UK consultants fear coronavirus will spark a huge drop in fees

24 March 2020 6 min. read
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While its growth remains its slowest for more than seven years, the management consulting market of England, Wales, Scotland and Northern Ireland remains the globe’s second largest. However, Britain’s economy is in a uniquely precarious position as the Covid-19 pandemic takes its toll – with Brexit negotiations still on-going – suggesting UK consultants could be about to see a huge drop in fees.

The global consulting industry has grown strongly in the 12 years since the last financial crisis. By the reckoning of Source Global Research, the planet’s consulting scene is now worth a combined $160 billion, but with the coronavirus having pushed many sluggish economies to the brink of a recession, clients are delaying projects, decreasing their scope or cancelling them all together. As a result, the revenue of consulting is taking a big hit – collectively anticipated at around $30 billion – and some countries are better positioned to weather the storm than others.

According to Source, the UK consulting market saw a tepid 4% growth in 2019, however, its £8.6 billion of revenues still accounts for around 6.8% of the global market – leaving it out ahead of close rivals Germany, as well as the more distant Australia and France. The issue is that due to the country’s economic slowdown connected to the turbulent Brexit process, the UK’s advisory scene was already enduring its slowest growth in seven years when Covid-19 hit, suggesting much worse is to come in the coming months, especially compared to its closest rivals.

Impact of the coronavirus on the global consulting industry

A recent study undertaken by Source’s researchers revealed that consulting firms in Europe could see a 28% drop in demand. While the German consulting market, where the large manufacturing base will be impacted by disrupted supply chains, could shrink more heavily than most, the research found the UK would be in a significantly weaker position due to the uncertainty surrounding its supply chain and continued relationship with the continent.

In terms of recovering from this significant drop, in the mid-term Europe’s consultants will struggle disproportionately from Covid-19. European advisory firms also saw a slow recovery after the 2008 global financial crisis, due to the continent's clients lacking the greater willingness of their US counterparts to use consulting services to get ahead of the curve in the post-crisis years, or to adopt new technology in business. This will also be an issue for UK consulting firms, suggesting that having taken a deeper dip, it will take them even longer to bounce back.

All this means Source expects the UK consulting market could see a revenue fall of an estimated 28% over the course of 2020. The researchers believe management consulting in the UK was worth around £8.6 billion in 2019 – but by the end of 2020, that figure could decline to as little as £6.1 billion. That retraction would see the market shrink to its smallest size since 2013, when it was worth £5.9 billion.

Coronavirus impact on UKs consulting industry

It should be noted that Source’s research features forecasts which are something of a worst-case scenario, and intended to be directional only in helping companies prepare for what may come. The situation is still rapidly developing, so predictions can and will inevitably change. With that being said, it is already clear that certain industries will not be able to weather the storm as well as others – and this will have a knock-on effect on the consultants offering services to these sectors.

On a global level, Source expects that the financial services sector is likely to fare better than most, but will still contract by around 12%. Contrary to the financial crisis, banks are now better capitalised and have the buffers to play an active role in supporting the economy back to recovery, which means they will be deploying initiatives; and in a continued competitive environment they continue to invest heavily in digitisation. London’s retention of its status as a global financial hub at present, despite Brexit anxiety, means this will help buoy consultants offering work in the financial sector.

On the other hand, Source’s modelling suggests that the demand in the services sector, which includes leisure and airline companies, will shrink. This can already be seen by the fact many airlines – desperate to negate collapsing incomes – have decided to cull their consulting spend. While this mainstream consulting will be partially offset by a growth in restructuring work, revenues from the sector will still likely take a 29% hit.

The impact of the coronavirus on consulting by industry

The strain the Covid-19 crisis is placing on the NHS means consulting in health is likely to see a precipitous drop in demand. While consultants have repeatedly trumpeted their importance in the sector when it comes to saving resources for the underfunded institution, when push comes to shove most healthcare clients will not see value in allocating resources to consultants at this time. 

The prospects for public sector consulting are also looking difficult for UK consultants. While Source suggests that the drop in public revenue will likely vary by country, it predicts an average drop of 22%. The second largest segment of the UK consulting client-base is the public sector, and such a fall would hit firms hard, as time and money is focused away from non-essential projects.

The exposure of individual firms will vary based on the services they provide and industries they serve. At a time like this, diversity and the ability to adapt will be critical, while specialising in a hard-hit market could prove costly. Multi-faceted firms which cater to various clients will undoubtedly come out of this crisis in the strongest position. However, for firms of all sizes, the key challenge will be how effectively they can rebuild their pipelines and convert sales during what are likely to be at least two very challenging quarters.