The current raft of recessionary news headlines may have many readers fearing for the career options they'll still have open to them six months hence.
But as Top-Consultant.com's co-founder, Tony Restell, explains, 2008 is a far cry from the depths of the dot-com crisis when firms were forced into redundancies and mass hiring freezes.
Are consulting job opportunities about to dry up?
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. 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 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 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 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.
