The budget's macro impact on our business

News is out on next year’s budget. Program-wise, the nitty gritty details will be forthcoming but we’re already hearing some general declarations of victory on the elimination of the across-the-board cuts mandated by sequestration.  Mucho analysis will surely be done on what this means for specific programs—and probably some interesting pieces on the budget’s probable impact on businesses, including federal contracting. 

At the macro level, we know that there are fewer federal dollars to go around which will surely translate into less investment in management consulting.  Right, right?  Well, probably but there are some foundational shifts underway that shouldn’t be ignored. 

What’s changing?

  • The general pressures of the last two years caused all firms to struggle. Execs publically claiming otherwise are big fakers.  Obviously, some companies were more resilient-- they had more cash on hand, a more diverse portfolio, or precisely the right mix of recession-proof contracts going into this mess.  Those not so lucky are now shakier than ever.  They’ve had to lay off staff, streamline internal functions, and make many “no bid” decisions that have left their pipeline for new work looking meager. They’re keeping the lights on right now but are one recompete loss away from ruin. All factors combined creates a rich market for cheap acquisitions.  I predict that this won’t just the bigs swallowing up the smalls. There will be some interesting marriages that we’ll call “mergers” to make everyone feel better.
  • At the same time, a premium will be paid for firms with niche, technical skills combined with a solid outlook for new work. These rare gems are really the only hope for growth for many companies.
  • The increasing availability of free resources, templates, best practices, and benchmarks will further erode the market for general management consulting (GMC) support. It’s not that GMCs will go away but they will need to market themselves differently—more as an engine than an expert.  Sorry to be the bearer of bad news but everyone is an expert in project management, communications, basic analysis, and even organization design these days. However, GMC gaggles can be really handy when a federal program needs to build and maintain some momentum.

The trends above will result in 1) fewer firms (though it’ll be a little hard to tell because of the sheer volume), 2) more independent consultants than ever, and 3) an increased demand for specialized, rare skills.

Firms running leaner as a result of streamlined processes (and shedding of excess resources) may be in a better position to pass some of those savings along to clients.  I also think that any firm skilled at attracting and organizing independent consultants—and making them both seem and function as a cohesive team—will be rewarded with wins.