How is the coronavirus affecting the consulting industry?
The Covid-19 pandemic has disrupted the global economy like never before. From the travel sector to small businesses, all businesses are losing revenue as the days of lockdown increase. It's hard to say how much of an impact Covid-19 has created on the consulting industry. According to a study by Consultancy.orgThe global consulting industry could lose up to $30 billion in revenue in 2020.
Since the 2008 financial crisis, the consulting industry has grown exponentially. The value of the consulting market is estimated at $160 billion. The coronavirus has caused customers to delay their projects as well as cancel future plans. This has been a major blow to the consulting industry, as revenues are declining.
Source Global Research has collected data from various consulting firms around the world to understand the impact of this pandemic on the consulting industry. The research concluded that Covid-19 could reduce the size of the consulting sector by 19%. This translates into a decrease in market value from $160 billion to $130 billion in 2020.
Global consulting markets, such as the United Kingdom (the largest consulting market), have experienced stagnant growth. This is due to the United Kingdom's exit (Brexit) from the European Union. Growth rose to 4% last year, making it the slowest increase since 2012.
In addition to the UK, the consulting scene in Europe is also in decline. The European market generates €12 billion in revenue from Germany, Austria and Switzerland combined. Germany's contribution to the European consulting market in terms of revenue is 85%. Making Germany the second largest market after the United Kingdom. This is due to the fact that the German market has an extensive automotive manufacturing base. Just like Great Britain, Germany has been hit by the Covid-19 situation. The supply chain and manufacturing industry are likely to see a sharp decline in their revenues and their market is expected to contract more than average.
An opportunity for consultants:
The current situation has not only affected the consulting industry, it is the entire way consultants work that has been transformed. Remote work is common in consulting. Whether on-site, at the customer's headquarters or at home, remote working is part of everyday life in a consulting project.
The adoption of new technologies that facilitate remote collaborative work and the automation of recurring tasks remains key to facilitate projects that are now carried out far from the customer. The crisis also allows consulting firms to look at their internal organization and ask themselves the right questions.
While many are working to optimize their customers' operations, are internal operations optimized?
Is there enough visibility into resources and schedule?
Can we automate our management and our resource planning ?
Can we provide our employees with better tools to save them time and improve the company's productivity?
At the same time, the period represents a real opportunity for consulting. Companies around the world have been forced to drastically accelerate their digital transformation to respond to this unprecedented situation. They often lack the in-house skills to carry out these digital transformation projects. They therefore call on consulting companies used to carry out this kind of project to help them.
In addition, the Covid-19 crisis has put pressure on human capital. The period requires significant restructuring to absorb the shock. HR or restructuring consulting firms are experiencing a strong demand to support management with these reorganizations.
The e-commerce industry for necessities has very quickly returned to pre-crisis levels and even exceeds them. Supply chains are under strain, need to reorganize, and require the support of resources and skills that only consultants can provide in the short term.
There is therefore a whole section of the consulting industry that benefits from this situation thanks to the skills and talents that they are able to make available immediately to deal with problems that have arisen so suddenly.
Despite these opportunities that benefit part of the company, it seems that the consulting industry is still strongly affected by the crisis. According to research published by consultancy.org, the consulting sector could lose $30 billion in revenue globally in 2020 (out of $2000 billion).
Since the 2008 crisis, the consulting sector had experienced very strong growth. But the coronavirus crisis has pushed customers to postpone their projects and in some cases cancel them. This necessarily leads to a drop in the turnover of consulting companies.
Source Global Research has collected data from many consulting firms around the world to understand the impact of this pandemic on the consulting industry. The research concluded that the crisis could reduce the size of the sector by 19%.
The decline in growth varies for different reasons around the world. In the UK, for example (the most important market for the consulting sector), growth is currently stagnating. This is mainly due to Brexit, which had already led to a market contraction of 4% last year due to the uncertainties linked to the country's exit from the European Union.
