Cuts, struggles and breakups: How is AI reshaping the consultancy sector?
There’s been a lot of noise lately about job cuts at the Big Four firms and the graduate recruitment ladder being pulled up, but underneath the surface crisis mode is becoming the norm across the sector as it struggles to keep up with the new AI-driven world.
A report last week revealed the Big Four giants are already cutting hundreds of jobs and pulling back sharply on graduate recruitment.
For a sector that has built its structure on trickle-down work sharing, AI has thrown the industry into a dizzy spell, as experts warn that the sector is set to experience a significant change, even if it doesn’t want to.
“Across the UK, many industries are starting to question the need for large graduate intakes. This creates a real challenge for the big consultancy firms, which are fundamentally structured to scale through time-and-materials delivery models,” explained James O’Dowd of Patrick Morgan.
And it’s not just the Big Four (Deloitte, EY, KPMG and PwC) – but the myriad consultancies specialising in communication, strategy, transformation and business development.
Pricing problems
For so long, anecdotally, management consulting firms would draft in several rounds of junior staff for research and tasks such as drafting the much-loved PowerPoint presentation for a client. None of this would be free; the client would be billed for the work.
But now we’re in a new tech-focused world, where all businesses, regardless of their sector, are incorporating some form of new technology or AI tool. The better the tool, the more access these clients have to data and information that graduates and junior staff would have previously spent days compiling.
“It’s becoming harder to deploy and bill out large numbers of juniors at high rates. At the same time, technology, including AI, has significantly reduced the cost and effort involved in delivering certain types of consulting work,” O’Dowd noted.
With economic issues, clients are tightening their wallets, with a strict eye on the value they receive from instructing a consultancy firm.
According to a report by Source Global Research, 26 per cent of clients say that one of the most significant disincentives to using consultants is that they receive ideas but no actual change. However, 22 per cent stated they’re unsure what they get for their money.
Fiona Czerniawska, CEO of Source Global Research, added, “More fundamentally, only 49 per cent of clients think that the value they get from consulting projects exceeds the fees paid.”
So, what do clients now want from consultancy firms? Tom Rodenhauser, managing partner of Kennedy Intelligence, said it’s simple: “Clients want results”.
He explained that either revenue growth, profit creation, or cost containment measures are what count. “Those are the three things consultants can do, but the only truly measurable one is cost containment because you can point to how much savings you generate,” he added.
Firms, especially the Big Four, have been investing heavily in their own AI tools and upping their skills; however, without some structure in place, are they shooting themselves in the foot?
“Some of the major strategy firms will have to face the reality of how far they can go into the technology and the operation space because that’s a shift for them. The investment requires the expertise of having to manage services and do things their product has never been built for,” Rodenhauser said.
The structure struggle
In order to keep being valuable to clients, Rodenhauser explained firms need to embrace managed services, much like the approach taken recently by PwC recently in its reshuffle, embedding this function in all eight of its core areas.
“Now [PwC] is embracing managed services as core to their future, and the reason that’s important is because when you do managed services, you’re essentially taking over business processes for the client.”
“When you are in control, you can change the commercial model, you can get paid on outcomes,” he added.
Despite this, some of these firms may still have their head in the sand about the issues they face, though one thing is sure: they need to be prepared to make some significant changes.
However, their very structure is their biggest Achilles’ Heel.
Most consultancy firms are structured as limited liability partnerships (LLPs). This means that equity partners buy-in to the firm and, as a result, have a share in the profits, losses, and decision-making of that firm.
However, when it comes to big decision-making, the cracks in this setup become more transparent. O’Dowd explained: “For the Big Four, change is hard, not just because of scale, but because decision-making is often slowed by internal governance and competing interests.”
He pointed out that “The failed EY split is a good example. Many in the business likely saw the benefit, but the governance within the partnership model can block forward-looking decisions.”
The plan, known as Project Everest, involved breaking up EY’s audit and consulting divisions, which would have constituted the biggest shakeup in the sector in over twenty years.
However, the split failed because of a lack of support from the firm’s US partners.
Big Four feeling the squeeze
The Big Four are already facing a profitability problem.
Over 2024, EY UK’s revenue grew by a single-digit percentage, but fee income remained flat. Deloitte UK’s revenue increased slightly by over two per cent, but its profit stalled. PwC UK reported single-digit growth in revenue, but this came against the backdrop of the group’s profit and partner pay dropping again.
While KPMG UK revealed that it recorded double-digit growth in profit before tax for 2024, its revenue increased by only one per cent.
Smaller niche private equity backed and AI-enabled firms are starting to emerge in this space, and the bigger firms will be forced to cut prices and headcounts in order to compete.
“Reducing fee rates may seem like an effective way to compete, but it’s becoming a zero-sum game for consulting firms,” Czerniawska noted. She added the bigger firms racing to the bottom are in danger of permanently depressing profit margins.
What does all of this actually mean for the Big Four firms, and the wider sector? Well, Rodenhauser said: “We think the Big Four must break off consulting to compete in this new world.”
Collectively, Deloitte, EY, KPMG and PwC employ around 100,000 people across the UK.
But over the next couple of years for the broader sector, O’Dowd said he sees a shift underway: “We’re likely to see a more fragmented consulting market emerge over the next few years.”
Experts believe the firms that will continue operating will be smaller and will have specialism, and while time-based consulting won’t disappear overnight, Rodenhauser was sure to point out it will be on a much smaller scale.
He explained that the surge of private equity investments being made, such as with Grant Thornton and Baker Tilly, is “almost creating a sort of group consolidation.”
Private equity interest in the professional services sector has already skyrocketed over the last year, especially for those with accountancy arms, as private capital likes the reliable workflows and revenue streams from accountants. However, the legal and consultancy sector is next on their investment agenda.
Commenting on the future of the industry, Tamzen Isacsson, chief executive of the Management Consultancies Association (MCA) said: “AI is transforming consulting firms in profound ways.”
“As the industry embraces new technology, we see the rise of specialised, tech-enabled careers that demand deep expertise in AI.”
Isacsson highlighted that “the competitive landscape is shifting, requiring consultants to partner broadly and adapt quickly.”
“While automation reduces routine tasks, it opens doors to innovation, new roles, and collaboration to train future consultants,” she added.