Increased Efficiency by Push of a Button: How Complex AI is Disrupting Strategy Consultancy Sector
In memory of Clayton M. Christensen, who took one big idea about the power of innovation to disrupt and change all of our lives. May he rest in peace.
Introduction:
It is irrefutable that AI would transform the consultancy sector, promising to provide clients with better, more reliable insights while at the same time reducing costs. Nevertheless, this is only the starting point as the next milestone for AI is to automate complex decisions or at least provide assistance in decision-making processes in order to achieve optimal value and add competitive advantage.
The Market:
Since the term “disruptive innovation” first introduced by former BCG consultant Clayton Christensen in 1995, disruptive innovations have been challenging incumbents in every field, from doctors to drivers. According to an MIT review, AI currently and for the foreseeable future is one the most critical market-disrupting powers. However, many still need to consider how profoundly AI can impact even highly skilled knowledge-based industries. As this revolutionary technology develops, more businesses are gradually contemplating incorporating AI or automation into their day-to-day processes. The management consultancy sector is no exception, A $300 billion industry packed with many of the world’s smartest minds. Consultancies continue to see themselves as a privileged, untouchable elite of the business world. Nonetheless, it is susceptible to the same market forces that disrupting every industry and among a variety of other aspects, AI is already revolutionising the way consultants collect and interpret data.
There are many different definitions of Artificial Intelligence (AI), and firms use them by their needs to impose that they are AI-enabled. However, for this article we will refer to the Oxford dictionary which defines AI as; the development and theory of computer systems able to undertake tasks regularly in needs of human intelligence, such as pattern recognition, visual perception, and decision-making.
A report published by McKinsey Global Institute forecasts that by 2030, 5% of current worldwide employment will be completely automated, and approximately half of the activities within jobs globally theoretically can be automated using technologies available such as artificial intelligence. As demonstrated by The Office of National Statistics (ONS), consultants and business analysts had a medium degree of automation risk. With 27.09%, being a consultant is more automation-friendly than architecture technologists, opticians and librarians, and is among the twenty roles most vulnerable affected by disruptions in the data category.
The big three of management and strategy consulting, McKinsey BCG, and Bain continue to grow. Amid all of this, there are still several hundred billion dollars in revenue in this sector. It does not precisely indicate that the major strategy consultancies will collapse. Nevertheless, with critical eye vulnerabilities are examinable and visible on every part of the value chain. The share of classical strategy in the mainstream strategy consulting firms now stands at 20%, down from almost 70% around thirty years ago.
The strategy is complex, and strategy consultants are costly. However, they are generally informed by data and influenced by previous experiences. They meet all the qualifications to be disrupted as explained in Innovator’s Solution; most vulnerable to disruption are organisations that have one or several leading players, have low adoption of technology and have an outdated operation revenue model. Majority of consultancies follow the same pattern: data collection, analysis, insight and recommendations, AI is capable of augmenting or in many cases replacing human consultants for the activities mentioned above.
The Issue:
According to analyses by McKinsey demonstrated below, AI technology could contribute to the performance gap between front-runner, scrambler and rejectors. The average shift per organisation may be as high as 122% for early adoption, as opposed to just 10% for followers or -23% within non-adopters. We are always in the early days of disruption in consultancy. However, when consultants turn a blind eye to exceptionalism, assuming that AI and new business models will not threaten to disrupt their industry, they will then be in for an unexpected awakening which could be too late for them.
The Opportunity:
AI algorithms will utilise the vast number of progressively interrelated data available to automate and simplify processes for the creation of insight and strategy. Capture and connect the business environment as digital data will allow AI to generate organisational strategies from statistical learning. The credibility aspect of high-end consultancy services can be compromised as if AI-generated strategy forecasts and advice have shown to be effective, which may result in a threat to revenues obtained from the core of the traditional consulting. However, replacing strategy consultancy with AI decision-making systems is undoubtedly a formidable challenge. AI can be used to improve efficiency in order to mitigate the reduction in billing hours due to automation, though it will lead to an increase in clients. According to BCG, strategy consultancy projects with static outcomes will rapidly diminish, which will give rise to scientifically-backed AI-driven strategies enhanced by data.
The Disruption:
According to the Economist, the technology leaders with their data supremacy and capital abundance will increasingly compete with strategy consultancies, which charge high fees for assisting clients in navigating technological disruption while themselves being disrupted. “The Googles, Microsofts and Amazons of the world may take over from the McKinseys, BCGs and Bains.” says the head of Bloomberg Beta, Roy Bahat. “Consultancies are designed for two-by-two matrices. AI’s models are a million by a million.” As an example, it is even more apparent as Google has initiated Advanced Solutions Lab, that is partially a consulting service utilising their AI solutions. The above proves the expansion of disruption in the consulting sector. As Christensen said, “Disruption is not an event, it is a process”. Consultancies with extensive data and technology expertise are better equipped in this battle than those that concentrate on the general strategy. However, it is possible to mitigate the imminent risk of disruption through self-disruption, M&A (mergers and acquisitions) and partnerships, which are elaborated below.
