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Disrupting Management Consulting

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The time has come… ⌛️

It’s no secret that disruption is inevitable across all industry sectors.  We’ve already witnessed disruption in most major sectors, primarily through the rising tide of new technologies that has impacted all aspects of economic and social life. Is management consulting now ripe for disruption?


Ding Dong The Alarm Bell Rings—Anyone Listening?

[W]e’re still early in the story of consulting’s disruption… More likely than not, alarms won’t sound until it’s already too late in the game.

Clayton Christensen, Guru of ‚Disruptive Innovation‘

The late management guru, Clayton Christensen was the world’s leading authority on disruptive innovation. Renowned for his brilliance and compassion, the Harvard Business School professor and speaker changed the business world with his revolutionary theory, later elaborated in his book.

But what is disruptive innovation? Christensen’s theory, in a nutshell, is that  startups offering more innovative and better solutions to customers will push incumbent companies out of their markets. Market entrants target any ignored segments with focused functionality, often at a lower price. Disruption then occurs when regular customers choose the entrant over the incumbent in large volumes.

Since then, startups have gone head-to-head with incumbents in practically all industries—but what industries are most vulnerable to disruption?

Future Challenges Of Consultancies

Soren Kaplan warned in Inc that management consulting is also not immune but rather very vulnerable to disruption. It faces a mixed bag of future challenges that need to be tackled:

👉  Dependence on manual, computational human labor

👉  Outdated billing methods, as it bills expertise per time spent rather than by outcome or value as in other sectors

👉  The advice given becomes outdated at a very fast pace

What differentiates it from its rivals is being the first to know things, or having the edge when it comes to new information, known as information asymmetry. This is unfortunately tricky to maintain in today’s fast-moving digital world. 

The Management Consulting Market

The global consulting sector is estimated to be worth US $250 billion in 2019 and is one of the largest and most mature markets within the professional services industry. It is calculated that there are in excess of 700,000 consultancy firms worldwide. The consultancy sector is closely linked to the developments of the global economy. When the economy is flourishing, there is more budget and revenue for spending on consultancy. During economic downturns, organizations spend less.

So how did management consultancies achieve success in the first place?

Since 1963  consultancy firms took companies by the hand and provided them with a whole array of new weapons to improve their businesses. They delivered avant-garde market research methods and data analysis, along with the vision of industry and academic experts. No market was entered or exited without the approving eye and expertise of these consultants.

Source: Consultancy.org analysis, financial statements of Boston Consulting Group

The top dogs in the industry never fail to excel: in 2018, Bain & Company took in about $4.58 billion, BCG around $7.58 billion and McKinsey ran away with the lead making about $10 billion.

The time your game is most vulnerable is when you’re ahead. Never let up.

Rod Laver, Adidas

 

But it’s not all sunshine and roses…

Over each of the last five years, the management consultancy industry has only witnessed a mere 3% annual growth. We should also not forget the fact that approximately one quarter of all management consulting spend concerns technology…

The industry may seem secure, but the forces of disruption could throw some cold water on this dangerous assumption.


Disrupting The Four Pillars Of Management Consulting

Since the dawn of management consulting, consultancies have endeavored to provide their clients with more than mere advice in exchange for large amounts of money. They bundled together a marvelous assortment of functions and services in an impressive, high-end package.

To determine how management consulting can actually be disrupted, we need to look the contents of this package of functions and services—deliverables for clients, set out in four pillars:

👉   Information: Enriched data and analyses to provide insight into the client’s industry, market position and performance

👉  Expertise: The know-how from experience about how any given problem could or should be solved

👉  Execution: The how and when of how new ideas and changes can be introduced

👉  Insight: The precise and rational use of expertise to occasion ideas for the success of the business

Lurking somewhere secretly in the background, there is in fact a fifth pillar☝️, which is just not so readily discussed. Management consultancy firms provide cover or help to disseminate unpopular decisions or real truths

1. Disrupting Information

In the zenith of management consulting, young, budding associates were tasked with obtaining information that was deemed crucial and critical. This meant no less that hanging around outside department stores to count how many customers left with shopping bags, or even what take-outs from drive-ins were most popular for the morning commute.

