Market Updates | 11th December 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: 11th December

Every week or two since mid-March, we’ve been publishing an update on developments in the consulting market, focused largely—but by no means exclusively—on the impact of the pandemic. In our update two weeks ago, we summarised what we now know about 2020. In this, the last update of the year, we’re looking forwards and speculating about what 2021 will have in store. Overall, we think demand for consulting will recover most, if not all, of what was lost in 2020. That will make the year feel very different, especially as it will be buoyed by vaccination programmes. But consulting growth won’t be evenly distributed. Consulting firms will need to make careful choices about where they invest.

2021: The year that will be

Seventy-seven percent of consulting demand comes from the large and mature markets of North America and Europe. Looking simply at infection rates, the news is not good: We’re writing this the day after the US reported a death toll of more than 3,000 people, its highest ever. And in Europe, the virus is surging in some countries and barely under control in others. Restrictions on social activity, and the direct and indirect impact they have on economic activity, look set to continue through the darkest period of the year. But the availability of effective vaccines means that, for the first time since the crisis took hold almost a year ago, we can say with certainty there will be an end to the crisis in its current form. COVID may be with us forever, but its ability to wreak havoc will fast diminish.

Given that context, it seems plausible that consulting firms should expect a superficially bumpy start to the year. Decision making is likely to be slow and inconsistent in some quarters: Furlough and other government schemes will continue to allow businesses that will need to restructure and innovate to defer difficult choices for longer, and keeping consulting spend under tight control will be the order of the day. But underneath this, the underlying need for consulting support remains strong, our research indicates. Back in January, we found that 81% of clients expected to spend more on consulting services in the next 18 months; the equivalent number in September was 71%—lower, certainly, but still very positive. The challenge for consulting firms, however, is how to translate that need into revenue. Just because clients need help, doesn’t mean they will or can pay for it.

Where, then, are the opportunities for growth likely to be?

Sector-wise, we expect the parts of the market that have performed comparatively well in 2020 to continue to do so in 2021. For reasons discussed in these updates over the past months, pharma, high-tech, and telecoms will all grow at above-average rates, fuelled by a combination of high demand, investment, and innovation. Private equity has been a very active market since the summer and that’s likely to intensify. Anyone whose several different parcels arrive from the same retailer on the same day will understand why logistics has needed consulting support this year. Continued streamlining plus increased attention to carbon footprints means that support will persist in 2021. Demand in financial services, which has been weaker than many firms expected, has already started to recover, especially in compliance areas as clients find that this is not work that they have the capacity or capability to do. As for many other service industries, the pandemic has raised important questions around operations, workforces, and physical space that will also need to be answered in the coming months. In a more structural shift for the industry, we think that the healthcare sector will become a much more important market for consultants globally (it’s long been an important feature of the US market). Innovations delivered during the crisis may hold the key to how the world supports an ageing population, so technology will be a key focus of activity. The challenge in this sector remains typically lower-than-average fee rates and—depending on the country—an often-fragmented buyer base. After many years of slow growth, the public sector will also be a more active market, but also one that experiences intense price pressure as governments seek to reduce their overall spend on consulting services.

Switching to look at 2021 from a service line perspective, we expect to see the emergence of more multidisciplinary combinations of capabilities that resonate with clients. “Workforce planning”—a term that had fallen into disuse decades ago—perfectly captured the combination of technology, operations, people, and risk capabilities required to enable a large organisation to completely rethink the deployment of their employees. Expect to see other multifaceted offerings to appear in the areas of sustainability, business resilience, and strategic operations. Data and analytics will become even more important to clients: The crisis has highlighted the failings of many organisations’ management information systems. The success of new, more flexible processes will depend on real-time performance feedback, and new sources of data will be needed to forecast consumer behaviour and spending. Strategy consulting, already well into recovery mode, will continue to pick up strongly as clients start to plan and prepare for the permanent changes the pandemic will leave in its wake. Technology-related consulting will also take a larger share of the overall market, but its focus will change—indeed, it already has. The term “digital transformation” doesn’t resonate well with clients who think that their top priority is improving their infrastructure. And “disruption” will be a less meaningful concept in a world that has been disrupted beyond anything futurologists imagined. Ironically, though, much of the work done by technology consultants won’t be that different, it will just be directed at a different goal—cost reduction, not growth.

But there will be challenges for firms, as well as opportunities. Central to these, we think, will be the long-term impact of the crisis on the consulting business model. Clients have become accustomed to almost instant access to experts anywhere in the world—it’s extremely hard to see how consulting firms can step back from that way of working. Similarly, both firms and their clients have saved millions of dollars on travel expenses. Although some level of face-to-face working needs to—and will—return, expect to see a lot more consideration given to what the purpose and value is in doing so. Young people have long been attracted to the industry because of the promise of working side-by-side with smart people, solving interesting problems for the world’s iconic companies—and have been prepared to work exceptionally hard to do so. Burning the candle at both ends feels a lot less attractive when you’re working at home by yourself.

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 11th December, 2020
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