House of Cards — Disruption for Consulting 4.0

Phani Marupaka
Jan 10, 2018 · 17 min read
To disrupt, we need to be willing to make obsolete the way we do business. Otherwise, others will do it for us.

Disclaimer: Everyone need not agree with this article. This is a continuation to my previous article — Game of Thrones -’Future of Consulting Firms’

From a famous article: “Management consulting’s fundamental business model has not changed in more than 100 years. It is true that the “send smart people in, recommend solutions” model has mostly been constant.The Big3, Big4 & other Consulting giants need to approach the current challenge from a different angle — ‘Understanding the customer’s Technology usage & Innovation’ and promote a culture of self-sustainability in order to survive in the constantly changing business world.

Customer Centric Business’ — give the customer what they’d need & when they’d need & let them decide the value of it as well- focus on customer feedback & to ease the customer problems. It’s not what businesses wants to have; it is what customer wants to have.

Consulting companies who are disrupting the industry are scoping engagements such as the synthesis of business objectives, user needs, design, and technology — a marriage of the rapid, creative innovation seen in Silicon Valley startups with the rigorous analytical and strategic frameworks of traditional consulting. They help companies develop personas, lead with user motivations and needs, create customer journeys, and find ways to optimize and simplify their journeys with digital technology.

As explained in an excellent HBR article by Clayton Christensen, two foundations of traditional consulting — and especially the strategy model exemplified by #McKinsey, #Bain, and #BCG — have steadily eroded: opacity and agility. The opacity of yesteryear — represented by a team of high-cognitive overachievers developing frameworks and performing analysis behind closed doors — contributed to the mystery, and hence the prestige, of consulting brands. Likewise, consultants’ ability to generate output very quickly was impressive, particularly in contrast to what client teams could accomplish.

Disruption theory

Clay Christensen’s theories on disruption outline how disruption occurs within an industry. Link

“The pattern of industry disruption is familiar: New competitors with new business models arrive; incumbents choose to ignore the new players or to flee to higher-margin activities; a disrupter whose product was once barely good enough achieves a level of quality acceptable to the broad middle of the market, undermining the position of longtime leaders and often causing the “flip” to a new basis of competition.”

Types of disruption

Disruption as described by Clay Christensen can occur one of two ways:

  • a) New Market (an unserved group of consumers)
  • b) Low End (lower cost, easily accessible, easy idea-implementation firms etc)

I would go a step ahead and say-

  • c) Adoption to Technology (Future technology providers, Tech advanced co.s, Digital Transformation)
  • d) Competition (Inside the Consulting firm & with other easily adaptable firms)
  • e) New Services* (*will not be writing on this in here — since I’m yet to accumulate points with examples)

New market disruption

Consulting services are already available across all current customer segments (industry, geography, company size, etc). There are a lot of places that market penetration is very, very low. And these are places that, coincidentally, are going to be growing most.

But if we skew the definition to mean the smaller industries — the one’s which are the future big one’s — then startups are to be considered.

Low end disruption

It is much more likely that a disruptive innovation in the consulting industry will be a low end disruption. However, this type of disruption would only affect MBB if they themselves did not/could not adopt the new technology.

Low end disruption will first unseat the incumbent consultants at the low end of the value chain. The primary problem that most low-end solutions face is that they are unable to adequately fulfill the decision-making jobs of consulting listed above. Online services like oDesk and eLancer are disruptive at the low end.

Consulting firms are integrating this less expensive workforce into their businesses already. Consultants at MBB routinely send slides or data with instructions for analysis to employed workers abroad. Another problem is there may exist a work process that is so much better than the current firms’ architecture that it could topple the incumbent firms.

It is not true that consultants are only valuable when a company is doing poorly (or well); value can be added almost all the time. (Secret: the question isn’t whether someone adds value; it’s the opportunity cost of the alternatives that determines their true net-new value added. Hard to calculate, unfortunately).

