The views of executives in the financial services sector provide some guidance on future trends.
Clients in the financial services sector generated $285bn in revenue for consulting and professional service firms in 2021, equivalent to 26% of the total market. As a source of work for professional services firms, the sector survived the pandemic relatively well, with demand contracting around 3%, half the average rate—even in a pandemic, people need banking and insurance. That lower rate of contraction meant the sector enjoyed less of a post-COVID bounce, but high interest rates are changing this, especially in the banking sector. We expect the financial services market globally to grow by around 10% in 2022, one point higher than last year, against a backdrop of slower rates of growth elsewhere.
But how clients behave in this market matters, because it can set trends that are picked up elsewhere. Historically, the sheer scale of spending on outside support meant that banks were early adopters of professionalised procurement—a change that’s had a profound impact on the buying and selling of professional services in the last decade.
In the last month, we surveyed 100 very senior executives in the financial services sector, all of whom were significant spenders on consulting and other professional services. Among the questions we asked was one about the extent to which economic uncertainty is changing the way their organisation buys and uses consulting services.
Each of the datapoints we collected tells a story:
Concrete results: No one working in consulting and elsewhere in the professional services sector during 2020 will be surprised by this result. With profits likely to tumble in many sectors over the next 12 months, clients are more likely to look for tangible outcomes. However, we might have expected the focus on this to be less pronounced in the financial services sector, which proved more resilient during the pandemic and, in some areas, is benefiting from higher interest rates, but this isn’t what we are seeing.
Our research suggests that clients in all sectors are almost twice as likely to be positive about the quality of work done by consulting firms than they are about the value added over and above the fees charged. The lesson here is simple: The more a firm can demonstrate its ability to deliver concrete results, the more likely it will be to win repeat work in the future, irrespective of the prevailing economic conditions.
Using consultants to help with business-as-usual workload: This will be another key source of resilience, as we’ve noted previously in recent updates. Client organisations are already short-staffed and, if forced to cut costs, may still need to lay people off. Consulting firms provide a useful—and potentially essential—source of well-trained, flexible labour.
Looking for new ideas, but… The pandemic drove an extraordinary and accelerated wave of innovation in business—and left senior leadership teams keen to think the unthinkable in pursuit of more ambitious corporate goals. Forty-one percent of financial services clients are still looking to work with new firms, in pursuit of new ideas. Faced with economic uncertainty, however, they’re less likely to fund highly innovative change (only 22% are looking for radical solutions) unless they have no choice—and, for the moment, they have a choice.
Making changes faster: The other hoped-for legacy of the pandemic was accelerated speed of delivery, and this remains important to financial services clients, even if their taste for more radical solutions has waned. For some organisations, the need for speed will be driven by a worry that things could get worse, and that the window for making changes may close as recession hits. For others, it will stem from new opportunities for growth that are there to be seized.
Being more likely to use firms they’ve worked with in the past: This is a classic reaction to uncertainty, the result of a desire for fast delivery (a firm that knows a client organisation well can hit the ground running). This is also a trend that will see the large firms, with many more pre-existing client relationships, outperforming the market.
Taking into account a firm’s social purpose and sustainability credentials: The good news is that the prospect of economic turmoil hasn’t entirely taken this goal off clients’ agendas and may even have reinforced its importance for some organisations. It’s all but inevitable, however, that this will be overshadowed by the need to ensure consulting and other professional service firms are delivering concrete, fast outcomes.