hadn’t been so easy to implement and scale, the numbers we’ve been writing about throughout this year would have been much worse. Our rough calculation, looking at the small number of consulting services that couldn’t be adapted to remote working, suggests that the industry would have shrunk by a further 15%, equivalent to US$24bn.

By demonstrating their ability to hit the virtual ground running, consulting firms were well placed to pick up many lucrative government contracts, helping public sector managers around the world to gauge the scale of what was required, to plan, and to implement. Although some of this work was pro bono and a very large proportion was done at rock-bottom rates, it provided a bedrock of stability for many firms. In the same way that some governments have turned to logistical support from their armed services, they looked to consulting firms to field teams of analysts, process designers, and technologists, able to start work on specific problems almost instantly, and providing essentially organisational flexibility at a critical time. Responsiveness & flexibility, alongside speed of implementation and the ability to deliver results, have all become more important to clients when they think about which firm to hire, our research shows.

The crisis also stripped away unhelpful consulting stereotypes. Airports are no longer full of suits with laptops; grandstanding is much harder on Zoom. Instead, what’s shone through is the value of expertise and objectivity. As a consequence, there’s been a surge in what can be best described as expert staff augmentation, with clients looking for individuals or very small teams of highly experienced people who they can trust not only to work quickly and effectively without direct supervision and direction, but to apply their judgement—a word rarely used in consulting in recent years.

Still, big challenges remain. In particular, doubts about the concrete value consultants deliver, which have been bubbling in the back of clients’ minds for years (our research has consistently suggested that clients are almost twice as likely to have a positive view about the quality of work consultants do as they are to have a positive view about the value they add), now represent a worryingly large barrier standing between consulting firms and the full realisation of their own potential for growth. Inevitably, as in any period of cost-cutting, consulting budgets are under pressure—and will continue to be so through 2021 and into 2022—and concerns about value play unhelpfully into that situation.

In fact, clients’ unease goes far beyond greater scrutiny of any dollar spent. During the Global Financial Crisis, concerns about the value of consulting work translated into a spike in risk-reward work, but that’s not happened this time around. Performance-related payment mechanisms are inherently uncertain (you’ll pay X if we achieve Y), and in a highly uncertain environment, clients prefer to know what they’ll get for their money. Instead, the pandemic has seen a surge of interest in outsourcing: With no time to make complex changes, clients in the worst-hit sectors have chosen to jettison functions that were designed for different times and bigger businesses, while retaining the ability to scale up again as their business recovers. Every bit as worrying as the pressure to reduce consulting expenditure, from a consulting firm’s point of view, is the door this opens to a new wave of competitors.

If consulting firms invest in one thing in 2021, it should be in providing hard evidence that they have better, faster solutions than their rivals—and indeed, their clients.

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.

All updates

Update 29 27th November, 2020
Update 28 13th November, 2020
Update 27 30th October, 2020
Update 26 16th October, 2020
Update 25 2nd October, 2020
Update 24 18th September, 2020
Update 23 4th September, 2020
Update 22 21st August, 2020
Update 21 7th August, 2020
Update 20 31st July, 2020