The world of consulting has been transformed by digital technology. Much like the organizations they counsel, consulting firms have had to transform themselves and their employees to provide the fast, profitable, and quality innovation clients demand.
Over the past few years, consultants have watched a marketplace shift take place as traditional management consulting has become a smaller share of revenue. Previously, consulting firms could be categorized by traditional workstreams, such as operations and implementation for firms such as IBM and Accenture and management strategy for firms such as Bain or BCG. These lines have increasingly blurred. As more clients contract for digital technology services, management consulting firms have pivoted to include technology focused work alongside traditional strategic engagements. What did it mean for the industry? Operations firms strengthened their strategy groups, and the management consultancies had to build digital practices.
When the digital shift occurred, the way consulting firms viewed themselves and the knowledge consultancies provided also changed to become increasingly data and experience focused. Where in traditional management consulting advanced knowledge of industries was king, now the ability to leverage insights to redefine experiences and reinvent business models using data, digital and cloud technologies reign. The firms that can best provide data and technological capabilities can best provide value to clients.
Digitization opened the floodgates in terms of potential work for consulting firms– clients need help transforming to embrace a digital future, understanding new technologies, and implementing new products to engage their customers. The amount of time, energy, and effort required to modernize legacy technology is massive. We’ve seen consulting firms jump on the technological train- from hiring fewer MBAs and more developers, to building out their own digital practices, like McKinsey Solutions. But this is only one piece of the digital puzzle.
Client expectations have also changed. Consulting firms are on the hook to provide value clients can’t get in-house; consultants must provide knowledge and data that cannot be found using Google! Clients expect rapid innovation, agile cycles, and they have higher measures of success than ever before, and consulting firms have noticed. The work has fundamentally changed — clients need skilled consultants to build applications, implement technologies like salesforce and more, develop new products, manage data centers and analyze data, and provide advanced insights with actionable outcomes. And, the traditional strategy share of work has been steadily decreasing: 20%, down from 60% to 70% 30 years ago. What it’s come down to is this: Clients don’t need pure strategy — they need strategic technology.
James McMillan, an Associate Partner at IBM, comments, “Our clients are seeking a partner that embodies the characteristic of the Digital Enterprise that they seek to become. This is a firm that has undergone its own digital transformation and is equipped to apply its digital consulting, technology assets, and engagement models in innovative ways, ultimately to enable and accelerate the digital journey of their clients. This is what consulting firms must strive to be and it takes strategic technical thinking on both fronts — internally, with their own employees, and externally, with their clients.”
Data Rules Everything Around Me
Strategic Technology means consulting firms are able to help clients utilize the technical tools and assets that they have for best business results. Patrick Sheridan, an Associate Partner at IBM, says “How do we take all the little things that the clients can do on their own and string them together to make strategic leaps in the industry? That ability to see what tools and technologies we have, and fit them together in a way that makes sense and is profitable — that’s what we need to be able to do in the future.” Consultants, then, must continue to expand their expertise and master new technologies in ways that help clients. A good consultant must bridge the gap between strategy and technology — essentially see the capabilities, technologies, products, and services out there — and be able to apply them to business problems. This is a skills shift and consulting companies are already making the leap.
While there are many components to strategic technology, one of the most important skills consulting firms need to have is a rock solid understanding of data. Data is perhaps the most valuable asset of the digital age, and companies have no shortage of it. Companies collect data every day and data warehouses are growing at an exponential rate. The keys to better businesses are in how they are able to manipulate and monetize data. Clients need products and services that allow them to harvest advanced insights and leverage these insights to bring better experiences to their customers.
For firms, the future competitive landscape changes as well. Large firms will compete for ownership of the most valuable data and the best ways to leverage data.
For large companies, consistently growing and leveraging data, acquiring companies to fill in data gaps and capabilities, and applying existing analytics expertise will be key. Already, consulting firms are leveraging size and resources to purchase data sets to build their data capabilities. Companies have also formed partnerships to create an ecosystem of data, which can prove valuable to clients.
Consider a small franchising consultancy that builds a data set of franchise locations for major restaurant chains (Yum Brands, McDonalds, Starbucks, Restaurant Brands International, etc.) using the Google maps API. Now consider this consultancy purchasing a data set of median income by zip code and a data set of population density, a dataset that can be built from the census or many other national companies, such as Verizon. By combining these information sources, the smaller consultancy could build a product for choosing ideal franchise locations. These are the types of data driven practices consultancies will be attempting to purchase. The more unique the data set, the better.
For smaller companies, a unique data set will differentiate them and make them valuable. Take Nuna — a Medicaid startup. It has created a cloud database of all 50 state’s Medicaid information. This information (after all sensitive patient information is removed) is extremely valuable going forward as it will allow monitoring of different groups, billing patterns, and program effects. Basically, it allows the government (and other entities like hospitals and clinics) to actually point to proof of what’s going on in the Medicaid system in specific states. This niche data set is incredibly valuable, and Nuna has the VC support to show it.
Implications for the Future
Where consulting firms focus their energy is important going forward. While new technology and digitization has created more consulting work than ever before, it has also changed an old model of consulting that had been in play for a century. Thus, consulting firms are coping with a double edged sword — to transform clients while undergoing simultaneous transformations themselves. We’ve seen the start of this in the focus on data and strategic technology, and will continue to see transformation in how consulting firms engage a workforce and collaborate with strategic partners, competitors, and clients going forward.