The evolution of consulting, engineering and architecture services in 2021
Three leading sectors of professional services, management consultancies, engineering and architecture services, are in rapid evolution coming out of the events of 2021. While they’re each actually poised to transform and grow this year, many have also dramatically experienced several different and substantial disruptions to their business, and often several secondary ones as well.
While 2018 and 2019 saw those industries start to experiment more boldly in high-tech, they must now greatly enhance its digitization in numerous areas in 2021 in order to fully recover and grow. They also remain tremendously labor intensive, however this will finally start to change this year, especially in a number of key overhead categories.
Like the rest of the world, those sectors were greatly impacted by COVID-19 last year as stay-at-home orders both curbed client demand as well as hampered project delivery. Those same lockdowns have also restricted delivery staff to their homes. This slowed down client projects and impacted billable work. To cap it off, a sharp economic downturn wreaked havoc both in client budgets as well as services firms own finances. Cost cutting was used as a blunt instrument, with new efficiencies not always sought vigorous enough.
These major challenges led to deleterious impact on customer success as well as affecting the morale of both industry’s highly skilled talent base. Many responded to internal calls for a widespread push within firms to rapidly rethink and update their operating models to determine the right mitigations and respond effectively.
However, responding quickly and effectively to a string of rapidly ensuing challenges was very difficult when so much uncontrolled change was currently taking place.
Services firms in management consulting and architecture & engineering rapidly employed cost control to ensure sustainability of the business through 2020. While was is a natural response that offers immediate and tangible control over a global event filled with uncertainty, may organizations also remained mindful of the vital characteristics of services firms. Overly vigorous responses to last year’s disruptions have the potential to negatively impact the organizations overall trajectory and strategic goals long term.
Better Adapting to the Industry’s Post-Pandemic Reality
What makes management consulting, architecture and engineering services special is their highly original capabilities. Two characteristics make them unique in the industry: The first is the nature of the 1:1 customized work that they do which is specifically tailored for each client regardless of tools, services model or data. The second, especially for management consultancies, is stand-out skills in successful cultivating long-term client relationships. Each industry also requires intensive and skilled delivery capabilities that can perform repeatably and reliably, which means maintain esprit de corps, even in the face of worldwide calamities.
Last but not least, at their core each industry maintains a high-leverage human capital model that determines both revenue and profit for the services firm. All of this must be finely balanced and tuned across the many layers of the organization.
Slashing too deeply into the balanced system that services firms have built up internally was a hard-won lesson learned across the services industry during the 2008-2009 financial crisis. Cost cutting and staff reducing taken to rapidly held back many firms long after the crisis had passed. Studies have shown that decisions to reduce talent or cut compensation and billable time affected their client relationships as well their brand image for many years. Conversely, the firms that weathered the short-term pressure and managed to keep hard-to-replace human capital prospered as the economy recovered.
In this same vein, organizations with proactive sense of the modern services firm that must emerge from the veil of 2020 — and what it will take to thrive in the resulting market conditions — will be in the strongest position to prosper and outcompete.
First, Sense and Respond to the New Realities
Management consulting, architecture and engineering services trends in 2021 will be shaped by the impacts of the COVID-19 pandemic. The subsequent worldwide recession resulted in a 14% downturn in the global professional services industry by the end of 2020, while the U.S. management consulting industry is expected to shrink by 15% and engineering services around 12%. These reductions will continue to impact the industry moving into 2021, with strong shift towards virtualization, value-based performance, and digital disruption.
In particular, these two industries must design their business cycles to address the following realities:
- New projects will require much clearer ROI and business cases
- Deal flows and talent sourcing will be more feast-and-famine through 2022
- Delivery models will continue to be impacted by a hybrid work model
- The winning services firms will have achieved lean, high efficiency new operating models
- New growth opportunities and diversification will be needed to thrive and survive
The good new is there are major opportunities to do far more in 2021 than just survive through brute force cost reduction. A more refined approach afford itself, but services firms must be willing to engage in a rapid transforming through the lens of the current the art-of-the-possible. The bottom line: A combined business and digital transformation and fitness exercise must be conducted this year to better adapt. This transformation will generally consist of a combination of bold new ideas, better integration and consolidation of operational activities, and potent new approaches including more automation, new talent and delivery models, and powerful new tools and techniques from the digital world.
The Evolution of the PSO Through Proactive, Targeted Transformation
As it turns out, the typical PSO has been experiencing quite a bit of change in the last couple of years anyway. Trends like more dynamic staffing approaches, better automation of delivery, more project analytics and diagnostics, have all led to improved services, higher margins, and greater customer success. Often led initially by technology, which has led to simultaneous advances in re-imagining the operational models of PSOs through new capabilities, a new type of PSO is emerging that is more agile, lean, digitally-infused, and experience-centric.
