| | By Tony Restell
Without doubt recent
media coverage of the
credit crunch and the
resulting fears for the
global economic outlook
have caused both
consulting growth
estimates and hiring
intentions to be scaled
back. But unlike during
the dot-com crash, this
time round there is far
less spare capacity
within consulting
organisations -- and
demand for consulting
services is holding up
rather better.
So recruiting will
slow from the recent
ferocious highs -- but
it will not collapse and
is unlikely to be
accompanied by any
significant waves of
redundancies.
Growth,
utilisation and staff
attrition
To understand why
this is the case, we
need to examine the
three key drivers --
growth, utilisation and
staff attrition -- that
stimulate hiring demand
in a consulting firm. An
extremely buoyant hiring
environment will see all
three factors working in
unison to prime demand
for consulting hires.
This was the backdrop to
the recruitment frenzy
we witnessed until the
latter months of 2007. | |
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| | Equally a period of very
low hiring and/or mass
redundancies will
usually require all
three factors to be
simultaneously slashing
the hiring demand at
consultancies. This was
the case in the dot-com
crash period.
Looking at these
three factors in turn,
we will see that the
2008/2009 period looks
like producing a
slowdown in hiring
demand rather than any
kind of collapse.
So what are the three
key drivers and how do
they interact? Firstly
we have the market
growth rate in
consulting -- that's to
say how much consulting
industry revenues are
expected to grow
year-on-year. In recent
buoyant years this
figure has been as high
as 16% per annum. More
explicitly -- in terms
of hiring demand --
we're interested to know
what revenue growth is
going to be achieved
through growth in the
volume of billable days
(rather than growth
achieved through rises
in fee rates). In the
2006 and 2007 years fee
rate growth was more or
less stagnant -- so the
16% revenue growth was
achieved almost entirely
through a growth in
volumes sold. In 2008 | |
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| | and 2009 this figure is
expected to be 6%, so
far from a contracting
industry we have one
growing slower than
before.
The second
consideration is the
staff utilisation rate
that's being achieved in
the industry.
Utilisation is the
percentage of a
consultant's working
days where time is
actually being charged
out to clients.
Utilisation cannot be
sustained anywhere near
100% because all
consultants need time
for non-billable
activities like
training, interviewing
of new hires, working on
proposals to win new
business and taking
holidays. When
utilisation is high then
any growth in volume of
work sold can only be
delivered by employing
more consulting staff --
stoking the demand for
new hires. Conversely,
if utilisation is low
then a considerable
amount of new work can
be won without this
triggering the need for
new hires, as the
assignments can all be
fulfilled by the
existing consulting
workforce. In the boom
recruitment years of
2006 and 2007 there were
very high staff | |
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| | utilisation levels
across the industry --
meaning 16% growth could
only be achieved by
hiring more staff. By
contrast, in the dot-com
crash firms had
recruited so fast that
utilisation plummeted
when client demand fell
away -- which at a
certain point triggered
the need for
redundancies to keep
utilisation at a
financially viable
level. In today's
market, utilisation
remains quite high, so
growth in demand will
quickly feed through
into the need for new
hires.
The third factor is
staff attrition --
that's to say the
proportion of a
consulting firm's
headcount that needs to
be replaced each year
just to make up for
staff resignations in
the period. This is
essentially the amount
of hiring that needs to
be undertaken just for
the firm to stand still.
In 2006 and 2007 many of
the major consulting
brands were experiencing
staff loss of 15% or
more, fuelling the
recruitment flames quite
considerably. By
contrast, in the darkest
years of the dot-com
downturn the range of
consulting job | |
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| | opportunities dried up
-- and so many more
consultants were
inclined to stick things
out with their existing
employer. A severe
recession and the
widespread fear of
redundancies are needed
for staff attrition to
fall off this much -- in
a subdued market like
the one we've seen in
2008 a much more modest
decline is the norm and
firms are currently
expecting staff
attrition of 10% in the
coming year.
Summary of
expectations for 2008/9
Taking all these
factors into account,
the overall hiring
volumes needed as a
percentage of existing
headcount are around 12%
in 2008 and in 2009,
which compares with 24%
during the most recent
buoyant period but only
4-5% during the dot-com
meltdown. Seen in this
context, the outlook for
recruitment within the
consulting sector looks
encouraging for the
coming 18 months --
though admittedly
unspectacular when set
against the backdrop of
2006/7. | |
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