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How do consulting firms cope with economic recessions?

Frank asked on Jan 04, 2018 - 3 answers
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What are the most common ways that consulting firms cope with economic recessions? Do they lay off a lot of consultants?

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Andrea
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replied on Jan 06, 2018
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As you can imagine the biggest line expense in a consultancy P&L is people and therefore if revenue line falls that's the biggest lever they can pull to to maintain profitability or even survive.

In the US - after a justified re-sizing in early 2000s and some over-reacting in 2007 - Bain, BCG and McKinsey have become more careful in deciding on how soon and how strong they pull this lever. This because they realized that once talent is lost is hard to get it back and not having that talent available will stifle growth when there is an economic rebound.

However when billability falls under a certain treshold action is taken swiftly and low/average performers are outplaced more aggressively.

Hope this helps,

Andrea

Vlad
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replied on Jan 08, 2018
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Hi,

The rule of thumb is that they increase the evaluation criteria. For example, if you were "distinctive" before the crisis, you'll now be "Very good". If you were "Average", now you'll be "Below average". If you keep Below average for a certain period of time - you'll be laid off.

You should also expect longer working hours and higher intensity since the consultants will be trying to impress the clients even more.

Some companies (Most often Bain) close their offices as well. People with best evaluations may be transferred, others - laid off.

Best

Oleksandr (Alex)
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replied on Jan 04, 2018
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Hi there,

It depends on the company. Some of them - do lay off people. A lot, literally close all offices. Others - do not do that. I have heard stories that, for example, when Europe hit recession, Bain & BCG closed quite a few offices (or shrinked them by far), whlie McKinsey recruited as a tough guys. Thus, it really depends.

But! It doesn't matter that McKinsey will show such behavior in the future with 100% guarantee. I would say - 95% that they would.