How Technology is making a difference?

This disruption type is already happening to some extent with all types of services that make it more simple for CEOs and executives to understand their businesses. The current duties of the “analyst” may become redundant, due to more of Automation — so this disruption is within & outside the industry. Consider the power of data discovering data in real time, creating solutions to problems you hadn’t foreseen by asking questions you would have never asked. I think this will also benefit emerging / innovative new entrants, who propose this hybrid approach

Big Data is going to be huge but mainly having data is not going to be sufficient. There are a million ways in which you can interpret the data. The general approach that consulting firms use is :

  1. To identify key trends to solve the problem of the client.
  2. Making a business case ( propose a solution ) using point 1.

For a firm to disrupt the MBB dominance, it probably cannot outperform them in 2 on a large scale but possible for niche consulting firms specializing in specific industries. The best they can do is be at par with them, which in itself would be a huge challenge and so highly unlikely.

McKinsey & #PwC have established what is called as ‘Digital Labs’ to foster new innovations — but it’s still in it’s primitive stages compared to the innovation taking place at their customer’s end. Accenture opening its digital innovation hub in Chicago in October, 2016. Other launched hubs include the Liquid studio in Milan and the Accenture Delivery Center. Deloitte’s Blockchain Lab is another example of an innovation hub.

CIO’s & CTO’s roles will become interlinked — you’d need a Chief Officer who has his hands dirty with Data analytics & as well as the power to run the Tech department for implementation.

Competition:

When I mean competition it’s not only within the firms and between the big firms, but rather with the other giants which can enter into this market & completely establish themselves. In regions like Poland, PwC & EY are the biggest ‘consulting firms’.

  1. Most boutiques, founded in the heydays of the consulting of the 1980s / 1990s, managed so far to keep a similar talent pool to MBBs. Some will use their small size at their advantage to move as fast as MBBs, if not faster, and thrive. I would also include tier-2 firms who haven’t started to transform yet: for instance, compare #RolandBerger, who has embraced change, vs. A.T. Kearney who has not yet developed a robust digital offer.
  2. Firms which can attract a diverse set of skillset- Firms need to attract top talents outside the traditional MBA pool to tackle different problems. Big 4 already are struggling to source from the same “general business” talent pool: How hard do you think it will be for them to acquire top designer / developers / data scientists? MBBs already can’t target the really top talents, but just like investment banks, they have enough of a cachet, prestige and are used to highly paying their employees to source a “strong enough” talent pool.
  3. Rise of Database companies — providing ample data sets on industry, market competitors, regions of disruption, cost, funding, market analysis, market projections and etc — Majority of the companies today consume this information before making their analysis — Companies like #Gartner, #Bloomberg, #CBInsights, #Tracxn, #Pitchbook, IMS Health, #Forrester are giving away information as part of their business model for the customers to adopt to & make business decisions. Consulting firms are then left with solving the structural problems of a firm, which again is being tackled by founders who are ex-consultants themselves.
  4. Freelance Consultants: ‘New model’ consultancy, where people were engaged as contractors from a specialized database, and the firm’s value-add was in assembling such teams as needed. But the business of recruiting is changing. Consulting careers are known for long hours and endless travel. Top graduates these days think very differently about work-life balance, so they may not find consulting worth the tradeoffs, especially when their skills are in demand at growing tech companies with lavish perks. And for those who are committed to consulting as a career, going freelance — once a path reserved for consultants with many years of experience and contacts — is becoming more of an option. Some such consultant marketplaces just launched within the last year include SkillQuo, Pakar.io, 2PS and expertDB.
  5. Another example is the Big4, which have moved into a diverse array of professional services; like IBM and Accenture, these firms aspire to be “total service providers.” According to a 2012 Economist article, #Deloitte’s consulting business is growing far faster than its core accounting business and, if the pace continues, will be larger by 2017. The other firms in the Big4 divested their consulting services almost a decade ago, but are now catching up and starting to stake a claim in the higher-margin management consulting business. Whether they’ll attempt to create a disruptive business model or just copy the incumbents’ business model remains to be seen.

