The Future Of Consulting
I was thinking about the history and the future of consulting. I put together this piece almost to serve my research needs…perhaps someone else can also benefit.
Consulting is a diverse industry. Best known are the élite strategy consultancies such as McKinsey & Co, the Boston Consulting Group (BCG) and Bain. A second class comprises the consulting units of the Big Four accounting firms—PwC, Deloitte, KPMG and Ernst & Young. All but Deloitte shed their consulting units in the early 2000s, amid post-Enron fears of conflict of-interest, but have since grown new ones. A third group consists of technology firms with big consulting businesses, such as IBM and Hewlett-Packard, which focus on installing and integrating computer systems. Finally, some consultants are hard to distinguish from pure outsourcing firms.
Although conventional thinking about how consulting firms are structured has focused on the continuum from generalist to specialist, a more complex picture is emerging in which mode of delivery matters as much as skills base.
No one would deny that the long-term evolution of the consulting industry has taken it towards ever deeper specialization – a trend reinforced by procurement processes and the rise of internal consultancies and/or consultant-managers.
The consulting world has changed in the last two decades. The changes have been brought on primarily by the internet and Analytics.
The firm is really just an intermediary, a way for clients to find the right person for the right job. There is probably an opening for a professional intermediary between clients and consultants, sort of an independent contractor to connect people together correctly. That would be kind of like a worldwide network of consultants.
The “content” work that junior consulting staff used to do is now being done by predictive models and software. Analytics has become a major industry in itself. Companies have their own Analytic engines to gather data and compile it. The demand for data apes has collapsed.
The specialty of Benchmarking is a good example of how things have changed. Not long ago armies of junior consultants put together data on industry costs, executive salaries, profit, etc. Often it was done for a CEO who wanted to show his/her board how well things were going or how uncompetitive his compensation package was. Now any CEO or HR executive with a laptop and a credit card can benchmark just about anything in an hour or less — globally.
Management consulting has been and still is an industry that capitalizes on the study of macroeconomic, technological and social change then creating labels for new management theories they’ve discovered from their infinite wisdom. Also known as factories of new knowledge for sale, you can only get the knowledge from their books, their anointed apostles who’ve been trained in the practices or you can get it from a copycat at cheaper prices.
The future of consulting is changing as more companies are demanding to know what the consultant is doing, i.e., what process are they using? And further, they will want to learn how to use the process themselves.
What Clients Want
Clients want greater specialization and a clearer view of what consultants do. It’s also a result of changes to the intellectual value chain that is consulting: consultants continually have to reinvent where they add value and what kind of knowledge they create.
Clients are concerned that the consulting firm as an entity is much more motivated to sell consulting services than to act in the client’s best interest. In an environment of shrinking markets and greater competition, these concerns move up even higher on the agenda.
Clients worry that consultants are trying to sell them things they really don’t need. the more sales oriented consulting firms become, the less comfortable clients are with the nature of the services they are buying. This applies equally to large and small firms.
The word “consult” means to ask advice or opinion of or to deliberate together. We are living in a knowledge driven economy that is heavily influenced by collaborative forces sharing intangible and tangible assets to create new value. The internet has accelerated collaboration and people are learning from the interactions.
The internet will be disrupting the management consulting industry’s business and mental models because more and more people are seeking wisdom while many consulting firms are still trying to sell knowledge. Knowledge has become a commodity because of digitization. Wisdom comes from transforming knowledge into a skill that changes your results. Now there are tools to help the transformation.
The Road Ahead
I think we’re in a period of profound change, which will continue for the next 20 to 30 years. There are five megatrends that are converging to great effect. The first shift is the re-rise of Asia and Africa’s emergence: 2.2 billion people will join the middle class in Asia and Africa in the next 15 to 20 years – half from China alone. The second shift is disruptive technology: this is changing three times faster than management and presents both an opportunity and a challenge. The third shift is resource scarcity. With so many new consumers wanting to live and consume like a ‘regular’ middle class person, food, energy and water are going to be under severe constraints.
The fourth major shift is population ageing around the world (even though some countries, like India and Nigeria are ‘young’.) And last but not least is the struggle that governments are facing to deal with all of this. They have become increasingly short-term in their thinking and as a result, they are gridlocked and face significant fiscal challenges.
The combination of these five things all happening at once has major implications for all organisations. Whenever there is volatility or disruptive change, there is a strong demand for objective perspectives and analysis. Alongside all of this, the churn rate of companies has gone up significantly. In 1935, the average lifetime for an S&P 500 company was 90 years; today, it’s about 18 years. There is a growing need at the moment to innovate and to make bolder choices, as well as to focus on risk management tools. These are just some of the reasons why consulting is so in demand these days.
In the next few years, consulting could be driven more by collaboration than competition. That is, more cross working between different consulting firms, which hopefully will result in a better product for the client. The smaller consulting firms will need to offer more value for the same price. For over two decades, that pendulum has swung heavily in favor of the firm and the firm structure. The future may see the pendulum being pushed back towards the individual consultant and not the collective firm.
The future actually looks pretty rosy for the smaller consultancies, because clients like specialist skills; they like being able to understand exactly who consultants are and what they do.
There isn’t enough information about what consultants do, and not enough open, honest evaluation of projects that worked really well and ones that didn’t. That is driven partly by consulting firms who want to win work, but also by clients who don’t want their decisions open to scrutiny. Clients want an easy life: if a consultant offers a panacea, however unrealistic, there’s a temptation to say, fine, we will buy that.
So, the firms that differentiate themselves will be the ones that find a way of articulating and perhaps even quantifying the value that people talk so much about. Clients would really like for the consulting industry to have a rating system to help them make more informed decisions, to allow them to compare different consultants in a meaningful way. Clients would like to have a way to measure return on consulting investment.