Part 2 - Reflections on the impact of recession on Consultancy Services
We recently wrote an article that reflected on the Employment Market and Business Confidence, recent statistics on GDP, Insolvencies and Job Advertisement Volumes. We outlined the statistics that could impact business confidence, and the business responses we can naturally expect under these conditions. In brief, as a result of the current conditions, organisations are being financially prudent and need to ensure any spend results in true value for their organisations, especially when the risk of getting it wrong could end up in cost-driven restructures and redundancies, or reputational damage.
Recruitment for both Consulting & Strategy roles, as well as Human Resources & Recruitment roles, is currently in decline. This leaves questions open about how this expertise is likely to be resourced as NZ experiences a recession, pending recession or economic slowdown, and what is the impact on Consulting firms that provide these services.
In an economic slowdown, businesses are more likely to struggle to meet profit expectations (due to lower revenues, and/or increased costs) and therefore are likely to conserve expenditure; however, we know that industries will be affected differently. For example, COVID-19 saw a shift from retail to online shopping, or from expenditure on travel to home refurbishment. The activity shifted but expenditure was reasonably consistent. In fact, some industries flourish in an economic slowdown.
Focusing on where industries are negatively affected by an economic slowdown, we are seeing a lack of recruitment or a reduction in internal resources, and selective use of external consultancy, strategy and human resource development services. Consultancy is a resilient business, because it is fundamentally about filling expertise and skill gaps – particularly those that are not needed as a core competency or full-time internal role – therefore, this is actually an opportunity for quality consultancy services.
Successful organisations need to identify new opportunities (more effective use of resources and/or adding revenue streams etc.) for improved results from business resources, and can benefit from both internal and external skills and perspectives.
Where organisations have previously been dependant on outsourcing to consultants, maybe “too readily”, internal capabilities may be lacking, and/or no longer part of mentality or focus of an internal party. If the same organisation suddenly starts reducing development support for leaders (including coaching), while cutting spend on consultants, the risk is that the work cannot be done in a competent manner, potentially exposing the organisation to risk.
For K3 Consulting’s team members, who have each been in Business and HR Consulting roles for well over 20 years, these cycles of demand are not new. We have expertise used in various ways during these cycles, and like many industries we need to continually evolve and, at our essence, remain relevant to the environment.
Our experience and history tells us that some business cost lines are automatically considered for reduction in tough times, such as employee learning and development budgets. That could be a strategic and deliberate decision, which has appropriate considerations, that benefits an organisation long-term. Sadly, that decision made without insight, can have the inverse of the intended effect, such as declining customer experience, failing to optimise investments in new products or systems, failing to provide the tools for employees to cope with workloads, and damaging goodwill within the organisation. These insights (knowing when and where to reduce or maintain expenditure) often come with “scar tissue” – a knowledge and understanding by drawing from previous experiences across a broad range of exposure.
“MIT Sloan Management Research found that only 12 percent of respondents strongly agree that their leaders have the right mindsets to lead them forward.” (Mike Lee, 7 June 2023, LinkedIn - https://www.linkedin.com/pulse/top-leadership-challenges-2023-mike-lee/) If that is accurate then leaders will need support to frame up problems and opportunities robustly, consider alternatives and align organisations to resolve or meet their strategic objectives.
So, what does prudent engagement of Consulting or other external suppliers look like, in our current conditions? Whilst it may seem cliché, the answer is “value”. Just like an internal resource, any engagement, needs to show that it has a tangible return on investment.
For an organisation, engaging a Consulting firm, that means it has to be, such things as:
- Linked to organisational strategy, and therefore customised and relevant to the organisation
- Produce recommendations that are simple to follow, with results that are sustainable
- Realistic about trade-offs, that being, what needs to stop, as much as what needs to start
- Linked to customer/stakeholder experience and outcomes
- Have a tangible impact on the bottom line
- Maximising the right internal skills at the right times, to ensure internal growth and develop through involvement and exposure – to support employee engagement
For a Consulting firm, it means being able to define and scope the problem or opportunity, and provide both a robust and pragmatic approach, and apply the appropriate level of time and effort to get to identified actions. Time is often of the essence, and many are familiar with the Pareto Principle, or the 80/20 rule, that states that for many phenomena 80% of the result comes from 20% of the effort. Asking both where can results be maximised, alongside (stealing from the Hippocratic Oath) "first, do no harm", can help both Consultants and the Organisations they support remain focused on getting to the core of what will make the biggest difference for an organisation, and aid their success.
For us, at K3 Consulting, we will continue to demonstrate that we won’t recommend any action unless we know it’s going to contribute direct value to our clients.