Slowdown takes toll on IT consulting business

Bengaluru: Slowdown in demand for digital projects and discretionary spend have led to less work for consulting businesses across the world, which has resulted in layoff moves by the top four consulting firms.

Globally, IT firms including Accenture and Wipro, have seen the impact of slowing new projects on consulting part of their businesses. Though consulting business doesn’t constitute a big part of revenue for Indian IT services companies, high cost of manpower in consulting side of business is seen as a drag on margin.

“Most of the consulting business is discretionary in nature. And the demand environment is such that all discretionary projects have been put on hold. That is the reason that consulting is getting hit,” V Balakrishnan, Chairman, Exfinity Ventures & former CFO of Infosys, told Bizz Buzz.

With both US and European economies going through a slowdown, enterprises in these key markets have shelved off plans to pursue new projects. This has prompted the top four consulting firms to announce job cuts in the US and other geographies.

Global consultancy firm KPMG in February was the first among the top-4 to announce job cuts. It has plans to slash 700 jobs or two per cent of its workforce in order to better align its workforce with the current demand environment. Similarly, Ernest & Young (EY) has plans to cut 3,000 jobs in the US due to overcapacity in parts of its businesses. Deloitte was another firm with plans to cut around 1,200 jobs in the US. McKinsey is another big consulting firm with a plan to reduce as many as 1,400 roles.

Not only pure-play consulting firms, but also IT firms with technology consulting units are facing the wrath of slowdown in these wings.

“What you’ll see is in S&C (strategy & consulting), you may see a conversion that’s a little bit slower than we typically have because we still do have some pressure in our smaller deals, particularly in North America,” KC McClure, Chief Financial Officer of Accenture has said during the conference call.

After the announcement of results, Accenture said that it would reduce its global headcount by 19,000 in coming quarters in order to reduce non-billable roles. For Indian IT firms, despite numbers being not provided by the respective companies, brokerage firms have highlighted weakness in the consulting side of business. For instance, brokerage firms have said that Wipro, which have pursued a strong consulting-led business, is projecting a slow growth in Q1 of FY24, mainly owing to the weakness in the consulting side of business.

“Wipro continues to sign strong bookings, but revenue conversion is still awaited on account of delayed ramp ups of existing deals as well delayed start for some of the new deal signing. It is also reflected in weak Q1 revenue guidance. It is also a reflection of possibly weak numbers from their consulting business ( numbers not disclosed, but mid-teen revenue mix in our view) which are the first one to face issues in a weakening macro situation,” ICICI Securities has written in a note.