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Consultancies and systems integrators have been both criticised and critical over the past few months but what does a post-pandemic future look like?

By Marc Ambasna-Jones

Last year we predicted some big changes for the SIs in terms of their delivery methods and in the pricing of deals. As COVID-19 has accelerated the wider business community’s need for digital services, so too has it forced big consultancies to rethink how they operate.

When the country went into a COVID-19 lockdown back in March, it set in motion a series of events that both upended and unnerved most industries. For consultancies and systems integrators however, this has been a time of mixed fortunes. On the one hand they have had their work cut out in helping clients overcome the rapid shift to remote working, while coping with their own internal pressures to shift to virtual working. And yet, on the other hand, consultancies have actually done quite well out of it.

While government contracts awarded to consultancies to manage track and trace systems and PPE purchasing – controversially totalling over £56m in just a few weeks, according to openDemocracy – have somewhat clouded the public image, perhaps consultancies should be better judged on their reaction to the crisis, their on-going support of customers and their future relevance. For the most part, consultancies reacted quickly to the pandemic but now, learning to live with the virus, workplaces and working patterns are under increased scrutiny.

That sense of urgency and the ‘we are all in this together’ spirit, seems to be slowly ebbing away. A new reality is kicking in. One that threatens to either undermine the consultancy model or deliver a new way of working that will set the tone for future deals and relationships with clients. What is clear is that nothing should be taken for granted. According to numbers from Fergus Navaratnam-Blair of Source Global Research, the global consulting industry, which is worth US$157bn, will contract by up to 14 percent over the course of 2020 as a result of the pandemic.

To some extent, it’s not that surprising given that global economies have suffered and most industries have been under financial strain. But this has the potential to run deeper. Certainly, some smaller and independent consultants have struggled. According to research by Comatch, around 30 percent of independent consultants said their running and/or planned project was postponed, while 12 percent said that a running project was cancelled.

“The crisis has definitely changed the way clients buy professional services,” says Navaratnam-Blair. “Because there’s so much uncertainty about the future right now, many clients have reduced the average length of their consulting engagements. And because many clients are worried about their own cashflows, they’re scrutinising consultants’ rates more heavily; we’ve heard stories of customers explicitly asking firms to give them their ‘COVID price’.

So, what impact will this have on how consultancies and SIs frame client projects? It’s surely dangerous territory for any deal maker to set precedents on special pricing. Could this lead to consolidation?

“Clients are also starting to consolidate their consulting spend around a smaller number of providers; with so many challenges they have to deal with right now, they’re looking for any opportunity to reduce complexity,” adds Navaratnam-Blair.

“I would not play down the value of face-to-face interaction and its place in building trust and relationships. I think a lot of people are missing this aspect of their work.”

Virtual working

It’s understandable but sectors will, of course, vary. And far from being pessimistic, there seems to be a mood of hope bordering on expectancy. As Bhagiyash Shah, director at management consultancy BearingPoint admits, while the firm saw a number of projects suspended as a result of COVID, those projects are now restarting and new opportunities are emerging.

“We have won new work and seen existing projects being extended,” says Shah, “which to us indicates that the value we add is recognised and that clients have a high degree of trust in us and therefore see us as a partner to help them achieve their business aims and objectives. On the whole, clients, their teams and BearingPoint consultants recognise that we are all operating in very difficult circumstances and therefore there has been a high degree of accommodation to enable productive delivery and outcomes.”

It’s a common theme. Shah tells a story about how one client kitted out a combined project team with IT equipment to ensure they could all work virtually and securely with what was sensitive material. Malcolm Wilkinson, partner in Deloitte’s consulting practice has similar stories of clients “showing remarkable resilience and adaptability.”

He also claims that remote working has “worked better than anyone would have expected with regards to both new and existing clients” but the crisis demanded agility in how the business reacted to changing client demands. The severity of the impact of COVID-19 on clients was a key factor in how Deloitte adapted and worked but for the most part, consultants managed to continue to work on projects remotely, thanks largely to an already existing culture of virtual working.

It’s a similar story at BearingPoint. Shah says the company saw it coming and prepared early, switching to virtual working with some clients prior to the formal UK lockdown, minimising project disruption.

“Multi-channel communications were important,” says Shah, to not just keep teams informed of developments but also to manage client expectations. “We were aware that home working and virtual working could impair team cohesion, so we put in place measures to deal with this. We also planned support for those who may not have facilities at home for extended home working.”

Owen Dowden, sales director for digital enterprise at Hitachi Consulting claims that the current climate has surprised everyone, with both the firm and clients demonstrating impressive agility and determination.

“Over the past three months we have had multiple successful ‘go lives’ and we sold and successfully delivered, a new Oracle demand and supply planning solution with a brand new client, without ever setting foot on their premises.”

Certainly, technology consulting seems to have fared well. By its very nature, it is intended to help remedy gaps in client infrastructures and processes, so it lends itself more easily to virtual working. With other areas of consulting, this is not always the case and some, according to Navaratnam-Blair of Source Global Research, have suffered in recent months.