Six Themes of Consulting in 2020 as per Forrester’s research

1. Traditional high revenue, technical work will shrink and change

2. Asset based consulting will change revenue and delivery models

3. Projects will be smaller, global, more virtual and will use centers

4. Pure strategy projects with static deliverables will shrink rapidly

5. Organizational change management will become a science; enhanced by data and software

6. Contracts will shift incrementally to gain sharing, licenses and retainers

The way ahead?

I think we are entering an era where companies are looking for new grounds of competition which can

  • Integrate Design Thinking & Business Thinking
  • Create unique but relevant solutions that serve real people’s needs and
  • Drive real business growth, not just financial growth.

This requires new, capabilities and a better balance between them.

It sounds nice in one sentence but culturally and methodologically it is actually very hard to balance those 3 capabilities and not have one be dominant. So they need to learn to respect each other even before they can start to try to understand each-other’s viewpoint and radically different thinking process (right-brain vs left-brain).

I. Consumer knowledge has increased: This can be folded again into 2 ways -

  1. The knowledge of consumers on best practices / lean practices has increased — due to the factor that many of the founders / core-team of companies comprises of ex-consultants.
  2. Since the world is moving into the rise of ‘innovative’ industries — meaning, consumers current problems are different than what was before & hence they have an edge over the understanding of technology better — than a Consulting firm.

The old way of doing consulting — impressing clients with basic logical thinking, neat slides, excel models and benchmarks — is dying very fast.

Now, most clients have much more complex problems.

II. New skillset requirement. Only MBA’s won’t do anymore:

Multiple industry experienced people & specialists in specific tech / operational domains (software engineers, data science talents, people like me ..etc) should be the way ahead. Another attribute of companies disrupting consulting is a cross-industry “innovation best practices” approach. In traditional consulting, an industry-specific approach or subject matter expertise was applied to each engagement. However, new advances in technology and user experience design have made it clear that certain effective models can be replicated, regardless of industry, to drive meaningful user experiences and positive business outcomes. The result is that disruptive consultant companies are no longer just an expert in any one field or industry, but they are constantly attuned to successful business models and user experiences and technology implementations across industries, ready to re-apply them for clients in unexpected ways. John DuBois, #Dell’s managing director of digital business consulting, stated that instead of a pyramid project structure, they’ll use a diamond structure, consisting of a senior leader, seasoned subject matter experts, and a small base of junior people.

III. Suggestions for new products or catering to Innovation:

There are a lot of changes in technology, supply chain, work style in every industry, and hence Consulting firms can no more stick to their ‘black box’ of ‘grand strategy’. The customer knows that he can no more move in the traditional zone. There’s a need to start with the product, iterate fast, be ready to pivot, make mistakes & scale the product faster. Especially when taking Consultants advice — the customer isn’t looking for ways to change slow — the idea needs to be quick, effective, efficient & scalable. Doing small but valuable analysis and getting buy in is more important. All the big data stuff would be useless if you don’t get it syndicated with people who matter. Keep it simple. The data crunching is a second order problem. e.g. For an organization where the sales and product teams aren’t in sync, deriving insights on what price point to sell for each product in each geography is less valuable. Solving the softer issue around the product-sales team sync is more important.

Fortune 500 companies are different from Startups. Acknowledging that long standing companies will have legacy systems, potentially complex operational workflows, and large teams with distributed subject matter expertise — disruptive consulting companies pair user-centric front-end innovation with backend expertise and the ability to simplify workflows and synthesize data structures and systems.

