| | By Tony Restell,
founding director of
Top-Consultant.com
I’ve learnt some
eye-opening things in my
time commentating on the
consulting industry;
amongst the biggest
shocks has been to learn
just how little the
average consultant
understands about the
consulting businesses
they work in. It’s easy
to meet consultants with
a deep and impressive
knowledge of a sector,
whose expertise you can
imagine a client being
eager to tap into. But a
far rarer breed is the
consultant with more
than a rudimentary
understanding of the
machinations of their
own employer’s
consulting business.
Nowhere has this been
more apparent than in
discussions about the
lack of decent pay rises
on offer this year. Or
perhaps that should read
discussions about the
outrageous lack of
decent pay rises on
offer this year – as
though this is something
that any half-decent
consultant should be
able to take for granted
year in, year out.
For those wanting
just the key message
from this piece, well it
is that unless you
are someone whose
absence would generate
an immediate and
unavoidable loss of
consulting revenues
within your firm, you
can consider still being
employed as a pretty
decent outcome in 2009.
We’ll be updating our
salary benchmarking
report later this year
to capture the exact
impact the downturn has
had on remuneration, but
I wouldn’t be at all
surprised if it found | |
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| | that 90% of consultants
had experienced a pay
freeze in 2009. This is
the inevitable outcome
of the business
conditions consultancies
have been facing – and
as such you shouldn’t
see yourself as being
hard done by if you too
have failed to secure
any kind of rise this
year.
In case you need any
convincing of the above,
let’s just summarise the
trends that have
battered consulting
firms over the last 12
months:
1) Utilisation
rates have taken a
tumble: depressed
levels of client demand
– and indeed just sheer
procrastination in
getting projects kicked
off – have meant that
firms are achieving far
fewer billable days per
consultant employed.
This has been
exacerbated further by
firms going after
projects that
historically would have
been considered “beneath
them” in terms of being
too small to undertake –
and so involving a
disproportionately large
marketing investment to
secure. The implications
of all this are twofold.
Firstly, firms are
making less profit on
the consultants they
employ, leaving them
less margin to share in
the form of a pay rise
(and indeed
necessitating pay cuts
in certain firms).
Secondly, it also means
that for each project
won there is a greater
number of consultants
sitting on the bench
looking increasingly
like interchangeable
commodities rather than
professionals in short
supply. Unless, | |
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| | therefore, you practice
in one of the few areas
where consulting supply
can barely keep pace
with client demand,
there really is little
reason your employer
will feel the need to
raise your pay to retain
you.
2) Daily fee rates
are under pressure:
adding to the above woes
is the kick in the teeth
that fee rates are also
under pressure. So not
only is less work being
won, but the work that
is being secured is
generating a lower daily
margin. Or put another
way, even on the days
you are working on
assignment you’re
generating less profit
for the firm than you
did just 12-18 months’
ago – hardly the
backdrop for securing a
decent pay rise is it?
3) Staff churn has
slowed considerably:
seen in good times as a
very desirable outcome,
any reduction in the
rate at which
consultants are leaving
the business magnifies
the cost of reducing a
firm’s consulting
capacity when revenues
have been persistently
falling. Hence just to
scale back headcount to
the levels commensurate
with today’s client
demand, firms have had
to incur significant
costs both in redundancy
payments and in
sweeteners paid to new
joiners to accept
deferred entry, as a
direct consequence of
churn rates having
slowed. This is another
cost eating into the
profits being generated
by each consultant
employed – and again
erodes the scope for any
across-the-board rises
in 2009.
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4) Cashflows have
taken a hit: consulting
businesses are no
different to any other
business. They have
clients who are now at
greater risk of going
bankrupt than they were
before, meaning greater
bad debt provisions are
having to be made. They
have clients who are
doing all they can to
improve cashflows by
paying bills late. They
have banks who are less
willing to plug any
resulting gaps through
the provision of credit
– and in the case of
privately-owned
consulting firms,
partners who have
already been called upon
to inject additional
funds into the business
this last year. Funds
for “investing in the
future” of the business
are tight – and
remuneration decisions
are pretty short-termist
as a direct consequence
of this.
While the above
factors have been
hitting consulting
firms’ profitability
levels, we have as an
added consideration the
fact that the supply of
quality candidates into
the consulting industry
has not been this good
for many, many years. At
the experienced hires
level there are
thousands of out-of-work
consultants from top
brand firms all willing
to accept a pay cut in
order to get back into
employment. Added to
this pool are the flocks
of City workers who are
swelling the shortlists
of every position being
advertised. And from
within, those on
graduate entry schemes
have joined on lower
starting salaries or
with lower salary | |
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