In October 2013, Clayton Christensen, Dina Wang and Derek van Bever published their seminal article ‘Consulting on the Cusp of Disruption‘ in the Harvard Business Review. They concluded that the same forces that had already disrupted many industries were starting to affect the consulting sector and that the implications for all professional services firms and their clients would be significant.
Fast-forward just over five years to 2019 and it would seem that many of the predictions made by Christensen et al. have come to fruition – the industry is well beyond the cusp of disruption.
This was emphasised towards the end of last year at the annual conference of FEACO (the European Federation of Management Consultancies Associations) in London, to which Openside were invited, when consulting industry leaders from across Europe gave their perspectives on the current and future trends impacting the sector.
In this article, we outline the three main trends confronting the consulting industry today – as described by delegates at the FEACO conference – the opportunities that can be grasped by consulting firms and the market forces that continue to challenge the traditional sacred cows held by many consulting firms – and professional services firms in general:
TREND 1: Increased disruption from new competition, new service models and sophisticated, knowledgeable clients
More and more, the consulting industry’s sacred cows are being challenged by new competitors, new service models, more discerning clients and more sophisticated buyers. Consulting firms are operating in a new competitive environment and facing a new purchasing landscape.
In particular, FEACO delegates highlighted the rise of independent contractors challenging larger, traditional consulting firms.
Perhaps more importantly, there is a growing acceptance among clients that these independent consultants or smaller, more specialised consulting practices are a genuine and viable alternative to larger traditional firms.
Similarly, clients continue to be attracted to the services offered by alternative professional services providers – Christensen at al. called these “Facilitated Networks” – who combine lean project teams of independent contractors for clients but at a highly competitive fee rate.
But it’s not just lower fees that appeal to clients when working with independent contractors. Clients often feel like they have more control over projects and their outcomes and that they are not simply being offered a consulting firm’s ‘predefined solution’ but are instead being offered unbiased recommendations by truly objective independent consultants – driven more by producing a good solution for the client than by loyalty to their consulting firm.
The additional challenge posed by these firms is that the ‘independent contractors’ are not inexperienced but usually highly proficient alumni of prestigious consulting firms. Paradoxically, the efforts traditional firms have put into building the reputation of their brands are essentially being used against them by their alumni.
Clients have little doubt that independent consultants have the specialist knowledge and requisite experience in their field to complete projects as well, if not to a better standard, than a consulting firm. As a result – as Christensen et al. predicted – traditional consulting firms can no longer simply rely on their knowledge bank, reputation or brand name to protect themselves from disruptive forces.
What’s more, independent consultants and alternative service providers are able to challenge consulting’s sacred cows in other ways that are preferable to clients.
One of the traditional sacred cows of consulting – and professional services firm in general – has been ‘time-based’ billing and firms have been steadfast in their reluctance to move towards value-based pricing or fixed fee options with clients. New market entrants and independent contractors are much more willing and able to challenge this sacred cow.
In addition to often charging lower fees than incumbent firms for very similar outputs, they are also more willing to provide fixed fees – not purely ‘time-based’ – for specific project outcomes. Clients often prefer this certainty around fee rates and to have the overall cost of a consulting project defined in advance.
Not only is the competitive environment changing in consulting, so too is the purchasing landscape.
In short, buyers of consulting services are more knowledgeable and sophisticated than ever before. As buyers’ needs have changed, so too do the traditional business development approaches used by consulting firms.
Once again, as the FEACO delegates suggested, this situation is largely of consulting’s own making.
For years, consulting firms have taken pride in their alumni becoming CEOs and Senior Managers in large organisations, including FTSE 100 and Fortune 500 companies. These alumni are now key buyers, stakeholders and decision makers within client organisations.
While this could work in consulting firms’ favour – there is often a sense of loyalty to an old employer – the unwelcome reality is that these former consultants are far more sophisticated and enlightened around the services they need to source and the consulting options available.