IV. Bringing the Idea on paper to implementation:

Consultants focus shouldn’t stop after giving the idea, but needs to help the customer implement it — the help for the customer to achieve the next batch of customers. Implementation is the key. This is where the major work of Consulting firms today is not seeing the light of the day. Customer derails himself & doesnt act on the advice of the Consulting firms

V. Charging as per performance:

This is again a continuation to the above point of giving a tangible output to the customer & charging them based on their implementation & maybe on the profit accrued on the said strategy. e.g. If you perform 6 out of the 10 recommendations given, you pay me $xx.

VI. Encouraging people to leave:

A big part of the way consulting works is because their alumni are all over. Encourage people to leave and get into top management positions at potential clients. This will mean you create opportunities for your employees to leave!

VII. Ease the processes -

Processes are meant to capture Innovation and essence of customer’s business. The interactive agility of agile design and development, and make it easily understandable for the large firms distributed subject matter expertise. Eg: rapid prototyping, digital co-creation, and even overnight hackathons. These methods enable traditional companies to imagine, test, evolve and socialize concepts — allowing them to move rapidly from ideas on a whiteboard, to funding, design, development, and going live in the market.

VIII. Staying relevant with Technology — current scenario:

  • Since the last few years there has been a rise of Consulting firms catering to Digital Transformation by building a Digital Factory, a Corporate Venture unit, developing a re-skilling plan. For my knowledge — McKinsey, BCG & PwC have their own Digital Labs across the world — they talk to clients specifically with Digital Transformation as a theme. Whereas you dont have to search for these in IBM / Accenture — they are already Tech advanced firms.
  • MBBs have also developed their own structures to complement their traditional consulting offer: For instance the Gamma Lab for Data Science at BCG, BCG Ventures which are staffed with more designers than consultants

IX. Investing into Future Tech by looking at Startups:

No, I’m not again referring to giving consulting advice to startups — but the consulting firms are now having special units which are investing into Startups & the ecosystem. Eg: Deloitte Digital Ventures. This is to stay relevant with future innovation & integrating the startup services to their own.

X. Finding the next set of employees:

Consulting firms need to set up workshops / invest into education sector — to foster & find the next generation of workforce which is smart, adaptable & can contribute from very early on to this industry. established firms like PricewaterhouseCoopers are becoming involved in the freelance consulting space. With the launch of PwC Talent Exchange in 2016, the company has forayed into the gig economy. This platform allows freelance experts to post their resumes in order to be considered for projects with PwC clients.

XI. Leaner Workforce:

The future organizations might as well see a decrease in permanent employees & going for a more of temporary staff based on the project creating a much leaner and more nimble workforce. This idea is likely to encounter two objections. The first is that quality would be undermined because of the allegedly unpredictable nature of contract staff. The second is that it could threaten the apprentice model on which employee development depends. Each of these concerns is eminently manageable. Core capabilities for a consulting firm are partner-level client relationships (the key source of sales) and an irreducible number of junior staff that can be determined based on expected turnover. With regard to quality, there is no reason why an Uber-like model of transparent reviews couldn’t solve the issue. And given the sheer number of independent consultants who are alumni of marquee firms, there is a deep global bench of pre-vetted candidates to draw from.

XII. More Horizontal than Vertical:

The consulting firm of the future could embrace a network model that preserves only a few core capabilities and has limited vertical integration. Such a networked structure could consist of independent units that connect outward rather than upward — bringing together delivery partners and relying much more heavily on external resources for execution. This would dramatically enhance the responsiveness of the organization, and significantly reduce the friction that follows traditional operating model re-design.

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Consolidation / M&A

As I explained in my previous article — Consolidation / M&A may happen in the industry to stay relevant to the customer needs & to meet ends.

What is #IBM / #Accenture doing differently?

The big disruptor will probably be another consulting firm with excellent data resources, and I’d put my money on IBM Consulting — may wind up being a dominant player owing to their data expertise (a hypothetical I do not intend to debate the validity of) + IBM Watson + Numerous other initiatives in AI, Machine Learning & Big Data Analytics space. IBM & Accenture are also famous for their data driven approach. If you want to know the companies that are winning right now look at firms that put serious thought into data collection and analysis: IBM, Target, Google, Goldman Sachs, Apple. These are firms that are hiring statisticians, economists and physicists but not consulting firms.

