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STATE OF PLAY

How consulting is casting itself as essential during Covid-19

An illustration of a consultant orchestrating things from behind a monitor
Daniele Simonelli for Quartz
Orchestrating a lot.
Published

Advising a company on its corporate strategy over video chat is harder than it looks—as Alex Jung can attest.

Jung, a consultant with Ernst & Young who specializes in life-sciences companies, was presenting research to a client, and it wasn’t going well. “It was a path the CEO did not want to go down,” she said. The CEO thought the approach Jung was outlining was something the company had already tried.

Ordinarily Jung would have realized quickly that the CEO wasn’t happy, and adjusted her approach. But because the session was over online video rather than in person, due to the Covid-19 pandemic, she couldn’t easily read his body language. The result: wasted time and effort for Jung, and more work.

“Body language is important—subtle movements of the eye, a glance across the room,” Jung said. When she does a client presentation, “I’m looking for affirmation, and that’s hard to get on Microsoft Teams.”

But difficulty advising clients when they aren’t in the same room isn’t the only challenge looming these days for EY and other major consulting firms like McKinsey, Accenture, and Deloitte. The pandemic is crimping them financially, adding to threats to their business model that they were trying to cope with even before the virus arrived. But, at least for some consulting firms, it may also hold benefits: Some are advertising their expertise in managing the pandemic itself, and gaining new business in doing it.

Table of contents

A double-edged sword | A huge but invisible industryGoing remote | Covid consulting | Big vs. small | What happens now?

A double-edged sword

In some ways, the management, strategy, and other consultants who advise businesses on how to run their operations are having as tough a time during the pandemic as the companies themselves. Consulting firms’ revenue is down and layoffs have begun, as companies hard-hit by Covid-19 curb their spending on outside advisors. The consultants who remain are grappling with how to do their jobs from home.

But as the saying goes, every crisis is an opportunity. Consultants are landing new contracts to help companies and governments cope with the virus and the economic carnage it’s caused. The pandemic may even be helping consulting firms regain the advantages they’d been losing when technology empowered their clients and disrupted their industry.

As a result, many in consulting are optimistic the industry will rebound relatively quickly once the pandemic is past. In economic parlance, they’re expecting a V-shaped recovery.

“I think they’re all finding their ways,” said Mark O’Connor, chief executive of Monadnock Research, which tracks the global consulting industry. “I do think this is going to come back. I don’t think it’s going to be a permanent thing.”

Others are more skeptical, believing the pandemic will hurt consultants more than help. “It is a double-edged sword, but it’s more of a cut from the sword,” said Joe O’Mahoney, a consultant and professor at Cardiff University in Wales.

“In a crisis, consulting is one of the first things that’s cut.”

From the firms, Errol Gardner, who leads EY’s global consulting practice, said “there are clearly some downside impacts to this, but there are things that could be of benefit as well.” A McKinsey spokesman said the firm “continues to grow and we are experiencing all-time highs in client satisfaction, even as we have adopted remote and other new ways of working.”

Even small consultancies, which some observers think might be at a disadvantage right now compared with bigger firms, say they’re holding their own. Many of the small businesses that make up smaller consultants’ client base are struggling, but there’s still “a huge need for consultants that specialize in this area,” said Richard Weinberger, CEO of the Association of Accredited Small Business Consultants.

A huge but invisible industry

Consulting may be the biggest industry that nobody really sees. The world’s biggest companies use outside consultants to help them decide how to direct their resources. Governments, too: Consultants like Deloitte and Accenture are among the US government’s largest outside contractors of any kind, with contracts totaling in the billions of dollars, for services like management consulting and assistance in modernizing technology.

The consultants’ work is behind the scenes, and typically goes on with little scrutiny and even less regulation. Most of the major consulting firms are privately held, so the world gets only as much visibility into their operations as they allow. The industry largely escapes notice until problems surface: Professional-services firms have been cited for enabling global companies’ tax-avoidance schemes, and for mishandling efforts to help banks prevent money laundering.

So it isn’t always easy to see when consulting firms are hurting, but when their clients suffer, so do they. The pandemic has forced many companies to delay or cancel projects using consultants and cut their spending on consultants, especially in industries that Covid-19 has hit hard, like travel.

