Consulting clients were seeking assistance both from international and local firms in the areas of cost-reduction, performance improvement, and revenue generation. At the same time, companies continued to employ HR firms for talent management and executive succession planning, while generic, but highly qualified, “loan staff” provided for long periods by consultancy firms remained in high demand.
The levels of activity and demand for external advisors were fairly high despite the market turmoil. This was due in part to a “lag” in which market conditions do not manifest in consultants’ revenues for about 6 months. It also was due to clients’ need for advice during this very active and tumultuous period.
Demand in the first half of 2008 was slowing but remained positive, and many consultants reported strong earnings in their consulting practices. However, by the end of the year, the situation had changed dramatically. Most firms that until then would hire consultants by the ton went into lock-down mode – most halted or postponed any discretionary spending, including on external consultancy. The consulting engagements that continued were long-term projects that already had been funded and any non-discretionary work around compliance or financial reporting (e.g. Implementation of International Financial Reporting Standards for Romanian Banks).
The European consulting market contracted by more than 10% the following year, signaling the worst period in the consulting history since the 1930s. And it kept going down: both 2010 and 2011 were years in which the industry exhibited “negative growth” (a sweeter way of CEOs saying their businesses are sinking).
Although 2011 market performance was worse than anticipated, indicating the end of the line for some companies and for others the urge to conclude alliances and strategic partnerships, the 2012 and 2013 figures for Europe got slightly better, from all points of view.
In this story Romania didn’t behave differently, however the relative immaturity of this market sector (while in the US, consultancy firms existed from the late 19th century and in Europe from the 1920s, the first companies offering advisory services on the local market only opened for business in the last decade of the 20th century) meant that the local firms took the blow harder. Practically in every advisory practice people were axed, as the companies needed to adapt to the new market conditions – before they went bust.
Only in the second part of 2012 and 2013 things started to look better again, since traditional clients for consultancies (i.e. multinational companies) engaged in activities deemed at increasing both their efficiency and profitability. And this is the perfect time for consultants to do their work. However…
2014 AND BEYOND
Overall, 2014 has the premises of being a year of positive growth of the consulting sector in all relevant markets, as far as the key players keep track of the following factors:
Both potential and traditional consulting recipients will be cautious in spending – the global credit crisis has changed the strategic orientation of companies. While in the 2008-2012 period the focus was on cost reduction, capital preservation, and survival rather than on growth, 2013 signaled a return to a mode of cautious optimism. Companies are expected to slowly return to growth pursuits through 2014 and will be turning to consultants for expertise and support. However, the spending spree of the pre-2008 period will almost certainly not come back, at least in the foreseeable future;
Not only less money, less demand also – the consulting market was paralyzed in terms of discretionary activities and new initiatives during the entire 2008-2012 period. Even large companies focused on conserving cash, being wary of the future. Now that most EU Member States have emerged from the recession, companies have pent-up demand for consulting work. For the next years engagements will most probably remain shorter and projects smaller;
Internal resources are cheapest – Consultancy practices as well as many clients have had excess capacity since early 2009. Where the business case for using consultants is insufficiently compelling, clients are making more use of their own staff; Even greater emphasis on sustainable, tangible results – Although this has been the Achilles’ heel for consultancies also in the past, clients’ expectations for solid RoI or shorter payback periods are steadily increasing. Emphasis is now being put on tangible results, consultancy recipients considering long-term, high fee engagements as too risky. They are more likely to accept short engagements for small, specific needs. As regards, transformation projects, clients tend to phase each initiative into increments of several months each, looking for RoI at each phase (see below);