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Multinational consulting firms like to project an air of immunity to downturns. When one source of business cools, they can usually rely on fee income from clients in another part to heat up. But the supposed masters of change management are now facing some unanticipated headwinds.
Coming out of the pandemic last year, many consultancies went on a hiring spree in the hope of profiting from the economic rebound. But rising interest rates, economic uncertainty, geopolitical volatility, a dearth of M&A deals, deglobalisation and recent scandals have made clients more cautious about using expensive outside advisers. In unpredictable times, clients have also closed some of the job openings that consultants target when they want, or need, to leave the big firms.
The Big Four professional services firms, PwC, KPMG, EY, and Deloitte, plus Accenture, whose model is based on a steady attrition rate, may now have to trim their sails. Some have already announced targeted restructurings in the US and UK. Even the big strategy specialists such as McKinsey, Boston Consulting Group and Bain face pressure. McKinsey confirmed plans to cut back-office staff earlier this year. All three have had to rein in their short-term ambitions in China, whose promise as an untapped market for high-end advice once seemed limitless, because of recent state security raids on consultancies. A cash-strapped public sector is not as generous a patron of consultants as it once was.
Is the whole model of consulting under threat? Hardly. McKinsey, BCG and Bain were competing for new hires a year ago. Consultancy bosses say clients are postponing many big decisions amid the current uncertainties — but pent-up demand will begin to be released once the outlook clears. The industry is banking on an urgent need to understand and exploit the potential of artificial intelligence to drive clients back to big-brand advisers for help, as the last wave of digitisation did. Pockets of demand persist in places such as the Middle East or industries such as energy. Boards will continue to look to outsiders for a second opinion on strategy — or as convenient scapegoats when plans go awry.
But there are some structural changes afoot. Clients may finally have become so glutted with ex-consultants that they can choose to bring assignments in-house. AI and other technology will eventually give companies more tools to do complex work internally rather than outsource it to an EY or a McKinsey.
Consulting may need to rethink the opportunity it is offering its usually overworked workforce. A recent Financial Times callout to readers in the industry revealed anxieties about long-term opportunities in the sector.
The biggest firms ought to temper their boom-and-bust hiring policy, unless they are prepared to ape the investment banks, who recruit heavily in good times then cut back ruthlessly in the bad. They should go for quality rather than quantity (as the strategy firms already try to do). Instead of maximising use of staff and pushing them to the edge of burnout, they should explore four-day weeks, job shares and better balanced career paths.
To some extent, the big consultancies have grown fat on the “nobody ever got fired for choosing IBM” principle. Boards are comforted by a known brand name on the PowerPoint presentations. If, however, the corporate world is moving into a phase where it requires deep technical advice, on everything from cyber security to AI, then boutique specialist advisory firms, often staffed by alumni from their bigger competitors, could prosper. That gives the one-stop-shops plenty to think about as they change-manage their own strategies through the turbulence.
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