Key Takeaways: Korn Ferry’s 2024 NA Professional Services Industry Outlook

Korn Ferry recently published its Professional Services Industry Outlook for North America in 2024, which highlights some major industry trends. The report suggests that, while far from a return to the bull market we’d seen some years prior, many in the professional services industry are well-positioned to meet and exceed their revenue targets. Of course, there are many challenges that companies must keep in mind as they move forward. From inflation and spend concerns to hiring, talent diversity, and flexible working models, we have to be mindful of the challenges ahead and adapt as necessary to stay competitive. Let’s break down some of the report’s key findings:

1. “Of the significant challenges facing the Professional Services market, downward pricing pressure remains the most pervasive headwind… ‘Clients are already asking for the ‘AI discount’ in some segments of the market,’ said one Managing Partner at a Big 4 firm. ‘They expect AI to be priced in regardless of actual internal adoption rates. Most firms don’t recognize it, but Professional Services will be the ‘canary in the coal mine’ for what Generative AI does to the need for knowledge workers.’”

Per the report, professional services are serving as the “canary in the coal mine” for what Generative AI does to the need for knowledge workers, with customers already asking for an “AI discount” in some market segments. This creates problems: labor inflation has significantly increased the cost of service over the last several years, and the efficiencies promised by AI are just beginning to be realized, but not at the speed or pace necessary to offset costs. In the short term, margins will be compressed or pricing will be increased. In the long term, the balance between even more expensive human capital and tech efficiencies will equalize and pricing will go back towards the labor inflation rate.

2. “New headwinds have emerged, and older ones have faded. Notably, the higher interest rate environment is on many leaders’ minds, whereas fears about inflation dropped precipitously. “The most prominent theme” this year, opined one Practice Leader, is “helping clients achieve growth in a financially constrained environment…”

Professional Services Firms also need to stay agile and get better at adjusting to economic changes and client demand. For instance, the report mentioned that higher interest rates are on many leaders’ minds, and despite seemingly being on the decline early in the year, inflation remains a major concern. This means that many are still worried about the possibility of an impending recession. Clients are more cautious and looking for stability amid this lingering turbulence, so it is important to work with them to help them achieve growth in this financially constrained environment. 

3. “We overhired during the pandemic; then a change in demand for consulting firms occurred. We need to get better at adjusting to changes in client demand.”

To achieve growth, we must also ensure that our teams have the skills and experience necessary to keep up with client expectations. Many firms overhired during the pandemic, only for recent economic challenges and changes in demand to catch them off guard. As a result, we’re seeing companies laying off employees while prioritizing their top performers. For those who’re sticking around, it is important to invest in upskilling and development to ensure they can handle the speed and complexity of the current business environment. On the other hand, firms will be facing shortages of skilled, qualified and experienced workers in the professional services domain, especially accounting and finance, in the near and intermediate term. With our in-depth understanding of how these firms operate, we can help forecast coming changes and make smarter business decisions. 

4. “2023, 4 in 10 respondents predict their clients will spend more in 2024 than in 2023. As one Consulting CEO put it, “Clients have to be comfortable operating with uncertainty, or else they risk getting left behind if they stick to the ‘wait and see’ attitude we saw for much of 2023”.

This type of guidance is especially valuable right now, as 4 in 10 respondents last year said that they predicted clients would spend more in 2024 than in 2023. Even in the face of recent economic challenges, clients have big plans, but many are afraid to follow up on those plans. We are still experiencing consulting spend austerity in general other than enabling strategic investments, and even there, we see soft M&A volumes. Clients need to be comfortable operating with uncertainty, or else they risk getting left behind. That said, at Virtas Partners, we’ve found that customers want strong insight into the value created compared with the cost of services before jumping into the deep end, someone who can pinpoint where they should allocate their money to deliver the best value return on investment. 

5. “One Practice Lead from a Large Professional Services firm stated that her firm’s top talent-related priority in the coming year was to drive ‘the promotion of women and other diverse employees, particularly to the Partner level.’”

Another point from the report is the growing importance of promoting women and other diverse employees, particularly at the partner level. The lack of women partners is stagnant in spite of decades of prioritization and focus to enable and advance greater representation at senior levels in firms, with roughly 15% of partners being women versus half of the total workforce. One major reason for this is that professional service firms often struggle with creating career paths for working mothers, who are poorly represented overall. At Virtas Partners, we’re creating flexible alternatives for work to leverage the massive pool of talent that working mothers represent and recognize the unique needs of these professionals in their career progression. While some companies are scaling back their diversity efforts, Virtas Partners is creating accessible avenues for women to rise in the ranks and raise families, prioritizing their development and fulfillment.

6. “Now, legacy models are returning as many want their people back in the office, with more than half of Professional Services leaders stating their firms have return-to-office plans in place, or in the near future.”

Legacy models are returning as many want their people back in the office, with more than half of professional services leaders stating their firms have return-to-office plans in place, or in the near future. Yet many workers still reject the return-to-office mandates, with 66% of financial services leaders working remotely or hybrid having said they would leave their firm if they were required to work in the office full time. The current and future workplace requires agility and flexibility to meet the unique requirements of our clients and their projects. Adaptability is key to success, and Virtas Partners is determined to help clients succeed. This is one area where Virtas Partners is going against the grain in the industry: the insistence on total flexibility in work arrangements.