AI and Trump put consulting firms under pressure
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Illustration: Maura Losch/Axios
Pour one out for the consultants — after a few booming years post-pandemic, the outlook for their industry is looking increasingly grim.
Why it matters: AI is hurting white-collar professionals. And consultants, an often mocked, yet typically well-paid bunch, are feeling the pinch.
Zoom in: In The Free Press, veteran business journalist Joe Nocera makes the case for a coming "consulting crash."
- Two forces are disrupting the business of McKinsey, Bain, BCG and other notable firms, he contends. They are:
President Trump. The White House is cutting lucrative consulting contracts and pushing for more cuts from firms.
- Deloitte and Booz Allen announced layoffs earlier this year as a result. Accenture said federal-contract delays and cancellations have hurt revenue.
AI. Consulting industry experts tell Axios that ups and downs in government contracting are par for the course. AI is the real long-term threat.
- AI makes consulting more efficient, but consultancies charge by the hour. "You charge for time, and when time goes away, you have to change the commercial model," says Tom Rodenhauser, of Kennedy Intelligence, a research firm that tracks the consulting industry.
- Firms are already switching up fee structures to be tied to a project, rather than by the hour, consultants tell Axios.
Meanwhile, a good chunk of the work firms do historically has been helping companies adopt software and new technology. But AI is relatively simple to get up and running; and some firms are looking to AI firms for that help.
- "AI is creating greater efficiencies for doing consulting, but it's not driving demand for more consulting," Rodenhauser says. "Ultimately, they're going to run out of work."
Between the lines: "If the consulting business was a stock, I'd be shorting it right now," billionaire Peter Thiel told Nocera.
- Thiel's own company, Palantir, is making inroads in the consulting business, as companies turn to it — and other tech firms — for help adapting AI. That's also cutting into the traditional consulting biz. The Economist has noted how consulting stalwart McKinsey lost its edge.
- McKinsey recently shed more than 10% of staff — among the largest cuts in its 100-year history, the FT reports.
The other side: "We're using AI to transform the way [the] firm operates: We're on track to save thousands of hours per year for our teams," Kate Smaje, a senior partner and global leader of technology and AI at McKinsey, tells Axios.
- "They can use that time to come up with new ideas or do more for clients. counseling and on-site support that is core to our work."
- Organizations are going to need McKinsey for help managing the AI transformation, she says.
What to watch: There will likely always be space for a top-tier consulting firm like a Bain or McKinsey, but there may be a culling ahead.
- Long term, Rodenhauser sees the industry breaking up and becoming more fragmented. "It's like the tectonic plates shifting."