Knowledgeable buyers are able to reduce the scope (and cost) of work they outsource to individual consulting firms, they have a very good understanding around what the project output should look like and the processes that will be followed and they are able to take an active role in selecting and managing the project and allocating the required resources.
Above all, based on their own experience and unique insight into the consulting process and the methodologies employed by most firms, sophisticated buyers are also more willing and able to question whether the high fees of a prestigious firm make sense. They know from their own experience that the traditional assumption that “price is a proxy for quality” does not always ring true.
There has also been a change in the way knowledgeable buyers want to source service providers for their consulting projects. As Christensen et al. predicted in 2013, rather than simply outsourcing entire projects to one consulting firm, buyers are now “right-sourcing” to discrete service providers because they don’t want to pay for features that they don’t believe will add value. They are willing and able to ‘unbundle’ a consulting project into its discrete elements to allocate work based on the specific aspect of the project to be undertaken.
The new buying strategy challenges traditional consulting firms who would typically have conducted all aspects of a client engagement, and provides encouragement to smaller firms or individual contractors who are able to undertake a specific aspect of the value chain. When you combine the buyers’ willingness to ‘right source’ with their desire for greater responsiveness and control, it’s easy to understand why the future looks encouraging for smaller, independent consulting providers.
The net result of the disruptive forces in the consulting industry is that traditional consulting firms are struggling to maintain fee levels and are under great pressure to move towards the commodity end of the consulting spectrum – characterised by price competition and low value solutions. This is a race to the bottom that no consulting firm wants to win.
How consulting firms could respond…
While it used to be the case that an esteemed consulting firm’s brand would be enough to secure work – think “No one ever got fired for hiring IBM” – this is no longer guaranteed.
It has always been the case that when deciding which consulting firm to work with, clients make a decision based on the perceived value that will be created by the consulting firm and whether this aligns with the value they are seeking. Often the factors that motivate a client to choose a specific firm over another are hidden and unspoken.
However, the value clients are seeking has changed and continues to change. Clients’ needs, desires, worldviews, ambitions and motivations when deciding which firm to work with are different.
Previously, clients used to favour prestigious firms like IBM over smaller providers because the brand provided validation or status to the buying firm and a sense of security to the buyer. While it is unlikely that these motivations would have explicitly articulated, they are a good example of the often hidden and unspoken values that motivate a buying decision beyond simply technology, intellectual property and consulting tools.
Now, clients may be choosing to move away from prestigious consulting brands in some instances because the values that used to take precedence – security and status – are not as critical to buyers, particularly if they are alumni of consulting firms and believe that these beliefs might be misplaced or if the projects are well-defined and the risk to the client is low.
In their article, Christensen et al argue that “To stay ahead of the wave of commoditization, firms will need human, brand, technological, and financial resources to deploy against new and increasingly complex problems and to develop new intellectual property.”
We agree with this argument but would suggest that the critical element in this statement is the ability to identify clients’ “new and increasingly complex problems.”
The consulting firms who will be best placed to thrive in the new competitive consulting landscape will be those who are able to deeply understand the mind of their clients; to recognise the value clients are seeking; to provide the appropriate technological and consulting resources and who can demonstrate the value they can deliver during every interaction with the firm – before, during and after an engagement.
This final step is critical. While developing market leading technological resources, creating new intellectual property and having market leading consulting methodologies will be essential – the ‘what’– the key to staying ahead of the competition and avoiding a slide towards commoditisation is for firms to develop the human, emotional and cognitive capabilities of their people such that they can illustrate significant value in every single contact with clients – the ‘how’.
Why? Because as we outlined earlier, the value judgements clients make about a consulting firm are often emotional and unspoken. Judgements are made in the critical interactions that occur with a consulting firm’s people.
To remain the service provider of choice, firms will have to ensure that they clearly illustrate the value they will create for the client at all times in the way they behave, communicate, listen and interact.
Firms who take the time and effort to invest in, develop and refine the critical cognitive and behavioural skills that truly create value for their clients – well beyond ‘price’ – will be best placed to thrive and avoid the slippery slope towards commoditisation.
