Things looked bleak in the depths of the great recession. Many major firms collapsed and went out of business completely. Some were deemed “too big to fail” and were bailed out by the U.S. government. For the surviving firms, layoffs were rampant, resulting in unemployment peaking at 10% in late 2009.
Effects of the Great Recession
Companies that were shedding employees also cut major projects, resulting in consultants being shown the door. Many consulting firms failed. Others survived by reducing their own staffs.
Unemployment in the U.S. hovered in the upper 9% range for over a year. In late 2010 it began a gradual descent. As of May of 2015, unemployment was down to 5.4%.
The Dow Jones Industrial Average grew nearly 30% in 2013 followed by a more modest 10% increase in 2014.
Throughout the recovery, use of consulting has increased as companies, gun-shy of committing to permanent hires, continued to hire temporary staffing. Now, as the recovery turns into a stronger economy, companies are beginning to have the confidence to hire full-time employees.
Additionally, companies are investing in new projects. As long as they can justify an adequate and fast enough return on investment, organizations are turning to their large backlog of work that they were too risk averse to attempt over the past several years.
Translation to Consulting Success
This bodes well from many aspects. The willingness of the business community to make large investments in staffing and projects should translate to additional growth in the economy.
Additionally, investment in projects will almost certainly mean that companies will turn to consulting firms for help. Traditionally, firms do not rely on existing staff to implement large projects. Consultants are usually brought in for their expertise in the particular subject. Consultants are also temporary workers. They provide the needed guidance and extension of staffing needed during a major project. As the project winds down, the consulting staff is gradually ramped down and the project is handed over to the full-time staff for ongoing maintenance.
The existing staff is heavily involved during the project. Full-time employees act as subject matter experts (SMEs) on the project, providing consultants insight on the company’s proprietary knowledge and processes. As the project winds down, full-time employees take on a larger responsibility of the project, eventually assuming full ownership as the consultants phase out of the picture.
Challenge to Consulting Firms
The continuing decline of the unemployment rate is generally a good thing. It is the sign of a growing economy. However, as the unemployment rate becomes lower, it becomes a concern for hiring qualified people to do the job.
Hiring by client organizations results in fewer people in the market. Competition for qualified workers becomes stiffer. There are some who have concerns that we will get to a point where we are at full employment – a 0% unemployment rate.
While some may look at that as some utopian accomplishment, where everyone in the market is employed and productive, there is a downside. With full employment, we risk ceasing to grow. New investment is stifled because organizations can’t hire people to do new work.
The predicted problems of full employment may never come to fruition. But as the unemployment rate becomes smaller and smaller, consulting firms will find themselves competing more with each other – and with their clients – for qualified knowledge workers.
The growing economy is cause for great celebration for the business world in general. It is also a positive sign for consultants that they will experience continued growth. Like any type of benefit, there are challenges. Consulting firms will have to learn how to compete in the hiring market to acquire adequate staffing in order to serve their clients.
Their own success as well as the success of their clients will depend on it.
How is your firm preparing for a more competitive market?
As always, I welcome your comments and criticisms.
If you would like to learn more about working in consulting, get Lew’s book Consulting 101: 101 Tips for Success in Consulting at Amazon.com