The light-switch problem: the challenge of forecasting consulting demand
Thursday 23rd Feb, 2017
By Fiona Czerniawska.
I’m not generally prone to nostalgia, but trying to analyse trends in the consulting industry is sometimes enough to make me yearn after a quieter life.
Forecasting demand trends used to be very simple. Back in the heady 1990s, it was just a question of how big you thought the growth figure should be. You could, for example, assume that all banks would behave in the same way. Want to know the size of the consulting market there? Easy: 3% of costs across the board. Want to know what it would be the next year? No problem: take the last five year’s growth and draw a straight line. The global financial crisis came as fairly rude wake-up call to all that, but at least the consulting world could comfort itself that, if they got it wrong, then so did just about every major financial institution and government on the planet. Since then, we’ve all learnt to forecast at a more granular level, to be circumspect about our predictions, and to spend more time talking to clients, who after all will be the ultimate arbiters.
And therein lies our dilemma. Towards the back-end of last year, the word on the consulting street was very much that the market had changed: US growth was softer; demand for financial services in particular—a critical market for consultants—was dropping fast; projects were being put on ice. Yet, when we ask thousands of senior executives across the world about how all the uncertainty and political upheaval of 2016 is likely to affect their spending on consultants this year, their answer is not much. Indeed, if anything, they’re more bullish than ever. Yet the downward pressures remain, even if they’re being ignored.
In fact, all this reminds me of the client who, in 2008, announced his organisation had a radical (his word) new strategy for emergency cost-cutting. Rather than banning biscuits in meetings, executive travel, and consultants in that order, they were now banning consulting first. Clients may have become more dependent on consultants in the last decade (the growth in the consulting market certainly indicates this), but they’re also aware that consulting can be turned on and off with ease. Between 30% and 40% of all consulting is contingent labour, bought by clients who don’t want to commit to full-time resources. It’s a light switch. Unable to get everything done in a buoyant market? Hire a consultant. Bottom-line falling off the edge of a cliff? Fire a consultant.
It’s this on-off quality of consulting that’s now making it hard to predict what happens next. As far as we can see, both literally and metaphorically, demand is growing. But at some point growing uncertainty will reach a tipping point, and clients will, without warning, throw the switch. We can’t predict, but we can prepare.