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Why the soft landing is bad for consulting and the Big 4 +

Updated: Jan 9

Big 4 layoffs new hire delay  KPMG, EY, Deloitte, PwC, Bain, McKinsey, BCG

Consulting firms are laying off people. [i] In the most recent round, several firms delayed their most recent college hiring class for 6-12 months. Some firms are paying retention bonuses. All these formerly starry-eyed new hires are scrambling, trying to figure out how to spend their unplanned gap year. The firms likely suspect that many will attrite and go on to something else. Which is likely part of the firms' game plan. The "you're not fired, only delayed" narrative is a great way to save some face and keep some candidates in the pipeline in case business turns. It seems like a brilliant strategy, given the lower client demand situation.

This article explores:

  1. Why the current “goldilocks” economic environment is uncomfortably between the boom and bust cycle of recent decades,

  2. Why this “goldilocks” environment is at the locus of trouble for the consulting business model, and

  3. Resources to help you get a good job, in case the delayed start employer does not work out.


About the author: Jeff Hulett is a behavioral economist and a decision scientist. He is an executive with the Definitive Companies. Jeff teaches personal finance and the decision sciences at James Madison University. Jeff is an author and his latest book is Making Choices, Making Money: Your Guide to Making Confident Financial Decisions. His experience includes senior leadership roles in banking and bank risk consulting. Jeff holds advanced degrees in finance, mathematics, and economics. Jeff and his family live in the Washington D.C. area

I am a former consulting firm Managing Director. Removing or reducing an entire college new hire class is a remarkable signal. In general, early-in-their-career associates provide high financial leverage to the firms. This means these associates do not cost the firms as much as more senior staff AND the margin between their salary and the clients' bill rates is higher than most. Thus, this signal suggests, "Hey, we have so little business, that we are willing to cut our cash cows."

My 10 years at KPMG provided a good understanding of how these firms make money. At a high level, the "happy path" economic model is straightforward:

  • Clients have resource needs to solve challenges, but they either a) do not have a compelling enough business case to keep the talent on staff full-time, or b) have a 'here and now' challenge that would take too long to ramp up internally.

  • The Big 4 + include Deloitte, KPMG, EY, PwC + McKinsey, Bain, BCG, IBM, and other big consulting firms. They hire really smart people, often straight out of college, to provide those services.

  • These big firms also have big leadership and infrastructure overhead. Compared to smaller, leaner firms, they need reasonably high bill rates to support their fixed infrastructure.

  • The client trade is straightforward. The Big 4 + hires, trains, and keeps the smart staff on payroll so they can be deployed quickly across many clients. In return, the clients pay the Big 4 + a premium above the rate of pay at which the clients could hire themselves.

  • The clients agree to short-term contracts as a means to solve their challenges. When the project is concluded, the clients "turn in" the really smart staff so they do not have to pay them anymore.

  • Rinse, repeat. The Big 4 + deploys them to the next client.

Essential to make the client trade work: This trade requires a dynamic economic environment that swings to either side of the revenue-generating economic cycle. The growth mode side OR the risk mode side creates revenue.... but in-between has proven to be a much lower revenue desert. As an added challenge, the Big 4 +'s higher fixed costs create negative leverage for the firms in a revenue downdraft. When times get tough, negative fixed cost leverage magnifies revenue shortfalls and leads to aggressive expense cutting.

In recent decades, the Big 4+ has expanded as the economy has whipsawed between boom and bust. Whether risk or growth, the firms are able to adapt to provide for whatever "flavor of the month" challenge needs to be solved.

Consulting example: My example is from the 2007-2008 financial crisis. The banking industry is my 'homeroom' industry. During the financial crisis, banking was in a massive pickle. The industry needed experts to help solve the same problem across most of its members - these are client challenges such as:

"How do I resolve millions of customers' mortgage delinquency, that scaled from almost no delinquency yesterday!"

-- OR --

"How do I respond to much higher compliance expectations in a way that our customers find useful, meets the regulator's expectations, and does not kill my product profitability?"

In 2009, I stepped out of the banking industry to lead mortgage and consumer lending risk practices at KPMG. We helped many banks solve these and many, many other challenges.

That was then. But what happens if there is no boom or bust?! What happens if the Fed actually does figure out how to manage a soft landing? In 2023 and 2024, the soft landing policies have been slowly landing the economy. These soft landing policies were implemented after a big bout of inflation held over by expansive pandemic policy.

