How do you all think the recession will affect strategy consulting?
Curious to know if anyone has any thoughts because this is kinda weighing on my mind right now haha :/
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This is a great question. My theory is that it will drastically cut all "non-essential" work but there will be a mild to moderate uptick in "critical" projects. Lets say you manufacture consumer goods, and you are targeting a 25% EBITDA margin across the board. Normally, during a strong economic environment, you might hire strategy consultants to help improve your margins on a good product thats only yielding a 15% EBITDA margin. However, as the market turns, you are going to want to minimize costs, and you will just tolerate the 15% margins for the time being.
On the flip side, businesses that get harder will feel extreme pressure to make material changes as soon as possible. Many businesses acquired since H2 '20 will likely not sustain their margins, and as returns dip meaningfully, they may see strategy consultants as essential.
The examples above only focus on one area in which strategy consultants may be hired. Unpacking the space as a whole is mostly impossible, as different verticals and services vary drastically.
My personal view is that strategy consulting in the traditional sense has been in decline in place of execution oriented assignments either as contingency or phased projects. The uptick is especially prevalent in technology infrastructure and enterprise IT services and the other side of the coin that will see the uptick is Restructuring & Turnaround teams. Naturally, execution focused projects are more easily justified by consulting firms with more recurring and long-term revenue security since they exceed the ~2-4 month timeline of strategy engagements.
For PE Consulting/Restructuring & Turnaround, it's a natural extension of uptick in M&A activity post-COVID usage of dry powder in the industry. As a result of the recession, smaller corporations without means to restructure will be needing bankruptcy consulting or be bought out and the PE firm will need CDD services. Either way, PE Consulting has been recession-prove because M&A and liquidity services are needed across the economic cycle.
With the recession coming, it will essentially reaffirm the existing trend where strategy consulting services will be continuing to be coupled with execution projects. For instance, pricing analysis performed for Product X followed by team augmentation to rollout product at Price Y and tracking KPIs to measure success/validity, and then reiterate the pricing metrics for new information.
This is just my two cents - I may be wrong, but this is where I see the industry heading.
Consulting as an industry is not straightforwardly tied to the performance of the economy. Some types of work will be deprioritized, others will be more urgent. However I believe it is fair to say that consultants were not as negatively impacted in 2008 vs the general economy
The more junior you are, the safer you are since you're cheap (need a lot of juniors to make project economics work), and you can be more easily moved around from a low demand team to a high demand team
Getting into consulting will almost certainly be harder though -- (a) general hiring will likely be down which means more demand for the few jobs that are still hiring, and (b) consulting firms have previously slowed hiring when faced with uncertainty (2008 and beginning of pandemic come to mind)
It will be fantastic for MBB.
Cost cutting teams will be brought in, massive RIF and zero-based-budgeting cases will be everywhere, especially in tech. Most of the work will be at-risk, meaning that if savings are not realized, the firms won't get paid. Non-essential strategy or outsourced work/tech labor will be deprioritized and let go. Teams will be asked to do more with less and MBB will help to make that transition happen.
BUT, once the cutting has been done, and the costs have been saved, then you'll see a slow-down in MBB hiring and then natural attrition will thin the ranks, so that there will be less consultants.
Tier 2 and boutiques will get hit big time.
The advantage of MBB in recessionary periods is that they have the resources to "invest" in client work - either via more willingness to go for at-risk projects (they can take the hit if it goes sideways) or via "free" work.
The other big advantage is the ability for clients to cover their own asses. How many times did Cuomo say "we brought in McKinsey to model COVID"? At least a hundred. Many of these contracts are extremely profitable and are won without an RFP.
Last recession was not good at all for consultants, nor the one before that or before that. Not sure why this one would be different. On an individual level it will be a shitshow because people can't progress through the tenures if you don't work enough projects. Lastly the bar to stay around will go up, which is effectively a silent lay off scheme. Some of this is starting already
Past recessions have shown that the top end of the industry does fine through recessionary periods. There is still work to be done - the nature of it will sometimes just shift, however.
The companies getting hit the hardest right now (tech) have never been large consulting buyers anyways, so there's not much of an impact.
This CURRENT period is unique however. What hurts consulting (even MBB) is periods of "uncertainty" like this - yes, in many ways, we're in a recession, but in other ways, we're not...it's unclear what the next 1-2 years will look like exactly. The result of uncertainty is that projects get put on hold until execs get a sense for where the macro environment is going.
Practically, this means that MBB (and other consulting firms) are seeing a relatively quiet pipeline for the time being. On consultants, the impact of this is fewer reps. A low utilization % in and of itself is irrelevant at MBB - however, the fewer reps mean it's harder for you to build the necessary skills, meaning it's harder for you to meet the promotion bar in a year or two (whenever it arrives).
plus one on this
at my MBB the entire 2022 starting class was on the beach early Q4. I spent a month begging partners to put me on their cases and finally one came through - they wont penalize you short term for being on the beach, but if you are new to the job you need to practice doing the job and get feedback - ideally early on when they are more forgiving about you fucking up/not understanding the job. Very bad to arrive at the 12 month mark and still be making rookie mistakes bc you didn't get coached on them in the first 6 months
What are some key rookie mistakes to avoid?
This is the right answer. We do extremely well in times of growth, extremely well in down markets. However, we do not do well in times of uncertainty, like right now, when the market is trying to decide which way to go and thus clients put investments and down market programs in a holding pattern.
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