Consulting 's first decade was bookended by the two worst market downturns in at least the last 40 years. The depth and proximity of the market contractions have forced firms to adapt their business models faster than ever before.
In 2001, the consulting market was already slowing. The Y2K wave was over and many of the large ERP engagements were winding down. And then, suddenly, the terrorist attacks on September 11 sent the economy into a tailspin.
The impact of the horrible human tragedy had ripple effects throughout the economy. Client budgets for the coming year were discarded. Fear set in. Many offers to graduating MBAs were rescinded. Demand fell faster and deeper than had previously been measured any year since Consulting's publisher, Kennedy Information, began tracking the profession in 1970. For the first time in at least 30 years, the total size of the profession contracted—and it did so in both 2002 and 2003, according to Kennedy's estimates.
A decline in demand was only part of the problem. Consultants slashed their fees, afraid of losing client relationships. With revenue and profits falling, consulting firms found themselves overstaffed. Layoffs struck deep. And, by the end, almost 100,000 consultants worldwide left the profession.
The economy, and consulting demand, slowly recovered in 2004. But it wouldn't last long. Modest growth, hamstrung by lower hourly fees, lasted until mid-2008. For the last two years, virtually all discretionary consulting spending has been cut, as clients deal with the combination of high oil prices, a collapse in the housing market, the erosion in consumer confidence and spending, and a complete meltdown of the financial services industry.
The successful firms will be those that can adapt to the rapidly changing market environment and not expect things to return to the way they were.
Did firms learn their lesson? The first downturn caught many consulting firms flat-footed, unable to cope as market demand slipped away. Staff levers were cut to the bone; fees were slashed; firms' culture took a hit. While many firms avoided the same mistakes, not all succeeded. Just take a look at some quotes consultants recently submitted to Consulting magazine about the recent downturn: • "I don't think leadership appropriately planned for this downturn, even though most of us saw it coming. I was very disappointed in the lack of foresight from leadership. There have been many knee jerk reactions. I don't think [my firm's leaders] learned anything from the last downturn." • "Before, our office was much smaller and got through the downturn in a much stronger position—not so this time around. We un-learned all of the conservative business mindset we had from before. And, now we are paying for it with lower billing rates, poorer projects, longer hours, and worsening client relationships." • "I am frustrated that our firm seems to be taking the same steps that they took to deal with the downturn in 2001 to 2004 (i.e., laying off entry level consultants and project leaders). They have said for many years that they regretted these steps in 2001-2004 and would never do them again because they are now struggling with the low number of upper-level managers and junior partners [who would have been the laid-off entry level consultants/project leaders in the last downturn]. My office in particular, however, is taking the same steps again." |
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