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Companies rethink consultants as they fret about economic outlook

Uncertainty within the world economic system threatens a yr of upheaval within the US consulting trade, as corporations cope with a wave of cancelled tasks and purchasers push for decrease charges.

Consultancies from Accenture to EY have already reduce 1000’s of jobs to replicate new patterns of demand, and surveys level to an additional slowdown in hiring as corporations transfer to guard income, whilst revenues proceed to develop total.

An annual report on the consulting market by Supply World Analysis, which incorporates contributions from massive corporations and is taken into account a benchmark for the trade, reveals a major rethink of using consultants by US purchasers due to the financial outlook. Greater than three-quarters {of professional} companies consumers had cancelled at the least some present tasks or scrapped new ones, a Supply World survey discovered, whereas two-thirds had paused all present venture work.

“Given the present uncertainty within the financial atmosphere and the tightening of purchasers’ budgets, tasks are being staggered into smaller items,” Chiaki Nishino, North America president on the consulting agency Prophet, instructed Supply World. “I doubt we’ve seen the worst or the very best of the market to date this yr.”

Whereas the report, which will likely be revealed on Monday, forecasts 11 per cent income progress in 2023, roughly the identical as 2022, strain is constructing on consultants’ charges after years of concern about whether or not companies are getting worth for cash, Supply World chief government Fiona Czerniawska instructed the Monetary Occasions.

Purchasers are 5 occasions extra more likely to expect price charges to return down than they have been earlier than the coronavirus pandemic, she mentioned. “Solely about 50 per cent of purchasers assume that corporations add worth above the charges they cost. It is a longstanding hole, and it comes again to hang-out the trade each time there’s even a way of financial uncertainty.”

Cybersecurity work and HR consulting are amongst these areas within the doldrums, Czerniawska mentioned, together with M&A piece for personal fairness corporations and others. Whereas spending on IT consulting stays excessive, it’s being focused at tasks that instantly increase the underside line.

The adjustments have left corporations overstaffed in lots of areas, after a hiring spree prior to now two years. Accenture, McKinsey, KPMG, EY and Deloitte are amongst these to have reduce underutilised employees or restructured their operations. 

“What corporations have completed is tackle much more employees than they wanted to, and definitely paid them extra,” Czerniawska mentioned. “Broadly talking the issue right here will not be demand, it’s about what purchasers are prepared to pay for it.”

Consulting budgets sometimes come beneath strain when firms are in search of financial savings. Goldman Sachs mentioned in February that it might reduce the quantity it spends on skilled companies this yr, in addition to reduce its personal headcount. Accenture blamed decrease spending by Massive Tech firms, that are reducing 1000’s of employees, for its personal weaker than anticipated income progress.

A pointy decline in hiring that started within the Massive 4 accounting and consulting corporations has unfold to smaller gamers, in keeping with the most recent month-to-month survey by the funding financial institution William Blair. Job postings by US speciality consultants have been 57 per cent decrease in June than the identical month final yr, and at the moment are decrease than earlier than the pandemic. On the Massive 4, job postings have been down 80 per cent, yr on yr.

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