Professional services consulting demand and revenue expand or layoff people

The experience thus far suggests the firms do well at the edges of the boom-bust cycle, but particularly poorly in the sustained 'middle of the road' economic environments. To summarize:

When times are good - businesses need strategy consultants to grow - growth requires implementing new products, improving infrastructure, facilitating change management, and exploring new solution strategies.


When times are bad - businesses need risk consultants to manage the bezzle [ii] - the bezzle causes lawsuits, regulatory actions, etc and consultants are needed to handle the inevitable embedded risks from the sins of the past.


In the middle ground - when the economy is in a goldilocks-like middle ground, between good and bad… businesses are not spending consulting money on growth OR risk. This is a challenge for consulting firms.

Internal to the consulting firm, their current reality resembles the children's game "Musical Chairs." For more than a decade, client and project chairs have been added to the consulting firms' client chair circle. Now, client chairs are quickly being removed. As such, in today's consulting chair circle, there are more consulting butts than there are seats! Those that cannot find a chair are faced with a layoff.

'Chairless in consulting'

Fewer client chairs mean fewer consultants

Consulting layoffs are like musical chairs

Returning to the Big 4 + operational challenge and managing through this Goldilocks environment. The firms are at a crossroads based on whether the firms believe the Goldilocks scenario is temporary or permanent.

Temporary Scenario:

If the firm believes this is a temporary situation, where either the Growth or Risk environment will return, they will want to keep consulting capacity at the ready. From a practical standpoint, it takes anywhere from 6 - 18 months to fully train a college-hire associate. Also, the firms experience volatility in their attrition. Because of the long hours and dynamic work environment, consulting firm employees tend to attrite at higher rates, but not always predictable rates. Given, the current approach to delay but not terminate the new hire class, it would seem many firms believe the Goldilocks environment is temporary. Thus, the recruiting class is a function of future client demand, current staffing, and future staff attrition. This is very tough to manage!

Permanent Scenario:

What if the firm believes this Goldilocks environment is a permanent situation, like before the financial crisis, where either the Growth or Risk environment is not expected to return any time soon? They will then want to reduce the overall staffing level to the anticipated "new normal" client demand. This will cause a significant reduction in college recruiting. The number of consulting positions on Handshake or other college recruiting platforms will drop significantly.

From a scenario planning standpoint, the future is uncertain. However, the firms would be better off assuming the Temporary Scenario first, while building the capability to implement the Permanent Scenario in the event that scenario reveals itself.

In the aggregate, it is not a good time to be in consulting, especially if the firm has relatively high fixed costs. Not to say there is not some good consulting business out there, just not enough compared to the available consultant capacity.

If your start has been delayed, do yourself a favor and aggressively pursue other alternatives. Assume the delayed start will become permanent and you need to move on. The challenge for you involves the typical recruiting channels and the degree to which you fit those channels. That is, most companies have 2 distinct hiring channels:

  1. College hire - for those in college and looking for their first job out of college.

  2. Experienced hire - for those who have experience and are looking to make a change.

Unfortunately for the delayed start class, you fall into no man's land. This means you are not eligible for the traditional college hire path, since you already graduated AND you do not have the experience to be attractive for the experienced hire path.

You may be able to go back to your college and participate in interviews, even though you have already graduated. Some progressive colleges allow young alumni to engage in recruiting services after they graduate.

But, as history and experience teach, as soon as the balance swings to Growth or RIsk, the consulting firms will be ready to back up the bus yet again, with a fresh batch of smart staff!


For more information on job decision-making, please see the articles:

Definitive Choice is an app decision solution to help you make many life and personal finance decisions, including job decisions.

It provides a straightforward user experience. The number-crunching occurs in the background by time-tested decision science algorithms. It uses a proprietary "Decision 6(tm)" approach that organizes the preference criteria (what is important to you?) and alternatives (what are the choices?) in a series of bite-size ranking decisions. Since it is on your smartphone, you can use it while you are curating data to support the decision. It is like having a decision expert in your pocket. The results dashboard provides a rank-ordered list of recommended "best choices," tailored to your preferences.

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The Definitive platform may be used by either the employer or the recruit.

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[i] Ellis, New Hires Get Trapped in an Unplanned Gap Year, The Wall Street Journal, 2023

[ii] "The bezzle" is a pithy shortened word choice from the word "embezzlement." It was coined by the late economist John Kenneth Galbraith.

Hulett, Minding the bezzle in the uncertain pandemic world, The Curiosity Vine, 2021

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