Last year’s predictions: Were we right or wrong?
As we think about what will happen in 2024, it’s important to recognise what we got right and what we got wrong in the last year, and to understand why.
In January 2023, we made five predictions about the consulting and wider professional services sector.
1. Clients will spend more on consulting services, despite macroeconomic uncertainty
In 2021, in the post-pandemic boom, everything grew—every sector, every service, and every geography—fuelled by a combination of pent-up demand for change during the pandemic and a zeitgeist that encouraged us to think we’d entered a new era of innovation and economic growth. But Russia’s invasion of Ukraine in February 2022 both revealed and amplified economic and political uncertainty.
At the start of the year, we predicted that the consulting market would grow by just under 8%, down on the previous couple of years. However, we provisionally think that that rate of growth was significantly lower, around 5%*.
Even that latter figure may sound too positive to some, but it takes into account a surprisingly strong start to 2023, which was followed by a sharply negative change since the summer, especially in the US. Europe fared worse in the first half of the year, but we heard from firms in Europe that pipelines have shown tentative signs of recovery. Elsewhere the picture is mixed. The Gulf region is likely to be the area of highest growth, while China is likely to be an increasingly difficult market for global professional services firms to operate in.
Looking ahead across 2024, we see the potential for some improvement later in the year, largely because there’s been very little improvement in client organisations’ capacity to get things done. Staff augmentation may not be a market many consulting firms want to focus on, but it remains one of the most important reasons why—we think—there will continue to be some growth. However, even this modest improvement in the rate of growth heavily depends on client confidence continuing to improve, albeit at what is likely to be a glacial rate, and on there being no further major shocks in the political and economic landscape.
2. Growth will be unevenly distributed, but technology will be a sure-fire bet
We think we were spot-on with this prediction, on both counts.
Our conversations with professional services firms revealed that the biggest difference they noticed as growth slowed last year was the variation in demand across different parts of their business. Our research indicates just how significant a shift this was. In 2022, the difference in the proportion of clients who said they were most likely to use the most popular and least popular services (respectively, cybersecurity and market research) was 30 percentage points. Fast forward to 2023, and the equivalent difference had grown to 48 points.
In 2022, 10% of clients said that technology strategy was the area where they were most likely to use consulting support; in 2023, it was 43%. Why? Because just under two thirds of clients think that they need to update their technology as soon as possible if they’re to be more productive and able to fend off the competition in the next three years. As a result, 52% of clients said that digital transformation was one of their top-three strategic priorities in the next 18 months.
What we didn’t anticipate was the explosion of interest in AI. Given the points noted above, we should have expected clients to seize on a specific area of technology that promises easy and fast delivery of significant change as the next big thing.
3. Professional services firms’ biggest competitors will be clients themselves
We were right here, but we missed the more important story, which is that—despite budgetary constraints and competition from internal teams—demand is still growing.
Take tax consulting as an example: Despite being a highly specialised area where key skills are in very scarce supply, clients still do most tax work in-house. In 2023, 73% of clients said that they met more than half of their tax needs internally, compared to 27% who relied on tax advisory firms to do more than half their tax work. But the proportion of clients who did most of their tax work in-house was lower than it was in 2022, and the percentage who expect to use external support for more than three quarters of their tax work will rise from 5% today to 27% in 6-10 years.
But it's a complicated picture. Our data doesn’t suggest that all clients are inexorably moving towards tax outsourcing. Some very clearly are, but others think that their growing reliance on external firms will be short-lived and that they’ll continue to manage most of their tax affairs themselves.
4. Implementation will be the most important attribute clients look for when considering which firm to hire
Our annual survey of client perceptions of consulting firms, published in early 2023, indicated that the most important attribute clients considered when thinking broadly about which firms to use was their ability to implement. And we saw ample evidence that that was the case last year. When asked to name the biggest disincentive to using consultants to help improve productivity, for example, 26% of clients said that it was their inability to measure a firm’s impact, 22% that whatever improvements the consultants delivered would be short-lived, and 18% that consultants bring plenty of ideas but no actual change.
5. Consulting firms that succeed will be those with propositions that deliver faster, better solutions
We don’t have the quantitative data to prove this—and a lesson for us is the importance of coming up with predictions we can test.
Anecdotally, there’s no question: Speed of delivery comes up constantly in our conversations with clients. Organisations trying to hold on to the ambitious targets they set themselves after the pandemic may be constrained in terms of where and what they can invest, are also concerned that there may be future shocks to the political and economic environment. Getting things done (especially technology updates) sooner rather than later was a recurring theme in our data last year. Presented with a list of areas for strategic investment, on average 43% of clients said they’d be investing at least some of these areas in the next 18 months, compared to 32% over the next three years.
But, while we think it’s highly likely that a firm clients think can deliver more quickly than its rivals will win more work, we can’t prove it. Speed may be a key imperative for clients, but it’s not the only reason why they hire consulting firms (they may simply be short-staffed, for instance). Separating this one variable from the others isn’t easy, but it’s something we’ll be looking into in our future research.
Stay tuned: Our next update will have our predictions for 2024.