Finally, it may be the case that traditional consulting brands are no longer infallible, there is much that can be done to reinforce and reinvigorate these brands.
A consulting firm’s brand is a shortcut for clients to know what to expect from that firm. It is “The stories that people tell each other about the firm”, “The way people think about the promise the firm makes” (credit to Seth Godin) or “The things they say about your firm when you’re not there.”
We would urge a consulting firm to listen to the stories being told about their brand in the market place and consider whether they create the reputation and brand the firm wants in the market. If the stories being told about a firm are still based on the activity and experience of working with the firm many years ago and are not aligned to the reputation of the firm as it wants to be now, then every consultant within the firm has a responsibility to redefine the stories their clients tell about them.
Once again, it’s for this reason that the way a firm’s people behave throughout an engagement are critical to the future success of the firm. If a firm’s people are still engaging with clients in a way that reinforces the old, uncompetitive brand, then it’s time for firms to redefine the behaviours – and then develop and embed these behaviours – to reinforce the firm’s new strategic position and brand.
TREND 2: Technology creating significant opportunities and challenges for consulting firms
The FEACO conference delegates had little doubt that when it comes to technology, there are still significant opportunities for consulting firms across Europe, particularly in areas such as AI, machine learning, cyber security, blockchain, advanced analytics and digital transformation.
Firms who are able to develop service offerings around these areas – either through mergers or acquisitions, or through staff development and recruitment will be very well placed for success in the coming years. It was, however, pointed out that focusing on technology services does create some challenges for consulting firms.
Traditionally, technology services have been viewed more as ‘commodity’ services by clients – of lower value, easily replicable, and price sensitive. As we outlined in Part 1 of this article, the rise in technology consulting has created even greater ‘commodity’ pressure on firms.
The challenge for consulting firms who wish to remain at the strategy end of the consulting spectrum is to manage the integration and roll out of their new technological solutions in a way that doesn’t dilute or cannibalise their existing brand in the mind of their clients.
Similarly, as FEACO delegates highlighted, IT projects have historically been priced lower than strategic consulting engagements. This is a problem for consulting firms who have merged with specialist IT firms – or want to launch a technology division – and yet still want to command higher fees.
Finally, and paradoxically, while technological advances within consulting firms often lead to significant benefits for the firm and opportunities for its clients, there is an interesting pattern emerging in some consulting firms whereby an improvement in technology has led to a direct challenge to one of the industry’s most sacred of cows… the chargeable hour.
Improved technology, in particular a rise in analytics capabilities, means that consulting firms are often able to complete certain aspects of an engagement – for example data gathering and analysis – significantly quicker than they ever could before. While many industries would be pleased about such efficiency gains, the challenge for consulting firms is that knowledgeable buyers know the time being spent on the project is significantly less than before.
The problem facing firms is largely of their own making and stems from the fact that they have traditionally proposed fees to their clients for each engagement on a ‘time and materials’ basis. Clients by contrast have often wanted to move the focus away from time-spent towards the value created by the engagement – a ‘value-based pricing’ arrangement but have faced steadfast opposition from consulting firms driven by their own billable hour metrics.
Now, the shoe is on the other foot. Knowledgeable buyers know that consulting projects can be completed far quicker thanks to technological advances and so are happy to discuss fees based on time spent. Consulting firms, on the other hand, would instead like to bring the focus towards value-based pricing.
The inevitable result of this situation is that the sacred cow of time-based billing may finally be on its last legs in consulting. In truth, pricing as a function of time spent has been ripe for disruption for many years. With advances in technology, it really is now time for consulting firms to use the value created by their engagement as the foundation of pricing instead.
To make the most of the opportunities offered by digital and technology services – and to overcome the challenges it raises – the focus must return once again to value. Consulting firms need to be able to understand the value their clients seek, understand the value they will be creating, and be able to illustrate this value clearly in every interaction, otherwise a shift towards the commodity end of the services spectrum is inevitable.
