Consulting Firms Grapple with Declining Client Demand, Tightens Belt, Implements Overhaul to Adjust Financial Forecasts

By Moon Harper

Mar 25, 2024 01:13 AM EDT

The consulting industry is now grappling with challenges. Recently, Accenture, a leading professional services firm, lowered its annual revenue forecast, indicating a slowdown in the market.

According to its quarterly report, the company has revised its revenue forecast for the year to a growth rate of approximately 1% to 3%, down from the 2% and 5% initially projected growth.

Accenture's Quarterly Revenue Report

Accenture's chief executive, Julie Sweet, noted that clients are cutting back on spending during a call with analysts, explaining that they gained insight into clients' budgets in January and observed further tightening of spending, which impacted their services, as reported by the Financial Times. According to Accenture's quarterly report, consulting revenue for the second fiscal quarter, ending on February 29, declined by approximately 3% compared to 2023.

Consulting Firms' Largest Overhaul Initiatives in Decades

Many prominent consulting firms are experiencing a decline in client demand, which is particularly challenging given the recent expansion of their workforce. During the pandemic, companies sought their expertise, leading to significant staff growth. However, there is insufficient work for these additional hires in the current challenging economic environment. Some firms are providing stipends to new hires, allowing them to delay their start dates, with Accenture offering recent college graduates up to $25,000 to postpone their start dates.

Amid the slowdown, certain consulting firms are adapting by restructuring. The Financial Times reported that Deloitte initiated "the largest overhaul of its global operations in ten years."

As part of the restructuring, Deloitte's primary business units will be consolidated into four units, down from five, aiming to streamline costs across the firm, as reported by the Financial Times. Deloitte's global chief executive, Joe Ucuzoglu, communicated to the firm's partners via email that the reorganization will reduce the firm's complexity and allow more partners to focus on client work rather than internal staff management. A spokesperson for Deloitte confirmed that they have recently completed a deliberate process to modernize and simplify Deloitte's operations and market approach, expressing confidence that this would enhance the quality and value provided to clients and communities and offer better career opportunities for their employees.

Ray of Hope in AI's Potential

Despite the challenges, AI's potential offers a ray of hope for consulting firms. The increasing demand for comprehending and implementing this new technology seems to drive a surge in new project requests for several firms.

In the latest quarter, Accenture disclosed that new bookings in generative AI generated over $600 million, totaling $1.1 billion for the first half of the fiscal year.

According to The Wall Street Journal, McKinsey also noted substantial revenue from generative AI. Sven Smit, a senior partner at McKinsey, mentioned to The Journal that there is considerable demand for utilizing generative AI in tasks related to enhancing productivity and restructuring workforces.