Outside the UK, the European consulting sector is slowing down overall. Management consulting represents a combined turnover of $12 billion for the Germany, Austria, Switzerland region. Germany, the 2nd largest player in the European Council, alone contributes to 85% of the overall turnover generated in the European Union (excluding the UK). This is due to the fact that the German economy has a very powerful automotive industry. However, this industry has been particularly affected by the covid-19 crisis. It is therefore to be expected that there will be a massive decline in activity in Germany, even sharper than in the other economies of the region.
How is the European consulting market trying to recover?
The recovery of the European consulting market could be slower than that in the United States. Mainly because the adoption and use of technology is higher in the United States than in Europe. A larger part of the consultants' work is done at a distance from clients. European companies that provide service at the customer's site, for example by providing IT resources, will have a greater impact. European consulting firms that work for their clients from their offices will be less affected (strategy, management, etc.) since the vast majority of work can be done from home.To overcome this crisis, it is probably necessary for consulting firms to further diversify their services to adapt to the situation and new challenges. Multi-faceted companies that provide a diversity of services have an easier time reorganizing their resources to focus on the poles less impacted by the crisis, and absorb the shock better. Making strategic choices for repositioning may also be necessary. In Europe, the leisure, aeronautics, and tourism sectors will be seriously impacted for a long time due to travel bans that will last beyond the end of lockdown. Consulting firms specialising in these sectors must reinvent themselves quickly and reposition their approach to sell projects to other sectors less affected by the crisis. A 29% drop in demand is expected in services. In any case, the demand for consulting assignments will fall sharply in this sector.Even for consulting related to the health industry, a drop in activity is to be expected as the industry allocates all its resources to working on research to combat covid-19. In the short term, the impact will be felt, but it is likely that due to the lack of resources in these companies, a draw will be created in the medium term for the consultants who will be positioned on the subject. Consultants who work in the financial sector will be less impacted. The financial sector, like banks and financial services, acts as a bumper that absorbs the crisis for the rest of the economy. It is therefore to be expected that there will be a strong demand for advice in this sector.At the same time, private equity and venture capital companies are expected to be affected in the short term as the valuation of their portfolios is strongly impacted by the stock market crash that occurred at the time of the crisis. But this market decline opens up opportunities for buybacks at better valuations. Transaction Services consultants could therefore benefit from the situation.
Strategies to reduce the impact of the coronavirus on the business:
1. Prioritize employee safety and engagement
All companies must take measures that promote labour flexibility. If remote work is not feasible, companies must provide the right level of protection against infection to workers
2. Optimize financial management
Companies are experiencing a demand shock and an impact on their turnover. The priority is to inject enough cash in the short term to avoid any cash shortages that could lead to the company's loss. We must also look line by line at all the direct and indirect costs that can be reduced in the short term.
Companies should consider multiple scenarios and the financial and cash flow plans attached to each of them, in order to remain agile but anticipate different situations. We need to anticipate ways to raise debt in the short term, get government aid, and cut less essential spending in the short term.
3. Communicate with all the players in your business
Whether it's with employees or customers, it's crucial to communicate during this time. It is also necessary to contact suppliers to find alternative logistics solutions if necessary. You need to explain to customers the impact of the crisis on your business and reassure them about the situation.
4. Maximizing government aid and support policies
Finance departments must optimize and "de-risk" their situation by seeking all the aid put in place by the government: checking tax credits, reductions and deferrals of charges, guarantees for loans, etc. All this support is crucial because no one knows how the crisis will impact the business in the long term.
5. Foster resilience and prepare for a return to normalcy:
Once all the risk reduction strategies are in place, it's time to focus on executing them and evaluating their performance. Then, we must take advantage of this period to focus on other structural issues: how to optimize and reorganize resources? How can the infrastructure be improved? How can processes be simplified?
This reflection should make it possible to solidify society in order to prepare it ever better to respond to future and inexorable crises.
References:
Article: The impact of the Coronavirus on the global consulting industry – Consultancy.org
Article: Europe's consulting industry hardest hit by Coronavirus – Consultancy.org