TREND 3: The ongoing ‘war for talent’ – not just how to recruit but retain
For many years, there has been an ongoing ‘war for talent’ in the consulting industry. In particular, the delegates at the FEACO conference highlighted a chronic lack of technology experts in Europe, required to keep up with client demand for digital and technological services. However, the problem isn’t simply how to find and recruit the right talent, but how to make sure they stay.
There are several aspects driving the lack of retention in consulting.
Firstly, consultants with expert knowledge know they are in demand and are happy to move between firms if the compensation is sufficient. Secondly, FEACO delegates suggested that more and more consultants are being recruited directly by their clients to join internal strategy or internal consulting groups – they get equivalent strategies – and a ‘life’.
Thirdly, and perhaps most critically for leaders of consulting firms, the attitudes of many working in consulting – particularly younger generations – have changed significantly and differ greatly to the attitudes of more experienced, senior consultants.
It used to be the case that once you joined a consulting firm, you stayed with that firm for many years – if not for your entire career. Now however, younger generations will move between firms – and even industries – far more frequently.
One FEACO delegate suggested that younger consultants will work with a prestigious brand for several years to gain a basic level of training and experience, but more importantly, to get the firm’s high-status brand on their CV, before moving to either a competitor, a new market entrant, a different industry or setting up their own consultancy.
We can corroborate this anecdote. In our own discussions with clients, we often hear that a consulting career and the prospect of “Making Partner” no longer carries the attraction it once did.
As another FEACO delegate explained, it used to be the case that consulting was an exciting industry because you gained an excellent grounding in ‘business’ that would serve you well throughout your career, there were extensive opportunities to travel, and engagements with different clients from different industries was interesting. In return for these opportunities you were expected to work long hours and commit wholeheartedly to your work.
While these factors still motivate many, in truth, lots are no longer willing to make the sacrifices to their personal lives that are often expected by consulting firms and their ‘always-on’ cultures. What’s more, many consultants also develop entrepreneurial ambitions of their own.
In truth, this problem with retention could be a function of the type of people consulting firms recruit. Typically, consulting firms recruit the brightest and best graduates who are driven to learn and have a successful career in business. That they should want to develop and pursue a career outside of consulting is both a complement and unfortunate product of the calibre of people that enter the industry.
So how can firms recruit the right talent and crucially, retain them?
We would urge consulting firms to revisit their culture and to objectively evaluate whether their firm is truly somewhere someone would want to work. In our view, it’s no longer simply about getting people to fit into your culture but about moulding your culture to meet the diverse needs, desires and expectations of your people.
Once again, it comes down to value. This time however, it’s not about demonstrating value to the firm’s clients but to the firm’s own people.
To make their consulting firm a desirable destination of choice for employees, firms should focus on demonstrating the value they create for their consultants – beyond simply financial rewards. For many, high salaries are not enough to keep them motivated or to stop them from looking for opportunities elsewhere.
For example, firms could emphasise the opportunities for professional development and make sure that they provide opportunities for their people to develop the career skills they will need in the coming years.
The World Economic Forum has provided a list of the top 10 skills that will be required for a career in 2020. FEACO delegates suggested firms consider how many of these skills they are developing – beyond simply ‘technical’ knowledge. Firms should also ensure there are opportunities for flexible working and make it as easy as possible for those who have taken a career break to return to work.
Finally, one FEACO delegate highlighted how some consulting firms now give employees the chance to develop and incubate their own ideas within the firm for a set time period each week. If an idea is viable, then the firm may choose to develop it further and reward the employee accordingly. This strategy provides an outlet for those in the firm who have entrepreneurial aspirations while ensuring that they remain committed to the firm.
For consulting firms, particularly those who are still driven by activity metrics and the ‘client is king’ sacred cow, changing “the way things are done around here” could be particularly challenging. However, consulting firms who can understand the values of their workforce and adapt their cultures to match these values will find that they have far less trouble recruiting and retaining the top talent in the industry.