COVID-19: Impact on the consulting sectorConsulting firms
How does the coronavirus affect the consulting industry?
The Covid-19 pandemic has disrupted the global economy like never before. From the travel industry to small businesses, all companies are losing revenue as the days of containment increase. It is difficult to say to what extent Covid-19 has had an impact on the consulting industry. According to a study by Consultancy.org, the global consulting industry could lose up to $30 billion in revenue by 2020.
Since the financial crisis of 2008, the consulting industry has grown exponentially. The value of the consulting market is estimated at $160 billion. The coronavirus caused customers to delay projects and cancel future plans. This has been a major blow to the consulting industry, as revenues are falling.
Source Global Research 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 by 2020.
Global consulting markets, such as the UK (the largest consulting market), have seen stagnant growth. This is due to the UK's exit (Brexit) from the European Union. Growth fell to 4% last year, making it the slowest growth since 2012.
In addition to the UK, the consulting scene in Europe is also in decline. The European market generates €12 billion in revenues 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 UK. This is due to the fact that the German market has an extensive automotive manufacturing base. Like the UK, Germany has been hit by the Covid-19 situation. The supply chain and manufacturing industry are likely to see a sharp drop in 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 has also transformed the way consultants work. Remote working is commonplace in the consulting industry. Whether on site, at the customer's headquarters or at home, remote working is part and parcel of everyday life in a consulting project.
The adoption of new technologies that facilitate remote collaborative working and the automation of recurring tasks remains key to facilitating projects that are now carried out far from the customer. The crisis has also given consulting firms the opportunity to take a hard look at their internal organization and ask themselves the right questions.
- While many work to optimize their customers' operations, are internal operations optimized?
- Is there sufficient visibility of resources and planning?
- Can we automate our management and processes at resource planning ?
- Can we provide our employees with better tools to save them time and improve company productivity?
At the same time, this period represents a real opportunity for the consulting industry. Companies the world over have found themselves obliged to drastically accelerate their digital transformation in response to this unprecedented situation. They often lack the in-house skills to carry out these digital transformation projects. They therefore call on consulting firms accustomed to carrying out this kind of project to help them.
In addition, the covid-19 crisis has put pressure on human capital. This period calls for significant restructuring to absorb the shock. HR and restructuring consultancies are in high demand to support management in these reorganizations.
The e-commerce industry for essential goods has rapidly returned to pre-crisis levels, and even exceeded them. Strained supply chains need to be reorganized, and require resources and skills that only consultants can provide in the short term.
A whole section of the consulting industry benefits from this situation, thanks to the skills and talents they are able to make available immediately to tackle problems that have arisen so suddenly.
Despite these opportunities benefiting part of the business, it seems that the consulting industry is still being hit hard by the crisis. According to research published by consultancy.org, the consulting sector could lose $30 billion in revenue worldwide by 2020 (out of $2,000 billion).
Since the crisis of 2008, the consulting sector had experienced very strong growth. But the coronavirus crisis has prompted customers to postpone their projects, and in some cases cancel them. This inevitably led to a drop in sales for consulting firms.
Source Global Research collected data from numerous 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 the Brexit, which had already led to a 4% contraction in the market last year due to the uncertainties associated with the country's exit from the European Union.
Outside the UK, the European consulting sector is slowing down overall. Management consulting represents combined sales of $12 billion for the Germany, Austria and Switzerland region. Germany, Europe's 2nd-largest consulting player, alone accounts for 85% of total sales generated in the European Union (excluding the UK). This is due to the fact that the German economy has a very powerful automotive industry. This industry has been particularly hard hit by the covid-19 crisis. We can therefore expect a massive downturn in business in Germany, even more severe than in the other economies of the region.
How is the European consulting market trying to recover?
Recovery in the European consulting market may be slower than in the USA. This is mainly because the adoption and use of technology is higher in the USA than in Europe. A greater proportion of consultants' work is done remotely from customers. European companies that bring service to the customer's site, for example by providing IT resources, will see a greater impact.
European consulting firms who work for their customers 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 diversify their services to adapt to the situation and the new challenges. Multi-faceted companies that provide a diversity of services find it easier to reorganize their resources to focus on areas less affected by the crisis, and better absorb the shock.
Strategic repositioning choices may also be necessary. In Europe, the leisure, aeronautics and tourism sectors will be seriously impacted for a long time to come, due to the travel bans that will last beyond decontamination.
Consulting firms specializing in these sectors must rapidly reinvent themselves and reposition their approach to sell projects to other sectors less affected by the crisis. A 29% drop in demand is forecast in the services sector. In any case, demand for consulting services will fall sharply in this sector.
Even for consultancies linked to the healthcare 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, there will be an air gap in the medium term for consultants positioned in this field. Consultants working in the financial sector will be less affected. The financial sector, like banks and financial services, acts as a shock absorber for the rest of the economy. We can therefore expect a strong demand for consulting services in this sector.
At the same time, private equity and venture capital companies are likely to be affected in the short term, as the valuation of their portfolios has been severely impacted by the stock market crash at the time of the crisis. But this market downturn is opening up opportunities for buyouts at higher valuations. Transaction Services consultants could therefore benefit from the situation.
Strategies to reduce the impact of coronavirus on business :
1 Prioritizing safety and employee commitment
All companies must take measures to promote flexible working. If remote working is not feasible, companies must provide workers with an adequate level of protection against infection.
2. Optimize financial management
Companies are experiencing a shock to demand and an impact on their sales. The priority is to inject sufficient cash in the short term to avoid any cash shortfall that could lead to the company's downfall. We also need to look line by line at all direct and indirect costs that can be reduced in the short term.
Companies need to consider several scenarios and the financial and cash flow plans attached to each, in order to remain agile but anticipate different situations. They need to anticipate ways of raising short-term debt, obtaining government aid, and cutting less essential short-term expenses.
3. Communicate with everyone involved in your business
Communication with both employees and customers is crucial during this period. You also need to get in touch with suppliers to find alternative logistical solutions if necessary. You need to explain to customers the impact of the crisis on your business, and reassure them of the situation.
4. Maximize government aid and support policies
Finance departments need to optimize and "de-risk" their situation, by taking advantage of all the government assistance available: check tax credits, reductions and deferrals of charges, loan guarantees, etc. All this support is crucial, because no one knows how the crisis will impact business in the long term.
5. Promoting resilience and preparing for a return to normality :
Once all the risk reduction strategies have been put in place, it's time to focus on executing them and evaluating their performance. Then it's time to focus on other structural issues: how to optimize and reorganize resources? How to improve infrastructure? How to simplify processes?
This process of reflection should help to solidify the company, so that it is ever better prepared to respond to future, inexorable crises.
Article: The impact of the Coronavirus on the global consulting industry - Consultancy.org
Article: Europe's consulting industry hardest hit by Coronavirus - Consultancy.org
Other articles might interest you