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Stretched corporates are under pressure and looking to slash costs – and consultancy firms are in the firing line, writes Maria Ward-Brennan.
The golden age of post-pandemic consulting is fading, leaving traditional advisory firms with a clear ultimatum: innovate or be replaced.
The next generation of executives is pushing to reduce dependence on external consultants. According to a new report by Source, 26 per cent of direct reports to C-suite executives say their companies are actively taking steps to reduce reliance on external advisors.
Consultancy firms now face a challenge to add value and deliver insight to clients or risk facing the axe.
“Regardless of [client] feelings about using consultants, [they are] necessary, and there are many reasons for that. Not least, consultants come with a different and wider perspective and new ideas which is what clients really need,” said Catherine Anderson, director of consultancy firm Deliver.
“Those fresh ideas, that innovation that [consultants] can bring in a different way, that’s what is necessary, and therefore that’s what makes clients so reliant on consultants,” she added.
According to Source’s research, firms still need to address problems in mid-level decision-making before they ditch external advisers. Internal deficiencies in decision-making were cited by 30 per cent of respondents and judgement, 16 per cent, as key to reasons not to let external advisors go just yet.
The report also suggested the rise of tech and data firms is starting to change who clients call first.
Two-thirds of senior decision leaders said they prefer technology firms over traditional consulting firms to guide them through the next major shift in business. “Clients will go directly to technology firms who will then hook in a consulting firm through their own alliances and partnerships, rather than it being the other way round… and we’ve seen some evidence in the market already,” Anderson explained.
Sector to slow down to single-digit growth
Global consulting market growth is projected to settle at 5–7 per cent per year over the coming years, says Source, down sharply from the rapid expansion seen during the Covid pandemic.
PwC UK and Deloitte both revealed a slowdown in consulting growth as they announced their results in recent weeks.
On Thursday, Deloitte reported record global revenue of $74.5bn (£56.37bn) for the 12 months to May, representing a 3.8 per cent rise on last year. However, growth in its core consulting operations slowed to just 2.5 per cent, down from 4.7 per cent the previous year.
Earlier this month, PwC reported UK revenue of £4.4bn for the financial year to the end of June, achieving top-line growth of two per cent. But demand for advisory services slumped, leading to a 9.8 per cent revenue decline in consulting and an 8.9 per cent contraction in risk practices across the broader alliance.
“The market was single-digit growth pre-pandemic… then post-pandemic it exploded because there was that pent-up demand,” explained Anderson.
“The growth is still there,” but it will be “harder to find”, she added. “Clients are struggling to get things done. They will always need that help.”
