We all know that the pandemic has affected every sphere of the global economy. The Management Consulting industry could not get away unscathed either. Ever since the 2008 recession, the management consulting industry has been showing exponential growth but with the outbreak of Covid-19, the industry has hit a slump. With all major economies being pushed to the brink of the recession, many companies have postponed or cancelled their upcoming projects thus impacting the consulting firms severely.
It was forecasted in Q3’20 that the global consulting industry (excluding financial advisory) would have shrunk to about $132 billion by 2020, with Europe taking a major hit. Although the official figures are not in yet, there have been reports saying that the hit may not have been as high as previously estimated with the global consulting actually being $146 billion for 2020 instead.
Industry-wise scenario – (How the pandemic affected them and created a knock-on effect on the consultants offering services to these sectors)
The financial sector will fare better than most, but will still contract. The banks have improved liquidity and are better capitalized, so they have the buffer money to support the economy and will keep investing to meet their needs to survive in the competitive and new post-covid environment and thus, there will be a continued investment in the consulting industry from this sector.
The private equity industry had seen a slow down in the first 2 quarters of 2020 but firms bounced back in the latter part of the year, as valuations of several companies fell, allowing them to buy companies at lower rates. Thus, P.E firms are likely to continue investment in the consulting work as they continue to receive advice from the consulting firms on these deals.
The demand for consulting services in leisure and airline companies has shrunk. This could be anticipated from the fact that these industries had taken a serious blow due to the pandemic and are trying to negate collapsing income by cutting their spending on consulting services.
Amidst the excess burden Covid-19 is placing on public healthcare, consulting in health is likely to see a serious drop in demand as most healthcare clients will not see value in allocating resources to consultants at this time. However, firms like ZS Associates which mainly provides consultation to the healthcare industry has seen 2020 to be one of the most successful years for the company.
The picture is yet to be clear, with changes in the pandemic scenario the global consulting industry is bound to see changes.
What can we expect?
What might be the region-wise post-pandemic scenario?
As was the case after the 2008 global financial crisis, it is likely that Europe will recover at a slower rate than the US, as American clients tend to show greater willingness to leverage consulting services and adopt new technologies in businesses. By comparison, Asia is likely to see the lowest impact of any region, due to how effective China was in containing its initial outbreak.
Can Consulting Firms leverage the post-pandemic scenario?
Traditionally, during and after a recession, many companies, after taking the heavy financial hit, feel the need for optimizing their budgets thereby creating better value propositions and evaluating their sources of credit and naturally they turn to management consultants for meeting these needs. The recession in 2009 helped the ‘Big 4’ post higher revenues from 2010 onwards, as companies turned to management consultants for help to adjust to new market conditions. It is expected that companies will similarly leverage management consulting firms during the recession that is likely to occur on the back of the covid-19 pandemic.
As economies re-open, most companies will need strategies to re-enter the market and map out financial scenarios. Executives need to keep an eye out for the future, which might see companies having to restructure to better face the upcoming financial crisis. This is where consulting firms can offer expertise and guidance.
Great Read, cause-effect relationships established instead of just putting facts forward. Reasoning drawn from historical evidence. Truly Insightful.