The information was collected, processed and presented to the client, who had little or no knowledge of this information or how it could be best used. The client’s knowledge of the business was at a very primitive level. There are still a few cases where, out of convenience, a BCG or any other market leader is called in to do such work, but since then… companies have gotten smarter with their own information and market knowledge.

Organizations are now amalgams of software-enabled systems that dutifully log and store data.

MIT Sloan Management Review

Companies now have access not just to databases, but a whole arsenal of analytical tools to help them in digging deep into their data to spur their market conquest.

2. Disrupting Expertise

Consultancy firms thrived through well-oiled, unique networks of experts and specialists. These individuals were hired as the best at a world-wide level in specific fields, such as engineering, finance, government, medicine, industry or law. The major players ended up developing their focus on a specific sector. Bain’s expertise for example was in finance from the very outset .

Experts on demand
Experts on demand

Quite plainly—management consultancies no longer have a monopoly in specialized or unique knowledge. Companies shop around for their consulting services. They don’t have to work with the big boys in consultancy to obtain detailed insight into their logistics from their experts. The same experts now offer independent consultancy services for one particular area, rather than the entire range of consulting services, through what are known as “learning networks”. Third Bride and AlphaSights are just two companies in Europe that are doing just that, and rocking the boat of management consultancy. But how? 🤔

These companies hunt down real experts in a particular subject that form part of a network and then hire them out on request as needed to respond to clients’ questions. So, you can engage with these firms on an ad hoc basis and pay by the hour for the work the expert provides.

Expert networks are big business — the Financial times named London’s AlphaSights as one of the most rapidly expanding companies in Europe. In 2019, the UK’s Third Bridge featured in the leader board of the 100 companies with the fastest growing profits in Great Britain.

3. Disrupting Execution

What is the point of strategy if there is no execution? Management consultancy firms realized that their clients needed not only their proposed strategies, but also help in their execution. Yet strategy and execution are like chalk and cheese. Consultancy companies were obviously there to do the legwork, but were far more interested in strategies as they were less work and more lucrative, in terms of margin.

Afterall, what could be simpler than a few repeatable templates? 😋

Now, with the wealth of tools available to support companies in the collection and analysis of immense amounts of data, highly specialized on-demand domain experts, consulting resources that were “black-boxed” have taken a huge bite out of the strategic worth proposition of the large management consultancies. So, since strategy is ever more commodified, strategy on its own is worth diddly-squat. Big consultancy firms must commit to even more execution of the strategies they propose in order to stay afloat.

Today strategies and recommendations are not a doddle or as easy as one-two-three. It would be far too easy for consultancies to go ahead and say “You need to go ahead and build yourselves an analytics solution that can predict which among your products will be your best and worst sellers in the upcoming years.”  🤯

This would be an almost impossible task for any company to execute without the right expertise.

As businesses all sail on the increasingly rougher seas of digitalization, management consulting firms help with the rowing rather than merely taking on the role of cox. If they don’t roll up their sleeves and row faster, there are plenty alternatives poised to take up their position onboard.

4. Disrupting Insights

Bain championed strategy, alongside long-term relationships with his clients. But insight in the form of results were what really mattered—results that could be seen in a company’s bottom line and then in its share price. His slogan and value preposition became

We don’t sell advice by the hour: we sell profits at a discount.

BILL BAIN, founder of Bain & Company

This involved the three Cs—costs, customers, and competitors. They developed best practices and measurement, presenting their clients with data-based insights on their most critical issues.

Clayton Christensen’s take, from the Harvard Business Review, was that the leading, prestigious management consultancy companies operate like a ‚black box‘ with no transparency, just presenting results and not processes. 

