At Boston Consulting Group (BCG) and other major consulting firms like McKinsey and Deloitte, junior employees are facing a familiar question: “Do you have work for me?” Unfortunately, the answer is often no.
These consulting giants, paid to provide insights and guidance to the world’s largest corporations, have found themselves in a predicament where their own predictions about the future have gone awry. This has led to a messy fallout, with new recruits struggling to find work, firms losing contracts as clients reduce budgets for strategic reviews, and some employees either overworked on existing assignments or left idle. As a result, some firms have resorted to large-scale layoffs or quietly letting go of staff, citing performance reasons.
The industry experienced a boom in new business during the Covid-19 pandemic, as companies sought expertise in navigating the global slowdown, remote work, and supply chain disruptions. However, as conditions began to stabilize, companies reevaluated their costs, leading to a contraction in consulting services demand.
Interviews with consultants and partners from firms like Bain, EY, and McKinsey reveal a new frugal environment where every expense, from office snacks to travel for client meetings, is scrutinized. Consulting executives maintain that these challenges are temporary, with many firms already witnessing an uptick in business. Sharon Marcil, North America head for BCG, cited “very strong” double-digit growth in recent months and expressed confidence in the market’s momentum for 2024.
However, companies across various sectors, including Adidas and Citigroup, have announced reductions in consulting expenditures. In the U.S., the consulting market is expected to grow by 6% in 2024, a significant decrease from the double-digit growth seen during the pandemic. Source Global Research estimates that 86% of U.S. clients plan to cut spending on consulting this year.
Bjørn Gulden, CEO of Adidas, took decisive action upon his return to the company in 2023 by eliminating the use of consultants, attributing their strategies to hindering the company’s progress. Gulden expressed his disregard for consultants’ reports, stating, “I don’t even see them.”
Amidst the downturn in client interest, McKinsey took measures to navigate the challenging environment. Partners were asked to defer some of their pay last year, although by the end of the year, business had rebounded sufficiently for them to receive their full pay. The company also implemented cost-cutting measures, including the layoff of 1,400 primarily back-office employees, a slowdown in promotions, and reductions in in-person training and retreats. However, these actions didn’t shield McKinsey from internal dissatisfaction, as evidenced by the narrow survival of global managing partner Bob Sternfels in a leadership challenge. Some partners expressed frustration over the firm’s restructuring and response to slowing growth, as well as concerns about a changing firm culture and top-down leadership.
EY made headlines with an unprecedented move, laying off over 100 U.S. consulting partners amid broader cuts. This decision sent shockwaves through the industry, as partner layoffs are rare and partners typically play a crucial role in bringing in new business. The traditional notion of making partner at a large consulting firm, once synonymous with a lifelong career and significant earnings potential, has been challenged by these developments.
The consulting industry faced further challenges as private-equity work, a significant source of consulting contracts for top firms, declined sharply due to a decrease in dealmaking amid high interest rates. Management consultants often advise on due diligence for mergers and acquisitions and subsequently secure contracts for integration services. However, the overall M&A market experienced a 15% drop globally last year, totaling $3.2 trillion, according to Bain analysis.
Under the leadership of CEO Jane Fraser, Citigroup underwent a comprehensive transformation, engaging outside consultants to revamp its operations. The bank’s strategic initiatives included divesting certain international consumer businesses, reducing its workforce, expanding its wealth management division, and enhancing its technology infrastructure. Chief Financial Officer Mark Mason noted a shift in spending priorities, redirecting resources “from consulting expenses to technology and compensation” as the bank advanced in its transformation efforts. However, Fraser faces ongoing pressure from investors to drive profitability.
Similarly, Block, the parent company of payments-platform Square, identified opportunities to trim corporate overhead costs, including reductions in spending on consultants and contractors. This move reflects a broader trend where companies are reallocating resources previously earmarked for consulting toward technology investments, particularly in artificial intelligence (AI). Consulting firms themselves are embracing AI to enhance their own operations and offer AI-related services to clients. McKinsey, for instance, reported record revenue partly attributed to increased demand for generative AI-related projects.
