Forecasting consulting demand: What COVID taught us about the Hormuz Crisis
In February 2020, the world was in uncharted territory. As the coronavirus spread around the globe, many assumed we would go into lockdown for a couple of weeks, maybe a month, and then the world would rapidly return to normal. The public couldn’t be expected to endure severe restrictions on their activities for very long, and in any case, by then the spread of the virus would be contained. People were sent home from the office without so much as clearing out their lockers.
What happened to business? Initially, most tried to ride it out: IT departments rushed to sort out remote working where possible, and those forced to close tried to absorb the losses and apply for any government support on offer.
It feels like a remarkably similar situation today when it comes to the closure of the Strait of Hormuz. The markets still think the disruption from the war will be over quickly, and in the meantime, businesses are trying to mitigate the short-term damage (or take advantage of the windfall opportunity), without making any major, permanent changes.
But, just like in 2020, things might not return to normal quite so quickly. Those who reopened their work locker 18 months later to find the remains of their last packed lunch had an all too potent reminder of how different expectations had been at the start of the pandemic. Many parts of the world were locked down for much longer than expected, and then, even as restrictions were loosened, countries locked down again as new strains emerged.
In response to this stop-start world, businesses finally realised they needed longer-term solutions, and looked to consulting firms for help with that, whether it was to manage hybrid working, improve the resiliency of their supply chains, or manage new cybersecurity risks. Even as the threat from COVID has faded, some changes from that era have proved to be permanent: Zoom calls, online shopping, and changes in commuting patterns have remained to some extent.
Here at Source, we think something similar will happen if the Strait of Hormuz remains closed for much longer, or if it proves to be a stop-start process as agreements are reached, then fall apart. Even if the Strait opens fairly soon, Pandora’s box has been opened: everyone now knows it can happen again.
We have evolved a framework for thinking about what drives growth in professional services, which has four dimensions, and that will be useful for firms thinking about the market today:
- Strategic choices—Where is there pressure for clients to change?
- People & talent—Do clients have the skills they need to execute their strategic plans?
- Operating model and technology—Do clients’ technology capabilities support their goals?
- Affordability—Do clients have the budget to bring in external advisors?
And another key factor: once clients have bought consulting services in the past, they’re more likely to buy in the future.
Drivers of growth in professional services
So, what does this look like when applied to today’s situation? As oil and gas prices remain high, businesses, governments, and individuals will see a strategic need for permanent changes to avoid problems associated with the Strait (1 – see diagram above). Whether that’s buying an electric car, building up defence budgets, investing in pipelines to avoid shipping through the Strait, or finding other ways to build resilience in their businesses.
As a result, organisations will be driven to reach out to consulting firms for help with scenario planning, strategic thinking around political risk, cybersecurity, and other issues. In some cases, clients will think about changing their operating model or looking for technological solutions too (3).
For businesses within the GCC region itself, there will also be people & talent challenges (2), if Western expats are reluctant to return and it becomes difficult to attract talent back to the region. They will need help coming up with solutions to this, whether through better ways of managing talent, technology allowing remote outsourcing, or moving their physical location to the west coast of Saudi Arabia—or away from the Gulf altogether.
But just like during COVID, consulting spend by clients will be patchy, and affordability will be a problem for many organisations as input costs rise and economic growth slows (or even reverses) (4). Some (perhaps airlines or clients based in the Gulf itself) may see a slump in their business or a spike in costs which makes it difficult to invest in sizable consulting projects at the moment. Others (such as international oil companies or defence manufacturers) may see a boom in demand and look to consulting firms to help take advantage of new opportunities.
It’s still too soon to say exactly how the political situation will evolve, and what that will mean for professional services firms. But firms should ensure they’re keeping in touch with clients they know will be severely affected, understand the issues they face, talk to them about options for possible ways forward, and share what they’re hearing from other clients. Even if this doesn’t lead to immediate work, when clients are ready to take action, this will put firms in a strong position for consideration.
What can professional services firms do next?
Source has data and insight that will be invaluable for firms looking to keep on top of a dynamic situation. Our report on Market Trends in the GCC consulting market includes a pulse survey asking clients in the region about their responses to the Iran war. Contact us to purchase this report or to download an extract.
Also, as things develop, we’ll continue to ask questions of clients globally about the challenges they face and their responses, in our regular quarterly surveys. To speak to our experts about a leadership presentation that draws on this valuable data to explore clients’ evolving needs, contact us.