The overall number of consultants doesn’t seem to be dwindling. If anything there seems to be MORE consultants than ever! In fact, the category includes many different species: you can be an IT consultant, a HR consultant, a strategy consultant…you name it: there’s a consultant for everything. Every department in a company can have an army of consultants to help improve its processes.
The digital transformation of our economy doesn’t seem to have affected consultants the way it’s affected journalists of advertisers. Indeed, consultants sell targeted services to help companies make the most of their digital transition. So digital is a business opportunity!
But the world of consulting IS changing profoundly. The model developed by the big consulting firms of the 20th century is going through a crisis. Their pyramidal organisation—with junior consultants doing the bulk of the work—is increasingly under threat: companies are less willing to pay high prices for copy-paste work performed by inexperienced junior consultants , however brilliant they may be.
Indeed, the era of copy-paste consulting is largely over. Consulting firms designed powerful systems, models and grids to help companies optimize their processes and cut their costs. But now these companies expect customized consulting services instead. They demand experienced industry experts and creative advice.
As a result, the consulting offer is becoming more protean: there are now more consultants who work outside these firms, offer customized services that can’t be replicated and work directly with the companies whose problems they aim to solve.
To understand today’s transformations, let’s first have a look at consulting’s history: consultants came with managers.
How did management come to be?
The history of consulting is directly linked to that of management. You may think management has always been around. After all businesses have always been “run”, haven’t they? But it’s not the case: the managers were the owners. Professional management was born after the industrial revolution. The first American business school (the Wharton School) was created in 1881 and management became an academic subject after the 1930s only.
In the US, the construction of the railways and the telegraph in the 1870s created mass markets that made management necessary. All of sudden, the entire country was the market. Production and distribution became a lot more professional. The US industry became dominant. In 1870, it represented 23% of the world’s production ; in 1913, 36%! Gigantic empires grew: US Steel, General Electric, AT&T, American Tobacco…
The main question these new empires had to answer was: how do we grow to serve such a large market and keep control over the company at the same time? Professional managers emerged as the new class of professionals to help companies answer that novel question. Managers don’t produce. Neither do they own the company. They are executives who serve as go-betweens to enable the growth of empires.
To advise and accompany them, these managers required the help of other professionals: the consultants.
The emergence of consulting as an industry
The history of consulting is closely related to the professionalization of management and the emergence of a new class of managers in large corporations. But there was one specific political decision that provided consultants with a unique opportunity to turn their business into a mass industry.
In 1890, the US Congress created our modern competition law when it passed the Sherman Act. Sherman was a Senator from Ohio who believed that the growing power of monopolies had to be curtailed. The act that bears his name was the first of a series of acts and court decisions aimed at protecting consumers against the predatory behavior of all too powerful corporations. The 1911 Standard Oil v. United States Supreme Court decision would complete what Sherman had started: it would dismantle John D. Rockefeller’s sprawling oil empire.
“The law attempts to prevent the artificial raising of prices by restriction of trade or supply. “Innocent monopoly”, or monopoly achieved solely by merit, is perfectly legal, but acts by a monopolist to artificially preserve that status, or nefarious dealings to create a monopoly, are not. The purpose of the Sherman Act is not to protect competitors from harm from legitimately successful businesses, nor to prevent businesses from gaining honest profits from consumers, but rather to preserve a competitive marketplace to protect consumers from abuses.” (Wikipedia)
As price fixing and market manipulation became a lot less easy, companies actually had to compete with one another, i.e. to produce better products and more efficiently than the competition. There was the unique opportunity for consultants, who were best positioned to help companies improve their processes and become more competitive. This was the beginning of a symbiotic relationship between managers and consultants.
Process thinking became an art. Consultants could reengineer a company’s processes, i.e. redefine and restructure its processes to make it more efficient, streamline its production to minimize costs and bring products to market in a more timely manner. Management consulting became a well-respected technical profession.
The era of managerial capitalism had begun. In the 20th century mass economy, efficiency was key. It was the result of the alliance between managers and consultants. Managers also needed consultants to legitimize their decisions.
Consultants created powerful tools to help streamline companies. These tools were transferable and replicable. For example, McKinsey’s General Online Survey was created to serve as a clear roadmap for the young consultants who joined the firm. Its role cannot be underestimated.
