As the dust settles after that momentous day, is the overall perception that this is a good or a bad thing for the consulting industry?
Brexit was without doubt a major shock - not an outcome that most in the consulting industry thought likely to happen for sure. But as the dust settles after that momentous day, is the overall perception that this is a good or a bad thing for the consulting industry? Or is that too crude a question - and do we instead need to ask who are the winners and losers in consulting? From my discussions with consulting leaders, here are the 6 factors shaping the answers to those questions:
- The Impact on the City
- Whether Government Spending on Infrastructure Projects will be increased
- What ultimately happens to Economic Growth
- The role of Uncertainty
- How Trade Negotiations unfold
- What changes to Freedom of Movement we will eventually see
Looking at each in turn, here’s why and how they could materially impact your consulting career and the fate of your consulting practice.
The Impact on the City
Over the years, annual reports from the MCA have show Financial Services consulting and Public sector consulting to consistently be the two largest segments of spend on consulting services. There’s been some variation over time of course, but each has typically accounted for ¼ to ⅓ of all consulting spend.
Against that backdrop, the impact that Brexit has on the City - and on Financial Services more broadly - will clearly have a knock-on effect on consulting. This could impact both the overall growth of our industry and the balance of demand for new hires. But it’s not as clear-cut as that. Any mass movement of financial institutions to other European cities could also spark a wave of consulting engagements - so potentially a short-term boost preceding a longer term decline in FS consulting spend in the UK. How the City fares in these negotiations is certainly something to watch closely over the coming months.
Whether Government Spending on Infrastructure Projects will be increased
There’s much talk at the moment of a “resetting” of economic policy, should the economic data warrant this come the Autumn. Most notably there’s the potential for government infrastructure projects to be given the green light or to be brought forward as a stimulus for the economy. Of course many of these projects would require major spend on project and programme management, alongside other involvement from consulting firms. Following several years of subdued public sector spend on consulting services (“the austerity years”), any marked increase in public sector spend on consulting would be a major fillip for the industry. Watch this space.
What ultimately happens to Economic Growth
The eventual impact of Brexit on Economic Growth hinges on a huge number of variables. Will we remain in the single market, will the City be largely unaffected, will overseas investment be curtailed, what impact will we see on the commercial property market, how quickly can new trade deals be agreed and will they provide a boost to free trade? All these factors and more will determine whether the ultimate impact on economic growth is positive or negative.
The outcome here is important for two reasons. Firstly, spend on consulting services tends to ebb and flow with growth of the economy. So a sharp contraction would likely harm spend on consulting; whereas continued growth would help sustain further growth in consulting spend. But it’s not just the absolute level of spend on consulting that will be impacted, it’s also the breakdown of that spend that will be altered quite dramatically. A recessionary market is typically associated with a sharp curtailing of strategy consulting spend and a corresponding spike in restructuring advice. So the path the economy takes over the coming years will be watched keenly within our industry - and rightly so.
The role of Uncertainty
Uncertainty surrounding the UK’s future is something of a double-edged sword. In harming economic growth and delaying investment decisions, uncertainty would ordinarily be bad news for the consulting industry. But this is no ordinary situation. Instead it’s a situation in which there are multiple scenarios to be considered and therefore a range of potential outcomes to be mapped and understood by each business and its business leaders.
Arguably, this could produce a climate in which far more strategic planning and financial modelling is required than British businesses are geared up for. It’s certainly feasible that we’ll see a burst of new consulting engagements to help business leaders understand the likely future scenarios that their businesses face should one of a number of Brexit scenarios unfold. There’s also the potential for a lot of overseas M&A activity to be sparked, should the £ remain weak and therefore enticing for overseas investors to act upon. All of this ratchets up uncertainty amongst business leaders about the market conditions and competitive landscape that their businesses will face - and so increases the need for consulting services to support them in addressing this uncertainty.
Alongside these repercussions, there’s also the distinct likelihood that consulting firms will ramp up their use of contractors and moderate their permanent hiring activities - the usual response in any period when demand for their services is in greater doubt. So do monitor how clear-cut the direction of negotiations are being reported, or whether there remains a lengthy period of significant uncertainty. The ramifications above will be multiplied accordingly.
How Trade Negotiations unfold
Trade negotiations could have a fascinating impact on the consulting industry - and potentially become a major source of new client demand. Within the last weeks, for example, we’ve seen negotiations get underway to agree a free trade deal with China. Similar discussions are underway with Canada, the US, Australia and a host of other major economies - all enthused by the prospect of being able to conclude a free trade deal with the UK in timescales that have historically not been possible with the EU.
Of course any significant shift in the UK’s main trading partners could have a huge impact on corporate strategy and fuel demand for a variety of consulting services in supporting companies looking to adapt to this new world. This could easily become a major boost for the UK consulting industry - and those businesses able to adapt the fastest and the most aggressively are likely to be the big winners here.
What changes to Freedom of Movement we will eventually see
The ongoing negotiations around immigration and the Freedom of Movement of EU citizens clearly has the potential to impact both economic growth and uncertainty, as covered above. But in its own right, the deal ultimately struck on immigration and the free movement of EU citizens could have implications for staffing within the UK’s consulting industry. Imagine if consulting firms were to face restrictions on the number of EU staff they could hire, or if the movement of UK staff around Europe were at all impeded. Challenges relating to the hiring of staff and the resourcing of projects would escalate considerably.
It’s also not impossible to imagine a situation whereby EU citizens decide to return to their home countries in the coming years - due to uncertainty about their long-term ability to remain in the UK or simply because they no longer feel as welcome in the UK. An outwards flow of so many skilled workers would leave quite a skills gap to be plugged - possibly through the poaching of staff from competitors or maybe through increased attraction of staff from Commonwealth countries. However you look at it, the deal around freedom of movement is going to have significant implications for recruitment in the UK consulting industry - and may mean consulting firms need to increasingly turn to their recruitment partners for support in this area.
In pulling together the various insights I’ve been hearing in the market, I hope I’ve been able to give you a balanced perspective - and also illustrate ways in which Brexit may prove to be a boon for the consulting industry rather than a drag. We clearly have a few quarters of uncertainty and possible economic downturn ahead of us; but we can also see the potential for some major changes that may materially impact the demand for consulting services in a highly positive way.