If there's one word that sums up the consulting profession for 2011, it's "optimism." When we asked firm leaders to look out over the next 12 months and give us a pulse check on the profession, each responded with varying degrees of optimism. Of course, revenue can have that effect. In our exclusive survey of partners and vice presidents, nearly two out of three saw revenue growth in 2010, a far cry from the previous year. So, is the Great Recession in our rear-view mirror once and for all? Based on our canvassing of the consulting profession—both exclusive market research and direct feedback from nine industry leaders, it would certainly appear so. As we reflect back on the year that was and look ahead at the year that will be, our 2011 Outlook attempts to bring a little much-needed clarity to an ever-evolving landscape. And even though there's still plenty of uncertainty out there, the signs all seem to be pointing in the right direction. It's been a while since we could say that.
The Survey
Just one year removed from the most challenging period in the modern era of the consulting profession, a robust and widespread recovery appears to be in full swing. But can we finally say goodbye to the Great Recession once and for all? It would appear so.
More than 60 percent of consulting firm leaders said they grew their revenue in 2010—including more than 40 percent who grew by double digits, according to a recent Consulting magazine survey of nearly 80 firm VPs and partners conducted in December 2010. Looking ahead to 2011, more than 80 percent of firm leaders anticipate growth to their top line, including just over 50 percent that anticipate double-digit improvements.
Even if some of the forecasts prove to be overly optimistic, these survey results should provide confidence to those experiencing improving market conditions. What gives us reason to believe in the stability of this recovery is that it's not limited to top-line improvements. In the past, we've seen upticks that were driven by win-at-all-cost, short-term decision making. In uncertain economic times, it's understandably tempting to, for example, lower fees and work your staff longer and harder to drive revenue.
But in today's recovery, we're seeing firms improve their bottom lines, too. In 2010, more than 60 percent of firm leaders reported improvements to their net profits. In 2011, almost 80 percent of firm leaders anticipate their net profits will improve. Some of this rebound in profitability is a response to just how badly firms suffered during the downturn. For a 12- to 18-month span (depending upon services offered, industries served and geographic focus), every profitability driver was headed in the wrong direction.
Fees were under tremendous pressure as clients slashed costs, compensation was inching upward as firms attempted to rebuff talent vultures from healthier consulting firms as well as those outside the profession, leverage ratios were knocked out of whack as layoffs reset staffing ratios, and utilization
rates fell in pace with demand (except for when they were artificially lifted following layoffs).
Given how challenging profitability was from the end of 2008 through early-2010, some recovery in net profitability is to be expected. A further decline would have spelled doom for many firms. The degree of the improvements illustrated in these survey results suggest firms made hard choices during the downturn and are being rewarded as the economy begins to climb upward.
According to the survey findings, 39 percent of consulting firm leaders reported double-digit improvements in their net profits during 2010 and 44 percent are anticipating improvements of at least 10 percent in 2011. This optimism is further bolstered by answers to a series of questions asking about the relative level of concerns with specific internal and external issues. Among external issues, the focus is moving away from concerns that were paramount during a downturn.
Specifically, far fewer consulting firm leaders say they are concerned with pricing pressure and sales cycles—the average amount of time it takes to sell a typical project. Those two issues were top of mind for the C-suite for the past few years.
During the worst of the downturn, it was taking longer and longer to book consultants' time at lower and lower hourly rates—a formula for disaster. Firm leaders also report improvement in engagement opportunities, specifically: client retention and new client business development.
To analyze the business concerns in more detail, we broke the respondents into four groups: contracting firms (those whose top lines shrunk between 2009 and 2010), stagnating firms (those whose revenue did not change in 2010), moderately performing firms (those whose revenue grew by single-digits in 2010), and high-performing firms (those who grew by more than ten percent or more).
Generally, those firms that performed best in 2010 report the most improvements with "recovery-related" issues. Those firms that struggled a bit more in 2010 see fewer signs of optimism as they enter 2011. Similar trends are observable in reviewing internal issues. Unlike a year ago when profitability levers (specifically, compensation expectations, managing utilization rates) were keeping leaders up at night, their focus is now on forward-looking, longer-term concerns.
After a year-plus of layoffs and other firm-culture killing decisions, firm leaders are now reporting that morale is on the upswing. They are also reporting improvement in resetting new strategic directions and goals, a clear signs that firms are turning the corner from downturn to recovery.
—Jess Scheer
Firm Leaders
As part of our 2011 Outlook, Consulting reached out to the leaders of several consulting firms at the end of 2010 and asked them to take a good look at the year ahead in terms of the overall economy, forecasts for their firms, their clients and the markets they serve, growth opportunities, their biggest challenges and how they'll overcome them. Here's what they said:
Punit Renjen
Chairman and CEO
Deloitte Consulting
Fears of a double-dip recession are receding, and we're seeing more optimism in our clients' organizations for a moderate, but steady, recovery. Deloitte's recent CFO survey indicates that large companies are highly optimistic about their ability to ride out a slow recovery. We see that market perspective translating into improving demand across the industries and sectors where we practice.
Deloitte's consulting and advisory business has remained strong throughout the recession, and I believe that fiscal year 2011 will trend upward along with the global economy. Our focus is squarely on growth, both organic and targeted acquisitions, within our priority markets. We also are committed to embedding quality in all aspects of our business, which not only is creating more value for clients but also contributes to the profitably of
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