?? Consulting Skills Mastery Issue 3: Consulting in 2023??

This is the third edition of Consulting Skills Mastery. I'm writing it in late December and looking ahead to what the next 12 months might bring. It's been a crazy few years. Read on for my predictions for consulting in 2023.

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My 5 Predictions for Consulting in 2023

Crazy times continue

The last few years have been, by any definition, unusual. We are now almost 3 years on from the first reports of a novel coronavirus strain identified in Wuhan, China.

The public health impact has been huge. The societal impact has been huge. The economic impact has been huge. We've all been through an extraordinary time. We will feel the ripples for many years to come.

And we are not done yet. As I write this, China has reopened and a new strain of COVID is spreading faster than ever. We can expect further disruption to supply chains and ongoing commodity shortages. Western governments may face more difficult public health decisions. We may even see lockdowns again.

Already, inflation is sky high and central banks are ratcheting up interest rates. Most major economies are in or entering technical recessions. From many sides, the economic outlook looks bleak. Volatility is the only certainty.

Twitter was the canary in the covid mine. People there warned of what was to come weeks before the mainstream media seemed to notice. Twitter is now owned by Elon Musk, who some see as the greatest entrepreneur of our generation.

Musk has sent shock waves through the business world by firing most of the team he inherited. He has ridden roughshod over employment law and accepted norms for workplace culture. We don't yet know how this may play out, and how the choices of other business leaders might change as a result. Could a different Twitter be the canary in the workplace culture mine this time round?

A complex backdrop for consulting firms

Society in general feels more divided than any time I can remember. More and more people are wanting to change the world we live in. I see many adopting radical left-wing or right-wing positions. Lots of young people are angry about the world they are inheriting. We see generational divides in communities and workplaces that are hard to bridge.

This all creates a complex environment for consulting firms and consultants to navigate.

Most of my consulting clients are boutique firms in the UK & Europe. Many are growing fast but there is a consistent experience that hiring is harder than ever. Even the big guns of Bain, McKinsey and BCG are raising salaries?by >10% to attract the talent they need.

Consulting is a high fixed cost business. Utilisation is a key driver of profitability. To pay for these salary increases firms must increase revenue-per-consultant (or reduce Partner bonuses...)

The tools you have available to increase revenue-per-consultant are not fully in your control. One way is through price increases - if client demand is strong enough. You can ask people to work harder and drive up utilisation - until they quit. Or, you can develop more efficient ways to solve client problems. That last one is really the only reliable route to sustained profit growth. The good news is there is lots of scope to approach things differently.

Will the consulting industry continue growing?

So far, client demand has stayed strong post-COVID. Most data sources put consulting industry growth at ~10% p.a. in 2021 and 2022. The consultants I speak to almost all expect continued growth in 2023.

Office for National Statistics data supports this for the UK. In 2020 there were ~9,760 UK consulting firms*. In 2021 that increased to 9,980.

Based on data to September 2022, that had increased by a further 385 firms to ~10,365. Some of that may be firms re-classifying what they do, but overall it points to continued strength. The management consulting industry is certainly growing as we head into 2023.

Why is this? Clients are nervous about the future and struggling to navigate the volatility and uncertainty they are experiencing. Despite many feeling cash constrained they still need help. With the backdrop of inflation many consulting firms have been able to increase prices heading into next year. Clients get it and accept it (for now).

Despite this economic and social turmoil, unemployment remains low. Job seekers have options, and are demanding ever higher salaries as a result. The trend of "quiet quitting" is growing and the boom in freelance workers shows no sign of stopping. This includes lots of newly independent consultants.

We have an environment where price increases are possible but maybe not for long. Driving your teams harder is risky and people are likely to quit. That brings us back to profit lever 3 - finding more efficient ways to solve client problems.

That means defining repeatable models for generating novel solutions to client problems. It means investing in your teams' skills so they are generating maximum 'return on effort'. It also means utilise tech to help in all areas of the business.

I call this Triple E Consulting. Effective for Clients, Engaging for the Team, and Efficiently Profitable.

What does this all mean for the consulting industry in 2023?

Here are 5 predictions I'm hanging my hat on:

1. Booming Boutiques: Cash conscious clients will turn to specialists. Boutique firms are niche experts with efficient ways of solving specific problems. They also tend to have lower overheads. This means more value for less cost when clients are facing problems that don't need a global footprint.
2. Fewer New Jobs: Salary increases plus cost-conscious clients puts severe pressure on profit margins. Larger firms will respond by slowing hiring. They'll be more nervous, particularly with experienced hires. This may challenge diversity & inclusion agendas if firms revert to old hiring habits.
3. Working Harder: Utilisation rates will continue to increase as firms squeeze more out of their teams. Higher pay may come with higher demands! Between cases, consultants will be put to work on IP, training, and BD efforts. People will develop faster but for some this won't be sustainable.
4. Collaboration & Partnerships: Firms, particularly boutiques, will realise the benefits of working together. Some will seek help to add new capabilities - e.g., ESG - into their proposition so they can meet client supplier requirements. Others will formalise referral networks to win work.
5. Real Intelligence: Artificial Intelligence gets a lot of headlines, especially with the release of ChatGPT. This brings opportunities but the core of consulting still needs that human touch. Winning firms will embrace AI as a tool to help their people do more, faster.

Overall, I feel positive about the outlook for consulting firms. Particularly those who can solve for what talent needs - not just paying more, but treating people well and investing in them. Clients will still need help. People will still want to be consultants. Expert firms with focus and a strong culture will do well.

I'd love to hear what you think!

Deri.

*Consulting firms defined as UK businesses registered against SIC code 70229 "Management consultancy activities (other than financial management)" with over 5 employees

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