Management became an academic subject. New schools were created to train managers and consultants. Harvard Business was created in the 1930s. Peter Drucker, born in Austria, was the founding father of management as an academic field. He invented numerous concepts that are still in use today, like the concept of “systemic innovation”.
The rise of strategy consulting marked the golden age of consultants
Strategy used to be a military subject. Prussian General Carl von Clausewitz made it an intellectual subject for a larger audience when he wrote his treaty On War, which inspired all modern strategists.
Strategy applied to corporations is more recent than one tends to believe. It dates back from the 1960s. Here’s how business historian Alfred Chandler defined it in 1962:
“Strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”
And Michael Porter defined it in 1980:
“Strategy is the broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals and the combination of the ends(goals) for which the firm is striving and the means (policies) by which it is seeking to get there.”
The emergence of strategy coincided with four phenomena:
- the deregulation of banks and telecoms ;
- the development of new technologies (computers first, and then internet) ;
- the liberalization of capital markets ;
Up until the 1960s, most companies had been relatively protected on their markets. After the 1970s competition became increasingly fierce. Strategy became fundamental for all companies in a state of permanent war. Strategy applied taylorism to the company in its entirety… to make it as efficient as it could possibly be so it could crush its competition.
Bruce Henderson can be said to be the inventor of strategy consulting when he created the Boston Consulting Group in 1963. The BCG became an institution that bred the country’s business elite. To be recruited you had to be the best, not just an Ivy League graduate, but possibly also a Rhodes Scholar or a Marshall Scholar.
The era of big firm consulting may be coming to an end
All the things that made it successful in the 20th century could cause its demise in the 21st.
Big firms have seen their margins deteriorate over the last decade, as companies are increasingly reluctant to pay a high price for the “copy-paste” work of junior consultants. The replicable models that made the fortune of these firms are called into question: companies want customized services and experienced consultants. Therefore smaller firms and independent consultants have multiplied.
Today’s big consulting firms aren’t quite as attractive as they used to be. They find it a bit harder to recruit the talents they need. The lack of work-life balance that comes with working for such firms is increasingly under fire. Some are now offering better work conditions in an attempt to make the profession more attractive again. But they have to compete with Silicon Valley companies for talent. Many graduates are now lured by Google and the like.
The new corporate giants produced by the digital revolution are “eating the world”. They have increasing returns: the more clients they have, the better they can serve them. They don’t need consultants. They refuse to “streamline processes”. Optimizing production is not their goal.
3 major trends are putting putting big firm consulting in jeopardy:
- The platformization of consulting:
Increasingly the typical consultant tends to be an independent worker using a platform. The phenomenon doesn’t only affect consulting, of course. Work relations are transformed everywhere. Platforms like HourlyNerd or Clarity have spread. They match experienced professionals with problems that companies want to solve. Consulting may one day cease to be a profession. Scattered individuals with a diverse set of backgrounds and experiences will be able to provide a diverse set of skills, know-how and expertise to tackle various corporate problems. Companies can already find them on such platforms.
The pyramidal structure of big consulting firms is no longer a viable model: these firms require an army of junior consultants to do the bulk of the work. Senior consultants are a minority in that model. But because companies are reluctant to pay for junior consultants, the whole business model of consulting firms in under threat.
2. The data revolution makes consultants somewhat obsolete
In the past few years companies have hired thousands upon thousands of data scientists in the hope that they will help them make sense of the vast amounts of data they’ve accumulated and base their strategic decisions on actual data.
Big corporations that have vast amounts of siloed data choose to pay for the services of software companies that can help them leverage their data. Palantir is a case in point. Have traditional consultants not been made a bit obsolete by engineers who can do more to help make companies “data-driven”?
3. Innovation is not really in a consultant’s DNA
Our mass economy is coming to an end. We’re living though a paradigm shift. Optimizing processes and cutting costs is not enough to face new disruptive innovators. And that’s what consultants have been trained to do.
Corporations need radical innovation, not cost-cutting effectiveness. So big firm consulting may no longer be the right answer…
Consulting is undergoing profound transformations. The archetypical big firm consultant is under threat. Big consulting is coming to an end.
Yet consulting is not dead! There will be more and more independent consultants. Many experienced managers and experts may become consultant AFTER several other experiences. Many others will be slashers and do consulting on the side.
The best days of consultants are yet to come. But they will not work the same way anymore.