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Post-pandemic competition in the consulting industry
The crisis isn’t yet over, but already speculation is rife about how consulting firms have performed during it.
Last summer, we asked clients how they thought the reputations of a range of major firms had been impacted by the crisis. On balance, when we subtracted the responses of those who thought a firm’s reputation had deteriorated from those who thought it had improved, technology firms had seen the biggest net improvement. We hypothesised that this stemmed from the extent to which technology itself had become the panacea for all operational and social issues: The less well-positioned a firm was in the technology space, the smaller its reputational gain. But that reputational gain doesn’t automatically translate into financial gain. Other factors—the scale and extent of a firm’s existing book of business, the strength and depth of its relationships (especially in the public and financial services sectors), and its ability to adapt to rapidly changing circumstances, also have a material impact on overall performance.
So, what does the picture look like going forwards?
I think a good analogy for the post-crisis competitive landscape in consulting would be the aftermath of a forest fire. Photos taken just a few months after even the most catastrophic fires show how quickly nature recovers. Often across the scorched earth and the blackened stubs of trees, there’s a myriad of green shoots, growing quickly in the ash-enriched soil. For six months last year, from approximately mid-April to mid-October, large swathes of the consulting industry were being burnt, if not quite to the ground then certainly more extensively than in any previous crisis. The recovery in client demand since then has been swift as organisations try to do two things at once: adapting to short-term and unpredictable changes in their customers’ behaviour, their supply chains, and even their underlying business models; and preparing for when the crisis ends. Short-staffed and exhausted, many clients feel unprepared to face this future alone—and increasingly, they’re turning to consulting firms for help. Pent-up demand is the consulting industry’s equivalent to ash: Projects put on hold are being restarted as clients repurpose them for a different world; new initiatives are needed to deal with new problems.
The initial bounceback has, so far, been most obvious among smaller firms—those being the ones that were hit hardest by the onset of the pandemic. But look more closely at those post-fire photos and you’ll start to see plenty of new growth on the blackened trunks of huge trees—and the same is true in consulting. Big firms, like big trees, have deeper roots—the range of services they offer, the clients they know—and so are more resilient in times like these.
But those roots are not the only reason why we think big firms will outperform the market in the longer term. First, all our research at the moment points to the fact that organisations that were already spending the most on consulting services before COVID hit will also be those spending even more once it’s over. The biggest clients will become bigger—and that favours the biggest firms.
Second is that there will, at least in the short term, be less competition. Bigger trees in a dense forest grow more slowly because they’re fighting for light. Even the largest consulting firms have faced such intense competition in recent years that it’s been hard for them to grow faster than the firms around them. Surrounded now by scorched earth, there’s far more space to grow.