“HR and change management is, by some margin, the service line worst affected by COVID-19,” he says. “Our modelling suggests that this part of the consulting market will contract by around 30 percent this year. Traditional change management consulting is hard to do remotely, since it involves a lot of on-the-ground work analysing people’s working patterns and delivering training. The projects that are still coming through in this space are much more short-term and tactical than in the past.”

Changing futures

For some consultancies this has meant a return to some degree of on-site working, or at least initial meetings, albeit with social distancing measures and health precautions in place. This was certainly the case with BearingPoint, especially with new clients, and the consultancy model suggests it will return but to what extent?

“I would not play down the value of face-to-face interaction and its place in building trust and relationships. I think a lot of people are missing this aspect of their work,” says Dowden at Hitachi. “Therefore, I think the future will offer a more balanced and flexible approach to the delivery, with the obvious trend towards increased virtual working.”

Wilkinson at Deloitte agrees. The firm has been providing new tools and initiatives to help facilitate remote working but also the mental and physical wellbeing of employees. While Wilkinson quite rightly sees the firm’s long-term support for remote working as a success story, he is all too aware that there also has to be a return to some form of pre-COVID normality.

“In the future, we’ll look to strike the right balance with clients to work remotely when it suits them, as well as working together in shared working spaces in order to benefit from the collaboration, creativity and camaraderie working side-by-side allows,” he says.

It suggests a horses-for-courses approach, with increased bespoke tailoring of projects to fit both requirements and budget. As Dowden suggests, consultancies are coming under increased scrutiny on any new investments, accelerated by the pandemic. There will be an increased need to find efficiencies and to tinker with the more traditional consulting model.

“Projects without a robust business case won’t make the cut,” says Dowden. “We have helped clients go a step further by developing a detailed business case and offering to tie our fees to the delivery of those results using risk/reward mechanisms.”

Risk based commercial models don’t come without their own challenges, he admits. What it means is that consultancies have to spend even more time working on the project business case to create accurate costs, scheduling, accountability and to set expectations.

“We have seen this make a real difference over recent months, as it can help give executives the confidence to move forward in such uncertain times,” adds Dowden.

This has to be good news for customers. If the pandemic has realigned consultancies into being even more accountable, more cost-conscious and more open to flexible contract terms, it could go a long way to smoothing over the bumps in the UK’s economic road. But we are not out of the woods yet. While COVID-19 cases continue to rise and we head into the winter months, who knows what is waiting around the corner.

For Navaratnam-Blair at Source Global Research, it’s a moment of evolution, where consultancies will continue to learn how to adapt and deliver but it’s not without its challenges.

“For the most part, consultants have adapted remarkably well to remote working; clients generally tell us that this transition hasn’t had a negative effect on project outcomes,” he says. “However, there are some challenges associated with this new way of working. For one, pipeline management becomes harder; when you’re not on-site with the client every day, it’s a lot harder to know what services they’re likely to buy from you. Also, junior consultants and new graduates miss out on the development opportunities of working alongside more experienced professionals on a day-to-day basis. If virtual working remains the norm going forward, consulting firms will have to think about what that means for how they train their next generation of leaders.” 

Risk and reward: Will COVID force a change in pricing?

According to Owen Dowden, sales director for digital enterprise at Hitachi Consulting, the changing working patterns coupled with increased scrutiny on project value have led to, in some instances, tying fees to results. In truth, the risk/reward model has never really gone away but during challenging economic times it tends to become a more accepted tactic for getting deals over the line.

COVID has almost certainly impacted new business and will continue to do so. Virtual working is not for everyone and certainly not for every project and so clients are asking about COVID rates, at least according to Fergus Navaratnam-Blair at Source Global Research. In order to have a significant impact on buying decisions though, discounts need to be sizeable, says Navaratnam-Blair. Source’s forthcoming research on the topic has found that the sweet spot is around 21-30 percent off.

“Historically, larger firms have often been willing to use their deep pockets to undercut the competition on price and build market share,” adds Navaratnam-Blair. “It wouldn’t be surprising to see more firms engage in this kind of behaviour over the next 18 months as they look to rebuild their pipelines.”

This will undoubtedly hit smaller consultancies and SIs the hardest. Speaking at the launch of a Guide to SMEs for Government Buyers of Consultancy back in March this year, Management Consultancies Association chief executive, Tamzen Isacsson ,said: “Smaller firms are vulnerable at this uncertain time and government, more than ever, can support them by stepping up use of our small sized members for building extra capacity and expertise.” However, while the demand for public sector consulting has indeed increased with infrastructure and COVID-related projects, most of the work has gone to the major consulting brands. If nothing else, this is sending a message to the sector to rethink its pricing now and build-in more value and accountability. If not, we could see the sector consolidate quickly as SMEs in particular come under unsustainable pricing pressure.