Consulting firms stick to fast analysis in excel or SQL. Nothing too complicated, rarely are statistics or complex modeling used. This is mainly because they are hiring people without that exposure but also because their clients generally have simpler problems (being able to rank stores by performance is about half of my job). But as Big Data-friendly companies thrive and the rest get eaten alive, the next generation of consultants will need to bring value to savvy clients. This may not require PhD-levels of thought, but knowing the best ways to segment customers and evaluate product responses will go from high-margin nice-to-haves to commodity-level table-stakes.

Frankly, this value isn’t being developed at most (though some have small, in-house teams thinking about it). IBM & Accenture Consulting not only has it, but they have an incredible pool of talent to pull from on their tech side. They’re already asked to solve analytics and performance questions, so it’s a no-brainer they’ll take their analysis and provide new business insight.

Startups & the new age firms:

Startups or the firms primary goal is to acquire customers for their business — design a process which can help to ease that. Process which can help them give direction to their 100th customer or 1000th customer & steps for a recurring performance. This is much difficult in implementing than thought — since the consultants in actual need to be thinking, breathing & living like an entrepreneur — The consulting firms thus should become an Entrepreneur brewing ground.

The structure of these consulting engagements is evolving to match the accelerated innovation of startups as well. Companies disrupting consulting are eschewing standard long-form engagements with smaller agile ones. These engagements are focused on results and iteratively achieving incremental success that culminates in products, programs, and strategies that will have a major impact on the client’s business.

BCG Digital Ventures & McKinsey’s ‘sabbatical’ options to the Consultant — draws in some work around the startups — but it isn’t a big market for the giants, since the affordability of services is very low in the industry. There are firms doing a lot of kinds of work today that they didn’t yesterday. That’s both the ‘top’ moving down and the ‘bottom’ moving up. The idea is a space where companies that don’t need seven-figure consulting engagements can find experts to help them with small and medium-size problems.

The opportunity of freelancing and project-based work is estimated to touch at a whopping $600bn -$1 trillion by 2020. Professionals who would never before have planned to become consultants, have begun the move to become independent. 34% of the US workforce is freelancing and this is set to cross 50% over the next decade. The global online work industry — which is a sub-set of the freelance economy –is expected to grow to 5b by 2018 giving it a CAGR of over 25%.

Concluding:

Though disruption in consulting is just in the making, but the indicators and manifestations of disruption are loud. Having been immune to disruption for many decades, the consulting industry is currently undergoing some significant changes. Today’s on-demand economy is pushing consulting to transform into new and robust ways. It wouldn’t be long before we see new strategies and practices taking shape, increased importance of information technology services. Until then, we will continue to witness the market of independent consultants flourish hand in hand with the on-demand economy. Consulting firms that embrace these trends while preserving the unique attributes of their brand stand to gain the most.

Reinvention is about cannibalizing our conventions. To disrupt, we need to be willing to make obsolete the way we do business. Otherwise, others will do it for us.

References:

Some more good answers are here : Link , Link2

Images: Google stock images. Sorry dont mean to plagiarize your proprietory design, if there is any.

1. ‘The future of Consulting in 2020’ by Marc Cecere — a Forrester research.

2. ‘Consulting on the cusp of disruption’ 2013 by Clayton M. Christensen , Dina Wang, Derek Van Bever

My last article was called — Game of Thrones -’Future of Consulting Firms’ , I think I can call this the ‘House of Cards — Disruption for Consulting 4.0’ — since the disruptions are just about a draw of cards, on which would show an affect.

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Phani Marupaka

Written by

Product Marketing- Technology Writer - Business Development Professional - LinkedIn -http://bit.ly/2DpT2js

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