Sven Smit, a senior partner at McKinsey, highlighted the cyclical nature of the consulting industry and emphasized the growing complexity of challenges faced by executives. Despite cost pressures, demand for consultancy services is on the rise, with clients seeking expertise in leveraging generative AI to drive productivity gains and restructure workforces. While some clients are seeking cost savings by engaging experienced freelancers instead of traditional consulting firms, consulting firms are adapting by optimizing project staffing to include fewer and less costly resources, including lower-ranked staff and offshore teams.
The once prestigious and sought-after positions at major consulting firms, known as gateways to corporate success, are now clouded with uncertainty. Firms like McKinsey, historically regarded as “CEO Factories,” are facing internal and external challenges, including job cuts and performance pressures.
For soon-to-be graduates and current consultants, the allure of these firms has dimmed. McKinsey’s internal reputation as a launchpad for top executive careers is now juxtaposed with potential job insecurity. Graduates who once prepared meticulously for interviews and relished the chance to network are now facing a harsh reality. The traditional model of long hours and an “up-or-out” culture, once worn as a badge of honor, now feels precarious.
As consulting firms grapple with the prolonged downturn in new business, tough decisions loom. Some, like West Monroe, have already resorted to significant layoffs, reflecting the misjudgment of the expected rebound in business. The reluctance to cut staff quickly stems from the partnership model of consulting firms, which lacks the pressure of public shareholders but also limits rapid decision-making.
Consultants who hoped to exit the field voluntarily have found limited opportunities due to the broader slowdown in white-collar hiring by corporate clients. Consequently, firms have turned to performance-based layoffs and sabbatical offers to reduce headcounts. However, this shift in strategy has intensified competition among junior staff, leading to increased anxiety and scrutiny.
While the consulting landscape undergoes this transformation, the expectations for performance remain high. Despite the challenges, there are still avenues for growth within the firms, such as business development opportunities. However, the pressure to perform persists, with consultants wary of falling short and facing the dreaded prospect of being “CTL’d” or counseled to leave.
The shift from pandemic-driven hiring sprees to cost-saving measures reflects the volatile nature of the consulting industry. While salaries have stabilized, the demands on consultants remain high, often leading to grueling work schedules and personal sacrifices. As firms navigate these turbulent times, the future of consulting careers hangs in the balance, with consultants adapting to a new normal characterized by uncertainty and heightened performance expectations.
The atmosphere at consulting firms like Deloitte has become tense, with employees anxiously discussing layoffs and uncertain futures. Text chains buzz with colleagues comparing notes on who is safe and who has been let go. Even after investing in workers’ learning and development programs, firms are under scrutiny from both clients and employees regarding their management practices.
Despite the turmoil, consulting firms maintain an aggressive recruiting stance. Recruitment efforts continue unabated, with firms actively courting college students and graduates. However, the reality behind the scenes can be starkly different. Some consultants find themselves pitching potential recruits on exciting career prospects while knowing they are on the brink of unemployment themselves.
Yet, the allure of a consulting career remains strong for many. McKinsey, for example, receives an overwhelming number of applications each year, indicating a persistent interest in joining the industry. To secure top talent, firms start recruiting potential consultants as early as their sophomore year in college, banking on future client demand.
However, the downturn in business has led to delayed start dates for many new hires. To retain these recruits, firms have resorted to various measures, including offering stipends to those waiting for their start dates. The hope is that recruits will stick around despite the delays, although the allure of other opportunities remains tempting.
For recent M.B.A. graduates, the situation is further complicated by signing bonuses and the prospect of repayment if they back out of consulting jobs. The so-called “golden handcuffs” have tightened, leaving some graduates in limbo as they wait for their consulting careers to begin, often resorting to odd jobs to make ends meet.
Despite the challenges and uncertainties, the consulting industry remains attractive to many aspiring professionals, even as firms navigate through turbulent times of layoffs, delayed start dates, and shifting priorities.