Companies rethink consultants as they worry about economic outlook

Uncertainty in the global economy threatens a year of turmoil in the US consulting industry, as firms deal with a wave of canceled projects and clients push for lower fees.

Consultancies from Accenture to EY have already cut thousands of jobs to reflect new demand patterns, and surveys point to a further slowdown in hiring as companies move to protect profits, here Even so, overall revenue continues to increase.

An annual report on the consulting market by Source Global Research, which includes contributions from large firms and is considered a benchmark for the industry, reveals a significant rethink on the use of consultants by US clients due to the economic outlook. A Source Global survey found that more than three-quarters of professional services buyers had canceled at least some existing projects or canceled new ones, while two-thirds had paused all existing project work. .

“With the current uncertainty in the economic environment and tightening of clients’ budgets, projects are being broken down into smaller pieces,” Chiaki Nishino, president of North America at consulting firm Prophet, told Source Global. “I doubt we’ve seen the worst or the best market we’ve ever seen this year.”

While the report, which will be published on Monday, forecast 11 percent revenue growth in 2023, roughly the same as 2022, advisors’ fees are coming under pressure after years of concern about whether businesses are getting value for money. are getting, Fiona Czerniawska, chief executive officer of Source Global, told the Financial Times.

He said customers are more than five times more likely to expect a reduction in fee rates than before the coronavirus pandemic. “Only about 50 percent of customers think companies add more value than the fees they charge. This is a long-standing gap, and it continues to haunt the industry every time there is a sense of economic uncertainty. comes back.

Czerniawska said cybersecurity work and human resources consulting are among those areas, along with M&A work for private equity firms and others. While spending on IT consulting remains high, it is being targeted at projects that give an immediate boost to the bottom line.

The changes have left firms overstaffed in many sectors after a hiring spree over the past two years. Accenture, McKinsey, KPMG, EY and Deloitte are among those that have reduced underutilized staff or reorganized their operations.

“What the companies have done is take on more employees than they need and of course pay them more,” Czerniawska said. “Broadly the problem here isn’t demand, it’s about how much customers are willing to pay for it.”

Consulting budgets usually come under pressure when companies are looking for savings. Goldman Sachs said in February it would cut the amount it spends on professional services this year, as well as cut its workforce. Accenture blamed lower spending by Big Tech companies, which are cutting thousands of employees, for lower-than-expected revenue growth.

The sharp decline in hiring that began at the Big Four accounting and consulting firms has spread to smaller players, according to the latest monthly survey by investment bank William Blair. Job postings by US expert advisors were down 57 percent in June compared to the same month last year, and are now lower than they were before the pandemic. Job postings in the Big Four are down 80 percent year over year.

FT survey: calling all consultants – what’s working life like for you?

Have you recently lost your job or are you working longer and harder than ever? Or perhaps work has slowed down and you’re wondering what’s next for your career? We want to hear from you. brief us via survey,

Uncertainty in the global economy threatens a year of turmoil in the US consulting industry, as firms deal with a wave of canceled projects and clients push for lower fees.

Consultancies from Accenture to EY have already cut thousands of jobs to reflect new demand patterns, and surveys point to a further slowdown in hiring as companies move to protect profits, here Even so, overall revenue continues to increase.

An annual report on the consulting market by Source Global Research, which includes contributions from large firms and is considered a benchmark for the industry, reveals a significant rethink on the use of consultants by US clients due to the economic outlook. A Source Global survey found that more than three-quarters of professional services buyers had canceled at least some existing projects or canceled new ones, while two-thirds had paused all existing project work. .

“With the current uncertainty in the economic environment and tightening of clients’ budgets, projects are being broken down into smaller pieces,” Chiaki Nishino, president of North America at consulting firm Prophet, told Source Global. “I doubt we’ve seen the worst or the best market we’ve ever seen this year.”

While the report, which will be published on Monday, forecast 11 percent revenue growth in 2023, roughly the same as 2022, advisors’ fees are coming under pressure after years of concern about whether businesses are getting value for money. are getting, Fiona Czerniawska, chief executive officer of Source Global, told the Financial Times.

He said customers are more than five times more likely to expect a reduction in fee rates than before the coronavirus pandemic. “Only about 50 percent of customers think companies add more value than the fees they charge. This is a long-standing gap, and it continues to haunt the industry every time there is a sense of economic uncertainty. comes back.

Czerniawska said cybersecurity work and human resources consulting are among those areas, along with M&A work for private equity firms and others. While spending on IT consulting remains high, it is being targeted at projects that give an immediate boost to the bottom line.

The changes have left firms overstaffed in many sectors after a hiring spree over the past two years. Accenture, McKinsey, KPMG, EY and Deloitte are among those that have reduced underutilized staff or reorganized their operations.

“What the companies have done is take on more employees than they need and of course pay them more,” Czerniawska said. “Broadly the problem here isn’t demand, it’s about how much customers are willing to pay for it.”

Consulting budgets usually come under pressure when companies are looking for savings. Goldman Sachs said in February it would cut the amount it spends on professional services this year, as well as cut its workforce. Accenture blamed lower spending by Big Tech companies, which are cutting thousands of employees, for lower-than-expected revenue growth.

The sharp decline in hiring that began at the Big Four accounting and consulting firms has spread to smaller players, according to the latest monthly survey by investment bank William Blair. Job postings by US expert advisors were down 57 percent in June compared to the same month last year, and are now lower than they were before the pandemic. Job postings in the Big Four are down 80 percent year over year.

FT survey: calling all consultants – what’s working life like for you?

Have you recently lost your job or are you working longer and harder than ever? Or perhaps work has slowed down and you’re wondering what’s next for your career? We want to hear from you. brief us via survey,