| | 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 | |
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| | remuneration, but I
wouldn’t be at all
surprised if it found
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 | |
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| | commodities rather than
professionals in short
supply. Unless,
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 | |
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| | employed – and again
erodes the scope for any
across-the-board rises in
2009.
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 | |
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