Market Updates | 16th October 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: 16th October

Although our headline number remains unchanged—we expect the consulting industry to contract by 14% in the calendar year 2020 compared to 2019—the last couple of weeks have seen the market become more jittery, with gains in some areas being offset by losses in others. Despite this, our analysis suggests that a second wave of the pandemic, albeit one that’s focused on the major Western geographies which comprise the bulk of the global consulting market, will be different from the first.

What does a second wave mean for consultants?

The sudden surge in infection numbers in Europe, and smaller rises that may presage future problems in the US, threaten the economic recovery that’s been taking place during the summer months and, consequently, client confidence. But does this mean that the consulting industry will go back to where it was earlier in the year? To answer this question, we need to look at recent movements in the market in the light of its behaviour at the start of the crisis.

The early weeks of this crisis, in so far as it impacted the consulting industry, were characterised by a mix of no decision-making (many clients were too preoccupied responding to an unprecedented situation) and knee-jerk reactions (others summarily cancelled or paused consulting work). Neither of those seems likely this time around. While the news is grim, its implications are familiar—employees will return to working from home, consumer expenditure will fall, and organisations will be forced to review their operations—and that level of predictable unpredictability will allow clients to make more, and more measured decisions. At the same time, government support schemes are unlikely to return to the levels seen earlier in the crisis, meaning that companies will need to adapt and change.

We can see evidence of all this in our detailed numbers. Although it won’t recover the ground lost in the spring, demand for HR & change consulting continues to improve (up by one percentage point to -28% for the year as a whole). Clients are also looking for more support in corporate strategy and business model redesign, and the surge in supply chain consulting in March to May is being superseded by cost-cutting. So far, the restructuring market hasn’t performed as well as might have been expected in a crisis—again, government support has protected businesses that might otherwise have been forced to confront underlying issues. Corporate consolidation, one of the usual consequences of a crisis, has been delayed for the same reason. However, the private equity consulting market, quiet in the spring, is now booming.

It's also much clearer now than it was at the start of the crisis how sectors are likely to perform, even if we go from a second to successive waves of the pandemic. Consulting expenditure in sectors that have attracted investment and need to innovate more rapidly than in normal times—pharma, high-tech, telecoms—is growing. Demand for consulting in the public sector, which jumped in the spring after an initial collapse, has risen again, up one percentage point to -9% for the year as a whole. However, the increase this time around will probably be smaller, as the problems governments try to resolve are more focused. We also see increasing demand in the healthcare sector (also up one percentage point, to -10%), although there’s a risk that a rapid increase in hospitalisation rates will mean that long-term planning and adaptation has to be put on hold. All this will make it easier for consulting firms to prioritise their attention and resources in the coming months.

  Sector 2020 forecast
% change
Energy & resources (25%)-
Financial services (12%)-
Healthcare (10%)
Manufacturing (18%)-
Pharma 8%-
Public sector (9%)
Retail (14%)-
Services (27%)-
Technology, media & telecoms 2%-
  Total (14%)-

Another difference is geographic. The Asia-Pacific consulting market was never as badly hit as those of Western Europe and North America, and continues to improve: We’re currently forecasting that the overall contraction in the market in Asia Pacific will be 9%, significantly ahead of other geographies, and despite somewhat weaker demand in Singapore, an important regional hub. The Middle East consulting market also continues to improve; with oil prices back to something approaching pre-crisis levels, one half of the crisis in that part of the world has receded. Even if further lockdowns push prices down again, the mere fact that they recovered the first time suggests that the pressure will be both less intense and shorter-lived. As discussed in previous updates, the US market feels more vulnerable, but has so far held steady in our numbers. The European clients we speak to may feel jittery but they also recognise that they’ll now need to make decisions they’ve deferred so far—and we only need to look at job losses announced recently to see that that’s the case.

  Region 2019 (US$bn) 2020 forecast (US$bn) % change
North America 77.6 65.6 (15%)-
Europe 43.1 38.1 (12%)-
Asia Pacific 24.8 22.5 (9%)
Central & South America 5.1 4.0 (22%)-
Middle East 3.7 3.1 (15%)
Africa 2.9 2.4 (18%)-
  Total 157.2 135.8 (14%)-

Our conclusion is that, while a second wave of infections may feel depressingly familiar, it’s likely to trigger more consulting work, not less. However, that work is unlikely to be enough to make up for the ground lost earlier in the year—so the numbers we’re predicting for 2020 as a whole are unlikely to move radically between now and the year end. Furthermore, growth over the next few months will also be unevenly distributed, by sector, geography, and service, making it imperative that consulting firms focus their approach and adapt their services to rapidly shifting client needs.

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 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
Update 19 24th July, 2020
Update 18 17th July, 2020
Update 17 10th July, 2020