The consulting market has come under significant pressure in recent years. A lack of skilled labor has slowed business development in many sectors, and in many sectors demand for consulting services significantly exceeds available supply. Project business in particular has flourished, driven by digital transformation that companies are enthusiastically promoting. The SAP market experienced a special boom in the wake of the migration to S/4 Hana.
This development led to fierce competition among consulting firms, poaching expertise from each other to meet growing customer demands. As a result, labor costs have increased significantly, and fees for consulting services have increased accordingly. Service providers have worked intensively to leverage tools, templates, and methods to make project work more efficient, flexible, scalable, and reproducible, but success has remained limited.
The old industry dogma that “consulting is a people business” remained valid. This was also acceptable as long as the demand for digitalization of business models in a booming economy ensured comfortable access to facilities for consulting companies.
However, the situation has radically changed. The economic situation in Germany is particularly tense. For the first time in years, IT service providers are being forced to seriously consider how they use consultants as companies look to cut costs.
Will AI be the driving force behind your project?
In this new reality, artificial intelligence is gaining traction. The demand for AI solutions offers at least some hope for new project momentum. However, PAC's analysis shows that the impact on consulting firms' capacity utilization has so far been limited as many companies are only initiating small projects that also require specific consultant profiles.
Leveraging AI in consulting firms' own business processes is even more appealing. The use of AI is already well advanced in service offerings such as application management (AM), software development, and testing.
What is new and particularly interesting is the use of AI in the early stages of project business: processing RFIs and RFPs, defining scope, conducting market analysis, and scenario planning. Historically, junior consultants have been utilized in these areas to gain early project experience and familiarize themselves with consulting work. Now, AI is about to take over their jobs.
AI is still only moderately active in these areas. But that's not the point, because the models are continually being improved and the technology is maturing. With the prospect of reducing labor costs and accelerating processes, large consulting firms in particular are already systematically promoting the use of AI in all stages of a project.
Short-term labor cost savings
In the short term, the industry can expect to see a reduction in labor costs as soon as AI becomes available for use in the consulting areas mentioned above. However, experienced consultants with deep industry knowledge and superior customer access remain essential in the age of AI. For the time being, it is likely to be more difficult for young consultants who are introduced to consulting through jobs that are set to be taken over by AI.
However, if the number of juniors involved in project work decreases in the short term, there is a risk that there will be a shortage of experienced consultants in the long term. Therefore, unless AI actually develops rapidly and becomes powerful enough to replace experienced consultants in the long term, it can only temporarily alleviate the shortage of skilled labor at best.
Proceed to partner entry.
