Cycles and scenarios

Of course it's dangerous to use the past as a guide to the future, but bear with me for a moment.

Looking back over the last 20 years, I increasingly think that the consulting industry works on five year cycles: three years or so of relatively high growth, followed by two years or so of lower growth.  Sometimes it's boom followed by bust; sometimes the change is less dramatic.  Thus, the downturn of 1992-93 became the ERP-fuelled boom of the mid-1990s; the prospect of recession in 1997 slowed the growth rate in consulting only to be replaced by the dotcom bubble; the pricking of that bubble brought a serious contraction of the market in 2002-03, but that was reversed by the upswing of the last few years.

Some downturns (eg 1997) are mild - the growth rate falls back but it doesn't go negative - but some (eg 2002) are far more severe.  What determines whether a downturn is mild or severe is a crucial question just now, and that comes down to two factors: timing and economic indicators.  In 1997, there was much talk of an imminent recession and growth in consulting consequently slowed.  But about one year in (that's halfway through the downswing of my five year cycle), the economic news wasn't as bad as expected: people came out of their bunkers and got back to business as usual.  In 2003, again halfway through the downswing, the news was remorselessly depressing, and that pushed clients into making serious cutbacks in their consulting budgets.

I'd say that this downturn started in the summer of last year.  Not every consulting firm felt it, but for many firms, the last third of the year was pretty flat.  However, business picked up at the start of 2008 and the gloomiest prognoses were put on hold.  But not for long: the market was looking uncertain over last summer - as one consultant put it to me: "Our clients have their foot hovering over the break; they just have started to press down yet."  And what happened next?  The financial news got just about as bad as it could be and certainly far worse than many people had ever supposed was possible.  And unfortunately for consultants, the news got worse just at the crucial point when clients were weighing up whether this was a real downturn à la 2002-03 or a phoney one along the lines of 1997.  Well, now they know.  And now we know that it's probably going to be pretty bad for consultants, at least up to the end of 2009.

But then, of course, the inevitable recovery will kick in.