Driven by industry trends, technology innovations, and changes in the world, below are the types of key shifts that are being seen in PSO organizations as a result of the events in 2020. These trends are grouped into three categories, focusing on the business/clients, the worker, and overall health and wellbeing of all PSO stakeholders.
Management Consulting and Engineering Services: Trends
- Predictive operations. Management consulting and engineering projects are becoming instrumented well enough today through professional services automation and the Industrial Internet of Things (IoT) respectively that sufficient historical project baseline data is now available to routinely predict risks as well as anticipating opportunities before they actually happen. Using these insights can lead to significant cost savings, higher success rates, and quality improvements.
- Higher agility and resilience. Modern services org will adopt an agile development mentality that leverages the “fail fast” notion. While digitation comprises part of the business growth, the industry will better understand that investment on its own does not buy innovation. While kaizen-stye approaches still typifies contemporary engineering lines today, the management consulting industry will continue to adopt relevant pieces of its own methods to adapt to the growing automation and changes in business models with capabilities that have pre-emptive procedures to absorb future bumps in operations and the overall business cycle.
- M&A support capabilities. A wave of mergers and acquisitions is occurring, particularly of smaller and/or weaker services firms. Consultancies and engineering firms that have intentionally built out reusable infrastructure and processes for managing the financial, operational, and structural merging of operations, talent, and clients will navigate the terrain with more agility and less disruption.
- Large portfolio management. Not enough services firms are taking advantage of the ability to manage large portfolios of multiple projects across a client to maximize talent reuse, achieve economies of scale, and systematically improve delivery.
- Consumer-grade client engagement. Both management consulting and engineering services are overdue for a more engaging, sustained, informative, and transparent connection to the client. In 2021, they will seek to achieve a combination of technology, digital experience, and real-time data flows that bring clients closer, while increasing their satisfaction.
- Traditional and non-traditional partnership approaches. Services firms are expected to target different business models (such as alliances to complement their expertise) and targeted consolidation. These alliances may also include companies embracing public-private partnerships (PPP) and making them part of their ecosystem to spread risk and increase shared investment.
- Strategic emphasis on high-order differentiation. Both industries continues to divide into two market divisions, a low-cost, commoditized sector and a high-value, specialized sector. Most services firm must seek out their untapped growth opportunities in the high value category which they can add to their existing portfolios to diversify and increase sales.
- New business models. In 2021 it is mandatory that both management consultancies and engineering firms to lateral over to promising new adjacencies and services models such as data subscriptions, IP licensing, strategic insights, and annual recurring revenue that can provide vital new green fields that offer both resilience as well as expansion.
Management Consulting and Engineering Services: Career Trends
- Smart recruitment. New models exist for recruiting and project matching via AI, while talent screening and the pre/onboarding process can be made more intelligent and automated. This will drive bottom-line business benefits while also increasing acquisition and retention.
- Differentiated talent experience. The top workers will have expectations of a general return to the quality of work life they had prior to 2020. PSOs that proactively deliver on this in remote work scenarios while also up leveling the overall worker experience will have significant retention benefits.
- Learning the future of PS. The existential changes and new opportunities in the PSO world must be better communicated to workers, so they can help realize as well as reap the benefits enumerated here.
- Hybrid talent sourcing. New dynamic staffing models — aka the Gig Economy for professional services — will mix with full-time employment to create much stronger teams that are also more cost contoured while attracting new types of diverse talent.
Management Consulting and Engineering Services: Health and Wellbeing
- Delivery team engagement. Creating enabling and more connected working environments in the new remote work situation particularly for delivery teams is essential to preserve a connection to the “mothership” while also nurturing workers through the tough and challenging times.
- Wellbeing tracking. Tools and processes that track the physical, mental, and psychological health of professional services stakeholders, from project and engineering staff, back office, and clients — and provide appropriate assistance when needed — will be increasingly expected and has already become a hallmark of best-in-class employers.
In summary, management consulting and engineering firms have a momentous opportunity to recovery, grow, and adapt to the significant disruptions coming-out of 2020 and going into 2021. By proactively transforming their operating model and rapidly delivering on it with clients and talent using new tools, technologies, and techniques, both types of firms can avoid the most damaging types of cost reductions while being positioned for growth through 2022 and beyond.
With management consultancies poised to rebound as vaccines rollout, and engineering firms facing a glut of top talent along with global industry changes, the winners will be those that are willing to think outside the box and adopt sensible yet far-reaching shifts in their strategies, tools, and operating models.