The Solutions:
To self-disrupt, consulting firms can strengthen their human element in their AI efforts, organically by recruitment of incredibly sought-after data scientists, such as BCG Gamma, a 300 technical team committed to data science and AI. It is intended for in-house use within Boston Consulting Group with advance big data modelling experts and collaborates directly with clients as an independent team to decide precisely what technologies to use to concentrate on and help clients build AI capability. Alternatively, consultancies can take the M&A (mergers and acquisitions) route if they wish to be successful. A prime example of this can be the acquisition of UK based AI firm QuantumBlack in 2015 by the giant consulting firm McKinsey. They have described the firm as pioneering the use of big data and AI to improve organisational performance for giving McKinsey clients new technologies, tools and capabilities.
Partnerships are another way for consultancies to grow and reinvent themselves. In November 2019, as a guest speaker at World AI and RPA (Robotic Process Automation) Conference in London, I was invited to give a talk on the topic of “How complex AI is bringing disruption in business decisions and processes”. I was overwhelmed to see the amount of interest on the subject from the audience. It prompted me to speak to many of them, including a senior automation consultant at EY who has built the internal capability of the consultancy firm for process automation by partnering with a UK based automation specialist firm BluePrism. This is because, in order to leverage AI as quickly as possible, companies cannot implement a process of trial and error learning. No consultancy company can instantaneously develop internal AI expertise. Therefore, partnerships are required to teach and increase the knowledge of the workforce. Thus, working with a well-situated organisation to support the implementation of AI at scale can make a substantial difference in the final success metrics.
The Future:
As more and more data are collected, AI will locate needles within haystacks. It would take weeks or months for professionals to examine these tasks before value points could be identified and advised. Now, after less than minutes or even seconds of analysis AI technology can point to such areas at the push of a button. Nevertheless, this is only the analysis part. The critical part would be for AI to make sense of these data based on its objectives in order to produce the ideal decision or options of best decisions for the decision-maker. In the following model, it has been depicted how AI can be deployed in the components of strategy consulting from input to outcome.
In strategy consulting, AI can select the right strategies for clients within millions of different scenarios. However, the human consultant remains the final decision-maker. There are several reasons, as AI cannot be sued or held responsible for the unpredictable consequences of a decision. They are unable to enter into or retain contracts automatically without human intervention. Moreover, most importantly, as stated in the Million Dollar Consulting book by Alan Weiss, “trust” is the ultimate currency between consultants and their clients, which has been built by a human to human relationship and interaction. Therefore, for the foreseeable future, AI would empower consultants to achieve more and work alongside them to add value to their clients. The classical consultant can thus become a cyborg consultant and remain indispensable for the time being. However, people are increasingly becoming confident to be consulted by AI on all aspects from what film to watch to where to invest, and corporate strategy is next. Moreover, potentially, over the next ten years, AI technological advancement would pave the path for full automation of strategy consulting, as Bill Gates said. “The changes in the next two years are always overestimated, and the changes that will occur in the next ten years are always underestimated.”
Conclusion:
I have interviewed Ranjit Sodhi, who has prior expertise deploying AI in his previous role within the Microsoft Institute for Advanced Technology in Governments. He also was a Transformation Consultant at Deloitte. He has Co-founded 9Q.ai a UK based AI startup that optimises multi-objective decision-making in real-time for various industries, including the consultancy sector. He states that “by combining benchmark data with ERP (Enterprise Resource Planning software) data within the 9Q AI optimisation framework, it is possible to produce robust commercial strategies for various businesses quickly and effectively. The validity of the outcome clearly depends on the quality and breadth of data sourced but acts as a robust starting point for strategy development where AI is augmenting human consultants, in the near future however by combining much broader data sets this would be entirely AI-driven to achieve even more effective commercial outcomes”.
The consulting sector, which has been shielded from disruption for many decades, is currently undergoing some substantial changes. It would not be long before we witness the emergence of new practices and strategies. In the meantime, the AI-driven consultancies will continue to thrive in conjunction with technological advancements. Consulting companies that take AI transformation into account while maintaining their brand’s unique characteristics will be most benefited in the coming years. To conclude this article is a piece of advice that can be taken into account by other firms, including strategy consultancies from Mark Zuckerberg; “If we wish to survive, we need to be prepared. We need to make the way we do business obsolete. Otherwise, someone else will do it for us”.
