Skip to content

Outsourcing: Threat or opportunity for consulting firms?

Research we’ve been carrying out with clients over the last few months suggests that organisations’ underlying need for external support remains high, despite the COVID-19 pandemic. But it does raise the question: Is it consulting support that clients will be looking for?

Demand for technology consulting has remained strong since the beginning of the pandemic, fuelled by the shift to online working and shopping, but there’s also been plenty of work around supply chain management, cost-cutting and “workforce planning”, a uniquely COVID-related combination of services aimed at helping organisations manage the consequences of having to scale their operations up and down. More recently, there have been indications that these services are coalescing into a repurposed version of digital transformation.

Beyond these immediate areas of activity, it’s clear from the conversations we’re having with clients, and from recent quantitative research, that organisations still need help. In fact, they need help in two distinct areas. In the first place, the crisis has created new challenges, and client organisations don’t necessarily have the capabilities to deal with them. Inevitably, much of that skills shortage centres on technology, but workforce planning—to take one example—depends on experience in efficient scheduling and employment law (what exactly are organisations’ responsibilities?) and it certainly benefits from knowledge of what other organisations are doing, and best practice from elsewhere. The second driver of demand exacerbates the first: Clients don’t have the capacity to do the work needed. For many, the crisis means there’s simply more work to do: The fact that business is not as usual doesn’t mean that business-as-usual activities have disappeared. Indeed, the crisis has created an array of urgent, new challenges. On top of this, clients are short-staffed because many of their employees are either ill, self-isolating, or looking after family members.

This isn’t a new problem: Research we’ve carried out over the last decade has consistently shown that capability and capacity are by far the biggest drivers of consulting work, and that the balance between the two is fairly even. But several factors are now complicating the picture, and the type of support clients will be seeking. Clients want access to deep expertise and are less tolerant of generalist or junior consultants. The latter require hand-holding—which clients don’t have time to do—and take longer to generate results. With an expert, you get someone who can make an immediate difference. But clients also need to offload work quickly—sometimes entire parts of their business—and as a result of the pandemic, they don’t want any of this support to be delivered on-site. Twenty years of pressure on consultants to work alongside clients’ own staff is being reversed in as many weeks. Finally, many clients won’t have much money. The COVID-led recession means that, as time passes, existing consulting projects will end, and budgets for new ones will be tighter.

As a result, it’s not clear who’s going to benefit from client demand. If the market pendulum swings towards capability, consulting firms will win, at least where they can demonstrate real depth of expertise. But if it swings towards capacity, then the winners are likely to be outsourcing companies, which are well positioned to take over client processes quickly, run them from their own offices, and use technology to bring costs down. From the perspective of a client, keen to get things done but wanting to bring costs down, consulting is expensive; outsourcing is cheap.

This is a challenge, but it’s also an opportunity, because the biggest gains will probably be made by firms that can provide both capability and capacity, expertise with organisational flexibility, and high quality with low cost. Many suppliers claim to deliver both consulting and outsourcing, but the reality is that they very rarely do so for the same organisation at the same time. Consulting and outsourcing has been an either/or option—now it needs to be an “and” one.