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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When investment banks cull their workforce, it barely raises an eyebrow. The industry hires and fires with abandon to adapt cost structures to economic cycles.
Not so strategy consultants. The McKinseys of this world once preferred to gently prod underperformers into new careers. The fact that these businesses have started to fiddle with their headcounts suggests that they, too, are becoming more cyclical.
McKinsey has offered some UK and US staff up to nine months pay to leave the firm. This follows a rare round of 1,400 job cuts last year. Consultant Bain has reportedly paid new recruits to delay their starting date. Such moves are small in relative terms. McKinsey employs 45,000 people globally. But they reflect changes in the way these companies work.
Major consultancies have become bigger, and growth rates in their traditional project-based business are slowing. If they mistakenly over-hire, the glut takes longer to absorb.
That seems to be what is happening now, after an admittedly unusual pandemic-related boom-and-bust. Headcounts ballooned as companies sought help for disruptions. Sector revenue growth halved to 5 per cent in 2023, according to the Kennedy Consulting Industry Monitor. That, coupled with low attrition rates, helps explain the desire to trim.
But there is another reason why consultancies are becoming more cyclical. The work they do is changing. The share of revenues from high-level strategic consulting is falling, from about 17 per cent in 2010 to 10 per cent in 2023. That is a problem. Drawing up glossy PowerPoint decks, complete with matrices and SWOT analyses, is pretty fungible work. So is beating the drum to get companies to do what was written down.
As companies become better at figuring out their own broad strategies, anecdotally at least, consultants must get into the nitty gritty to add value. Having more experts in the mix tends to lower overall utilisation rates. It also exposes firms to changing trends. Spare a thought for the recently-hired ESG specialist struggling to find gainful employment in the current backlash.
Consultants face a structural headwind, too. The leisurely pace of innovation used to give them time to perfect a methodology, such as “lean” programmes to improve the workings of factories and plants, and disseminate it around the world. Things are now moving much faster. Generative AI, the next big disruption, is a tool whose implications are so far unclear.
That creates opportunities for clever people. It also makes it harder for consultants to stay the required step ahead of their client base.