“In a crisis, consulting is one of the first things that’s cut,” O’Connor said

Delta Air Lines, for instance, said in March it would “substantially reduce” its use of outside consultants. Wells Fargo, which was grappling with regulatory and compliance problems even before the pandemic, plans to heavily cut its consulting spending, the Financial Times reported in August. CEO Charles Scharf said in July that the bank’s spending on outside services like consulting was “extraordinary…beyond anything that I’ve ever seen.” (Delta couldn’t be reached for comment; Wells Fargo declined to comment .)

As a result of spending cuts like these, Accenture is reportedly laying off 5% of its global workforce, or about 25,000 employees. Deloitte and KPMG have recently had layoffs in the US, including in their consulting businesses. (Accenture said in a statement that it typically “transitions out” about 5% of its lowest performers every year, and “at this time we are not planning extraordinary global workforce actions.” KPMG said in a statement that while it’s optimistic about the future, “we must also be realistic about the uncertainty that exists in the marketplace” and is “taking prudent action to better align our resources with client needs and demand.”)

At Accenture, which is publicly held, unlike most of its peers, consulting revenues in the quarter ended in August fell 8% compared to the same period a year ago, before the pandemic. PricewaterhouseCoopers’ overall revenues, including both consulting and other business lines, were down 6% for the quarter ended in June compared with the year-ago period.

To be sure, the degree to which consulting firms are suffering varies enormously, depending on whether their clients are in hard-hit industries and on what kind of consulting they do. Still, it could be awhile before things get better: Source Global Research, an advisory firm focusing on professional-services companies, projects the consulting industry’s global revenue will fall 14% for 2020, though that’s better than the 20% the firm projected earlier in the pandemic.

Going remote

Even before Covid-19, consulting firms were facing challenges from technology that had tipped the balance of power. Clients have access to information and resources online which they never had before, meaning they might need consultants’ advice less often. Online search and social media have also given clients new ways to find other consultants to work with, instead of just relying on the usual brand-name firms, heightening competition.

Then the pandemic hit and consultants had to face an additional challenge—the inability to meet face to face when advising clients on matters vital to the future of their businesses.

While some areas, like technology consulting, are relatively easy to do remotely, others, like management consulting, often depend more on traveling around to meet with clients in person and looking the CEO in the eye—and that hasn’t been possible lately. As in every industry, adjustments have been necessary.

“It has been a little tricky to have the dialog we would normally have behind closed doors,” said Jung, the EY consultant. “People haven’t always engagedwe found that it takes longer.”

Another potential problem: Some worry that since companies have been forced during the pandemic to make big changes on their own and on the fly, without waiting for consultants’ advice, they may conclude they don’t need as much outside help as they thought they did.

To the extent that sentiment is out there, and sticks, it could affect the consulting industry’s ability to bounce back once the pandemic is past.

“Clients are more keen to consider their own in-house capabilities,” said Fiona Czerniawska, a Source Global co-founder and managing director. The pandemic “certainly will result in more work being done by clients themselves.”

Even if clients don’t give consultants the boot altogether, any sense of greater independence they derive from getting through the pandemic could embolden them in their dealings. Now that they know the degree to which some consulting can be done remotely, for instance, they might not be as willing to pay the consultants to travel to them.

“If clients have found they can do without consultants wandering through their corridors, they’re going to demand cuts in fees,” said O’Mahoney, the Cardiff University professor.

But Gardner doesn’t expect companies to go without consultants’ advice for the long term. “I think it’s a bit early to call that,” Gardner said. “I think it will embolden clients to be more decisive” but not necessarily to go it alone.

To a degree, the firms say, they’ve actually been well-prepared to cope with their current challenges. In recent years, firms like Accenture have diversified their businesses into areas like cloud computing, analytics, and outsourcing, helping to insulate them against any falloff in demand for consulting.

Also, at the same time as technology was transforming and empowering their clients, the firms were transforming themselves. Many were already digitally savvy and doing at least part of their work remotely when the pandemic hit.

“To some extent consultancies were ahead of the game on this digital stuff anyway,” said Rita Gunther McGrath, a consultant and Columbia University business professor.

Covid consulting

In some ways, companies may need consultants more during the pandemic, not less. Need to pivot to having all your employees work from home? Consultants can help you with that. Is your company struggling financially, and needs to restructure or even file for bankruptcy? More ways for consultants to counsel you and charge for it.

