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Companies rethink consultants as they fret about economic outlook

June 12, 2023
in Finance
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Companies rethink consultants as they fret about economic outlook
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Uncertainty in the global economy threatens a year of upheaval in the US consulting industry, as firms deal with a wave of cancelled projects and clients push for lower fees.

Consultancies from Accenture to EY have already cut thousands of jobs to reflect new patterns of demand, and surveys point to a further slowdown in hiring as firms move to protect profits, even as revenues continue to grow overall.

An annual report on the consulting market by Source Global Research, which includes contributions from big firms and is considered a benchmark for the industry, reveals a significant rethink of the use of consultants by US clients because of the economic outlook. More than three-quarters of professional services buyers had cancelled at least some existing projects or scrapped new ones, a Source Global survey found, while two-thirds had paused all existing project work.

“Given the current uncertainty in the economic environment and the tightening of clients’ budgets, projects are being staggered into smaller pieces,” Chiaki Nishino, North America president at the consulting firm Prophet, told Source Global. “I doubt we’ve seen the worst or the best of the market so far this year.”

While the report, which will be published on Monday, forecasts 11 per cent revenue growth in 2023, roughly the same as 2022, pressure is building on consultants’ fees after years of concern about whether businesses are getting value for money, Source Global chief executive Fiona Czerniawska told the Financial Times.

Clients are five times more likely to be expecting fee rates to come down than they were before the coronavirus pandemic, she said. “Only about 50 per cent of clients think that firms add value above the fees they charge. This is a longstanding gap, and it comes back to haunt the industry every time there is even a sense of economic uncertainty.”

Cybersecurity work and HR consulting are among those areas in the doldrums, Czerniawska said, along with M&A work for private equity firms and others. While spending on IT consulting remains high, it is being targeted at projects that immediately boost the bottom line.

The changes have left firms overstaffed in many areas, after a hiring spree in the past two years. Accenture, McKinsey, KPMG, EY and Deloitte are among those to have cut underutilised staff or restructured their operations. 

“What firms have done is take on a lot more staff than they needed to, and certainly paid them more,” Czerniawska said. “Broadly speaking the problem here is not demand, it’s about what clients are willing to pay for it.”

Consulting budgets typically come under pressure when companies are looking for savings. Goldman Sachs said in February that it would cut the amount it spends on professional services this year, as well as cut its own headcount. Accenture blamed lower spending by Big Tech companies, which are cutting thousands of staff, for its own weaker than expected revenue growth.

A sharp decline in hiring that began in the Big Four accounting and consulting firms has spread to smaller players, according to the latest monthly survey by the investment bank William Blair. Job postings by US speciality consultants were 57 per cent lower in June than the same month last year, and are now lower than before the pandemic. At the Big Four, job postings were down 80 per cent, year on year.

FT survey: Calling all consultants — what is working life like for you?

Have you lost your job recently or have you been working longer and harder than ever before? Or perhaps work has been slow and you’re wondering what is next for your career? We want to hear from you. Tell us via a short survey.

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