In early 2023 the boom years and post-pandemic surge in demand for consulting and professional services came to an abrupt end. Leading consulting firms are continuing to experience a slowdown in advisory work and according to the Financial Times reporting earlier this year, this has prompted some firms to increase their focus on letting go of "low performers" and raising "attrition."
McKinsey & Company, a US strategy giant with over 45,000 employees, was reportedly using mid-year performance reviews to expedite departures and is offering financial incentives for some staff to resign. Recently, 400 jobs were cut in roles like software engineering and data analysis. This approach by McKinsey is part of a broader trend in the industry towards higher attrition. Deloitte, one of the Big Four consultancies, reported its lowest staff turnover in a decade, and KPMG reduced jobs in its US audit division due to historically low attrition.
Industry experts take the position that it might take until 2025 for hiring, firing, and promotions to return to their pre-pandemic norms.
During a recent gathering of McKinsey’s 3,000 partners in Copenhagen, their first in-person meeting in two years, the firm’s leadership conveyed an optimistic message, highlighting a consulting market that seems to be recovering after over a year of sluggish growth. However, sentiments among the attendees were mixed, as the anticipated upturn had not arrived quickly enough to prevent another round of staff reductions at the 45,000-employee firm. According to sources, McKinsey is currently conducting rigorous career reviews, and underperforming consultants are being “counselled to leave.” These mid-year performance reviews, previously seen as informal catch-ups with managers, have now returned to a formal grading process, aimed at accelerating staff exits.
Two years after the Great Resignation, where a strong job market and the pandemic led many to change employers, the landscape has shifted dramatically. In professional services, voluntary departures have hit historic lows as sectors like tech and investment banking shift from hiring to firing. Leaders of consulting and accounting firms are eager to boost "attrition." At McKinsey, various strategies have been employed in recent weeks, including offering mid-level staff financial incentives to leave, such as nine months' pay while they seek other opportunities, and laying off up to 400 employees in specialized areas like data and software engineering.
This decline in attrition is a global phenomenon across professional services firms, exacerbated by a slowdown from the post-pandemic boom in advisory work on digital services and mergers and acquisitions. Deloitte's latest annual report showed staff turnover at its lowest in a decade, and KPMG cited “capacity issues due to ongoing and historically low attrition” when it cut jobs in its US audit business earlier this year. Bain also pointed to reduced attrition when offering redundancy packages to consultants in London, alongside options for temporary leave or relocation to other offices.
Most consulting and accounting firms have responded by implementing layoffs, increasing the frequency of performance-related exits, or introducing voluntary departure schemes — often employing a combination of these methods. Some firms have acted more decisively than others. For example, while McKinsey’s attrition sharply declined, BCG's attrition rates aligned with their 12-year average in the previous year, though this was achieved through a shift towards involuntary exits.
The drop in voluntary exits poses a challenge to the traditional “up or out” model of professional services firms, where fewer "outs" result in fewer "ups." Data from Live Data Technologies, which monitors job titles of white-collar workers, showed fewer promotions at consulting and accounting firms in 2023 compared to the previous year. At Bain and BCG, promotions returned to pre-pandemic levels, and McKinsey’s were at their lowest in over a decade. Namaan Mian, COO of Management Consulted, noted that performance reviews are becoming stricter, with more work being allocated to top performers, leaving lower and mid-tier employees with less visibility and fewer learning opportunities.
Despite the challenges, surveys suggest modest growth for the consulting sector this year. While not a full return to the boom years of 2020-2022, firms are entering the last quarter of 2024 with more confidence in meeting revenue targets, having recognized those years were exceptional rather than the norm. Most are projected that hiring, firing, and promotions might not stabilize until 2025. “We can see the light at the end of the tunnel,” Mian said, “but we’re not out of the tunnel yet.”