Sector slowdown offers opportunities to specialist consultancies

08 November 2023 7 min. read
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With growth slowing across the professional services sector, many large firms have found themselves downsizing their headcount while scrambling to preserve their profit margins. Bryce Wolf, senior manager at Unit4, explains how smaller consultancies with specialist skills can take advantage of the situation.

2023 was always going to be challenging for professional services firms as Source Global Research suggested in January when it forecast growth to decline to 7% in 2024 from actuals of 11.5% in 2021. More recently, a flurry of cost reduction exercises from the major consultancy firms has suggested difficult times ahead as clients reassess their approach to bringing in outside support.

Certainly, navigating the ‘poly crisis’ is hard. Inflation has reduced consumer demand and scarcity of raw materials in the supply chain has increased costs, which, combined with tricky geopolitical tensions, has made clients hesitant to invest. Add to this the rise of AI and automation technologies and there is a suggestion that some of the previous roles of consultancy firms are becoming superfluous.

Sector slowdown offers opportunities to specialist consultancies

For the bigger firms who bulked up with staff during the pandemic due to the demand for digital transformation support, on paper they have more resources to potentially ride out the economic challenges ahead as they can claim to offer a one-stop shop for all their clients’ needs.

However, is that what clients want? The consultant’s predictable answer is “it depends.”

It depends on the client, the industry, domain knowledge, and experience. What is certain, though, is that clients want far more specific, specialist insight rather than highly scripted, generalist advice. The “rinse, lather, repeat” method has grown tired, but the specialist consultancies need to be astute in their hiring strategies to ensure they are attracting subject matter experts that help them stand out. The boutique firms that can combine the best personnel with relevant industry insights and skill sets will deliver more value and build more defensible specialisms in niche sectors.

If the smaller and mid-size professional services firms identify where they can create unique propositions, then there is potential for lucrative market opportunities. However, they need to move quickly to seize the market opportunity before the competition. It is absolutely critical that the right resources are in place for these smaller firms. This is because there is more at stake. Unlike larger firms who can ride out slower economic times by downsizing, smaller firms depend on every project they can bring in for survival.

Be global specialists

If they are to be successful, consultancies must be creative in how they approach both client and project management. Although you may be “small” in size, if you have built a reputation for specialist skills, then you can achieve global stature among prospective clients. The challenge then becomes how to deliver projects that may be dispersed across multiple locations and geographies. It requires firms to operate in a lean way and be very agile and responsive to client needs. So, is it possible to be more specialist and more global at the same time?

Clearly, you must be able to find expertise quickly, whether that is within your organization, or employing a freelance consultant based close to where the project will be delivered. It requires a sophisticated understanding of employee skills married with predictive forecasting of how future demand will affect staffing requirements. You must also be able to use AI and automation effectively to optimize project resources to ensure that the right people are in the right place at the right time, and that those projects are delivered on time and on budget. If you are a smaller firm with less bandwidth to spend on planning and strategizing future market opportunities, then you will also need accurate real-time analytics to enable agile responses to client demand.

It is also essential smaller firms are selective about the projects they take on. They need to make sure they are picking projects that they can deliver and then grow that client. If the project is big, and has complex staffing needs, then caution is advisable. Taking on bigger projects requires a detailed understanding of the skillsets within the organisation to match the client needs. What industry experience do those in the firm have? What technologies have the team worked with? If it’s a change management project, it will also be critical to understand the people aspect, the process change, and the technology needed to make the change successful.

This is where technology can step in to provide the supporting infrastructure necessary to enable mid-size firms to build the right processes and operational policies. If your firm is built on a dynamic, core IT infrastructure you will be able to operate in a lean way, while honing your specialist competitive advantage and engaging clients around the world in projects ideally suited to your skillsets.

To build those foundations, you must start with some core principles:

  1. A single view of all your data: it is absolutely critical to have a single source of truth about project management, staff utilization and the opportunity pipeline. Unless you have clarity across all these aspects you will not be able to make accurate decisions
  2. Data compatibility: organizations store all types of data, so if your core systems cannot read all of that information it will be difficult to create a complete, accurate picture of how your firm is performing.
  3. Application interoperability: this is harder for more established firms that have built up on-premise applications compared to younger digital-first businesses who can start from scratch in the Cloud. However, ensuring applications can talk to one another is critical, which is possible with open APIs.

Shift gears to the cloud

The vehicle to enable you to reach that destination is moving to the Cloud. Shifting core applications will necessitate going on a journey to maximize the agility and responsiveness of your business. It will require careful planning and changes to core processes around HR, billing and project management. However, the end goal will be to create a far leaner, agile IT infrastructure which will enable your firm to react quickly to client demands and compete with larger competitors who are not able to offer your unique, specialist skills.

This nimbleness is critical for mid-size consultancies if they are to survive and thrive particularly when the future is so difficult to predict. Ask any consultant to predict the future, and they are very likely to say “we don’t know what we don’t know.”

Barely a year ago, generative AI went mainstream, and it is difficult to know what impact other technologies will have in the future. This change is exciting as it is possible to envisage a future where a consulting firm creates a ChatGPT buddy to analyse and advise on strategies to address the challenges facing clients and consultants. However, to be positioned to leverage these technologies effectively, you need an agile core infrastructure that can easily adopt and integrate new technologies.

Can the smaller consultancies compete with the bigger firms? Absolutely, if they have the right core infrastructure and next generation technologies to reinforce their specialist competitive advantage. If firms get this combination right, they will build trust with clients that it will be difficult for the generalist big consultancies to undermine. There is going to be significant disruption for the foreseeable future and this is the time to take on the big consultancies and strike while the iron is hot.

Bryce Wolf is a senior manager of industry solutions at Unit4 and is responsible for the delivery of Unit4’s product strategy for our strategic verticals. He is responsible for the delivery of Unit4’s PSO Industry Models and MESH, and works closely with Product Directors to ensure a complete end to end solution for Professional Services Organisations.