By Bopdeb Mondal
The Myth
There was a myth in the past that consultants will do well irrespective of the market woes. The belief was consulting firms supply creative ideas during good times but would play a vital role in cost cutting when times are bad, winning either way. The myth is destroyed in recent years; it's been observed that there is a strong correlation between the state of the economy and the demand for consulting. The companies consider investing in new initiatives when the economy is booming. An adverse economic climate would force them to reconsider any new investment . In this article an attempt is made to figure out where the consulting industry should invest their effort during the days of economic slowdown.
Economic Slowdown & Business Cycle
The economic slowdown or recession is a normal phenomenon in the economic lifecycle. An economy typically expands for 6-10 years and tends to go into recession for 6 months to 2 years. Before the present crisis we have gone through similar cycle in 2001, 1990, 1980 in last two decades. So it's inevitable, we have to be prepared to face this.
It's extremely important to understand the behavior of different sectors during the economic slowdown to survive in the marketplace. Fig 1 illustrates the pattern of rotation of different sectors during the course of economic cycle and stock market cycle. One important note here is the representation is just indicative and shouldn't be used for prediction.
The Space for Consulting
The Middle Bear & Late Bear companies in Fig 1 are expected to do better during recession. Also there are some industries which are least affected by market dynamics. Industries like Education, Energy, Environment, Healthcare & Medicine and Government are termed as recession proof by some economists. Sramana Mitra, a technology entrepreneur and strategy consultant in Silicon Valley, has referred the SaaS (Software-as-a-Service ) companies as recession proof. Therefore the consulting firms can concentrate their efforts in these sectors as they will have more room for investment in new initiatives. However they should be agile enough to tap any new opportunities that emerge from the other recession hit sectors.
The Gartner publication (April 2008) reveals that the IT budgets in the Banking sector (a Late Bear sector) will continue to grow although slowly than the early rate. The IT priorities in different regions are also illustrated in the report. The consulting firms can choose the region to concentrate depending on their area of expertise.
Proposals on Demand
The consulting firms should understand what will sell during the recession. The need of the hour is the kind of projects which improve the profit even if the gross revenue falls. Consulting firms should offer their expertise to reduce cost, improve efficiency, boost up market competitiveness etc. Phasing of the project is also important. The 'big bang' projects can be delivered incrementally before the full transaction is affected. Realizing promised quick wins ensures building confidence in the relationship and more downstream opportunities.
Author:
Bopdeb Mondal is an IT Process Transformation Consultant employed with Tata Consultancy Services. He can be reached at bopdeb.mondal@tcs.com
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