“These guys are having a harvest season,” said Lee Frederiksen, managing partner of Hinge, a branding and marketing firm specializing in professional services.

Covid-19 required clients “to change virtually every aspect of their business faster than ever before,” Accenture CEO Julie Sweet told analysts who cover the company on a September conference call. “And they are turning to us to help them embrace that need for change and become stronger.”

Consultants are also benefiting from advising businesses and governments on how to cope with the coronavirus itself. McKinsey has contracts with the Food and Drug Administration, the Department of Veterans Affairs, and the Office of Personnel Management for COVID-related services, federal procurement records show. Some states have enlisted Deloitte and other consultancies to help with the crush of unemployment-insurance claims that the pandemic brought—even though some of those same consultants have been criticized for snafus in their work designing unemployment websites.

Deloitte, PwC, and other firms are promoting their Covid-consulting capabilities. Deloitte’s website says the firm’s consulting practice “provides insights to help your organization respond, recover, and thrive from Covid-19.”

Gardner said that early on in the pandemic, EY “helped a number of governments in terms of their response.” EY’s consultants have provided “a lot of logistical support” to governments in areas like building field hospitals, rolling out coronavirus testing, and reopening facilities safely.

The White House has drawn on consultants, too, although in a volunteer capacity. Politico has reported that Jared Kushner relies on “a suite of McKinsey consultants” as his coronavirus kitchen cabinet. Vanity Fair dubbed Kushner and his advisors “the consultant state.”

Big vs. small

Covid-19 may also be helping the bigger firms fend off the increased competition they’ve seen as a result of technology empowering clients. In a crisis, a company tends to stay with the tried and true, the known consulting firms with big resources and established reputations, rather than take a chance on someone new—what Czerniawska describes as a“flight to brand.” That could come at the expense of smaller, newer consulting players who otherwise might get the clients’ business.

“In any crisis they always go to their core strategic firm,” O’Connor said.

Some clients may be unwilling or unable to work with smaller firms because they have standing agreements to give larger firms all of their business. McGrath was enlisted to work with a company on a process she had devised, “and they came back to me red-faced and said they couldn’t, they had to give the business to the big firm with which they already had an agreement,” she said. She told them, “But I invented it! I promise they’re not going to know it as well as I  do!” (She didn’t get the company’s business.)

But Weinberger, of the small-business consultants’ trade group, says smaller consulting firms are doing just fine. His organization has had back-to-back record months of registrations for its certification, he said. Small businesses need consultants just as larger companies do, and they’re more likely to work with a small firm from their own area than a McKinsey or Accenture.

“Consulting for a small business is totally different—their problems are different, their issues are different,” Weinberger said.

There’s another reason clients are sticking with the firms they know well during the pandemic: Consulting requires trust, and it’s hard for a new client and a new consultant to build that when they’re forced to meet for the first time via video chat. Wooing a potential client over dinner or drinks isn’t easy these days.

“We are very much a high-touch organization, we rely on relationships,” Gardner said. With new clients, “it’s not the same. You can’t for a moment say you’re connecting with people when you’re meeting them for the first time on Teams or Zoom.”

It’s also harder during the pandemic for consulting firms to break in new hires and get them trained and adapted to the industry’s famously hard-working, long-hours culture. People are working from home and have other things to worry about.

“We’re going to be missing a whole cohort of people working side by side, absorbing the culture,” McGrath said.

What happens now?

A company hires consultants because it doesn’t have the knowledge or the capacity to do everything itself. That need will always be around, which is why many in the consulting industry think their business will snap back once the pandemic is past (whenever that is).

Source Global is projecting a 10% increase for the global consulting industry’s revenues in 2021. Sweet expects Accenture’s business to rebound in the second half of its current fiscal year, starting around February.

Some of the changes wrought by the pandemic are expected to stick. A portion of consulting work that had been done in person before the pandemic will probably shift online for good.

It’s like business travel in general, McGrath said: Some of it will come back after the pandemic, and some won’t. “You’re learning much more about what you can and can’t do virtually.”

Frederiksen, from Hinge, expects a lot more business restructuring and reassessment in the wake of the pandemic. “I can’t see how it’s not going to cause a lot of people to rethink their business models.”

Of course, the pandemic has already defied a lot of people’s predictions. In March, Czerniawska said, most companies thought it would be over by July, and that business would start to rebound. “The longer the crisis goes, the harder it is to get back.”