Companies now dispose of a huge assortment of tools to gain value insight into their business operations. But this isn’t really the disruption. Disruption occurs when armed through modern technology, executives are empowered to demystify the management consulting process. Then, camera, lights, action…. enter Decision Intelligence.

What is Decision Intelligence?

Decision intelligence is all about all aspects of selecting between options. In business, it combines applied data science, social science, and managerial science into a unified field in order to use data to improve businesses. It’s a solution that takes Artificial Intelligence (AI) to the next level. It’s a framework that brings advanced analytics and machine learning techniques to the desktops of non-expert decision makers. Using powerful technologies, human decision makers can reveal the meaning behind data.

Humans Are Bad Decision Makers

In the end, humans are satisficers —a term which is a blend of satisfy and suffice, introduced by the Noble-laureate Herbert A. Simon in 1956. We humans are plainly just satisfied with something being good enough, rather than shiny and perfect. Why? 🧐

Well, mainly since if we aim for the optimal solution, it could mean an uncalled-for outlay of time, energy, and resources.
A simple example would be selecting a breakfast cereal from among many in a store. Rather than spending time trying to find the best cereal for the best price, rather than comparing dozens, a satisficing consumer would just opt for a decent one with an acceptable price. As human-beings we utilize cognitive heuristics to save time and effort. Satisficing narrows down the scope of options.

Are We Often ‚Already Decided‘?

We often act before we even have all the facts. We simply decide on something and then nothing in the world will make us change our minds. We just then go off in the search of something or data to defend ourselves or to justify the decision we made and feel better about it all.

If we realize we are doing this, we cease to waste time and precious emotions… we were going to do it anyway! Decision Intelligence can improve the quality of the decisions we make, our ability to make them at pace, our skill in better aligning our resources around a change in decisions and can even lower any risks associated with these decisions.


Looking Down The Barrel Of Disruption

Success breeds complacency. Complacency breeds failure. Only the paranoid survive.

ANDREW GROVE, INTEL

Since the start of the rumor that management consultancy could actually be disrupted, just over five years ago in the Harvard Business Review’s article “Consulting on the Cusp of Disruption”, there has been very little evidence of disruption so far. However, that doesn’t mean that it won’t materialize.

The ace that management consultancies hold in their hands is the fact that “consultancy” is such a vague term. Until now, they haven’t been so far off in terms of adapting to clients’ needs and requirements in the new digital era.

But this is of course no guarantee for eternal survival…

From Pie To Crumble

So far, management consultancies have been quite accustomed to having the whole of the “consulting pie” to themselves. In the future, they may just only be left with a teeny-weeny slice, the sad remainder of the pie or, heaven forbid, just the crumbs.

The greater share may be hoarded and eaten up by other types of specialist firms. These specialist business concerns could be those that offer purely product performance or deliver only top-level competitor analysis.

Or worse, the biggest chunk of the pie could even be sneakily gulped down by technology, without anyone actually noticing or knowing why.

Meet The Disruptors

Fast developing, agile business concerns with out-of-the-box solutions, like RetentionX have very few limitations on what they can achieve for their clients for a very reasonable fee, in very little time—and time is, as always, of the essence. They empower their customers through the use of ever improved and advance technological tools and solutions to form their strategies, choose from various options and achieve the top outcome.

Consultancies need to be able to pinpoint what major development in the world will matter to their clients next and offer solutions and advice in order to survive: 

👉  What will be the next GDPR or Brexit of the future?

👉  What about cyber security or green energies?

With the emergence of decision intelligence and a range of other extremely disruptive forces that may come in the future, it is now simply no longer possible to rely on a name, albeit a prestigious one, to win over the business of today’s Fortune 500 CEOs. Just a name, albeit a famous one at that, is no longer enough…

 

 

Sources:
CB Insights, „Killing Strategy: The Disruption Of Management Consulting“

Data Science Enthusiast, growing revenues with the power of data – Founder & CEO of RetentionX, the leading Software for Decision Intelligence.

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