It’s looking like being a pretty tough ask for my 2011 predictions to live up to the accuracy of last year’s, but below are my thoughts on what I expect the consulting industry to witness in 2011.
A strong revival in private sector consulting demand - private sector demand for consulting services is usually strongly linked to corporate profitability (with the notable exception of restructuring assignments). With profitability across a wide range of sectors now markedly improving, the conditions are right for a rebound in consulting demand. Our own soundings of consultancy firms also suggest that across a broad range of practice areas consulting leaders are expecting private sector demand to continue to pick up in 2011.
Practice areas I expect to see perform strongly in 2011 are Financial Services, Energy & Utilities, Manufacturing and Telecoms, Media & Entertainment; quite possibly Retail and Consumer Goods too.
An improved climate for public sector consulting project wins - the undoubted casualty in consulting in 2010, the public sector trading climate will remain tough in 2011. However the “lock down” on all new public sector consulting spend is expected to ease over the course of the next year, as the reality of trying to deliver on public sector transformation programmes and cost-saving initiatives necessitates the engagement of teams of outside experts.
From our discussions with practice leaders, it’s clear that - away from the glare of the mainstream media - there have been conversations taking place within government about the projects that will need consulting input in 2011. Whilst there’s easy political capital to be had from shooting down the “waste” of public money being poured into consulting, there’s also the realisation that a good portion of this spend delivers real returns for the public sector and that the scale of change envisaged within public sector service provision is such that a blanket ban on new consulting spend is simply untenable.
None of which is to say that things will be rosy in the public sector market this year, but compared with the bloodbath of late 2009 and 2010 conditions will undoubtedly be more favourable.
Single digit growth in UK consulting revenues - during the boom years we became accustomed to growth rates of 10%-15% per year in fee income. However the sector actually contracted for the first time on record during the post-Lehman recession. For 2011 we expect the combination of stronger private sector demand and moderated government hostility to consulting spend to result in fee income growth this year. Nothing spectacular by historical standards, probably only 5-6% growth (and this from the lows of the last years) – but a noticeable improvement in fortunes all the same.
Continued downwards pressure on consulting fee rates - the forces at work here are numerous and would warrant an article all to themselves. But the upshot is that consulting firms continue to report significant downwards pressure on consulting fee rates and the improved demand for consulting services simply isn’t great enough to counter this across the industry as a whole. In FS there may be scope for firms to pick and choose their client base and flex rates accordingly, but across the wider industry fee rate pressures will remain.
The natural implication of this is that the growth in consulting revenues being envisaged will need a correspondingly greater increase in billable days sold – so consulting volumes will actually rise faster than the headline revenue figures. For firms this will mean resourcing becomes a more critical issue in 2011 and this is particularly true given the next of my predictions.
Pay rises will predominantly go to those consultants who choose to change employer - margins within consulting continue to be squeezed and the trend seen in the closing months of 2010 is expected to continue in 2011. Firms have largely shown themselves to be unable to award significant pay rises to their workforces as a whole, even after a couple of years of pay freezes and frugality. Where they have been willing to “break the bank” has been in making offers to new joiners, where succeeding in bringing in new hires is often critical for firms to actually be able to deliver on the assignments being won.
This discrepancy between the awards going to those who stay put and those who move on will undoubtedly accelerate consultants’ decisions to change employer (or leave the industry altogether). Staff retention we can therefore expect to become a worsening problem in 2011 and our soundings of firms certainly indicates this is being anticipated within the industry. In some key practice areas we can expect to see retention bonuses and special awards being made to try and tie in staff, but across the sector as a whole this isn’t commercially viable and I expect this discrepancy in pay awards to continue throughout 2011.
The hiring climate will improve noticeably for consulting candidates - we anticipated this in 2010 and it indeed came to pass as the year unfolded, with recruitment activity three times higher at the end of 2010 as it had been when the year began. With revenue growth expected in 2011 – and being achieved not by higher fee rates but by higher volumes – the momentum is there for this improvement to continue. Add in the worsening staff retention problem being foreseen and the cumulative effect is that consulting recruitment activity will need to be ratcheted up further still in 2011.
Overall we are seeing firms emphasising the recruitment of experienced hires – of industry experts and those with a consulting track record – with less of a priority being placed on hiring fresh graduates. This I would suggest is part of a long-term trend in which clients of consulting firms are increasingly looking to engage teams of experts rather than teams of generalists. Hence I expect the improvement in the hiring climate to be seen most markedly amongst those candidates who are looking for experienced hire positions rather than those emerging from university.
From: consultant news
