The Evolution of Business Consulting

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Professional services firms are undergoing a profound transformation. The markets are changing and the old ways of doing business are becoming obsolete. Customers paying for professional services are becoming more sophisticated and more discerning. Why are we still doing business as usual when the world around us is in such extreme flux?

The professional services industry is attractive because it requires high skill and little capital to grow firms for lawyers, accountants and consultants. Consultants today in North America and Europe are delivering services in a more independent manner, and buyers are more adept at navigating the complex integrities of client-supplier relationships.

The old pyramid model of Partner – Principal – Managing Consultant – Senior – Junior is crumbling at its base. The need to have a large contingent of junior consultants (analysts) on staff, and the economic model (blended rate with lots of cheap labor at the base) is being replaced with new more flexible hybrid models, leveraging higher skills and higher rates, with shorter projects.

If we look at management consulting as a profession, we observe a huge increase in the market supply of consultants as the “Baby Boomers” (born between 1946-64) flood the marketplace as independents, and in small boutique firms, creating new demand for their services and expertise.

Management consulting is now a mature industry in the developed economies. Arthur D. Lille founded his partnership in 1886 specialized in technical research. Frederick W. Taylor created his consulting practice in 1893. His business card read “Consulting Engineer – Systematizing Shop Management and Manufacturing Costs a Specialty.” Many other well-known brands, named after their founders, followed in the early 20^th century and been very successful businesses for several generations.

As the Industrial Revolution changed the nature of production and distribution of goods and services, demand for advice on finance, strategy and operational organization grew steadily. In the first half of the 20^th century, firms like McKinsey, Boston Consulting Group, AT Kearney, and Booz Allen Hamilton grew in influence. Harvard Business School (Monitor Group) and other fine academic institutions provided world class research into organizational design and industry best practices.

The Big Eight (then Six, then Five, now Four – Deloitte, KPMG, PWC and Ernst & Young) offered management consulting advice in addition to their traditional auditing and accounting services. The global Anglo-American professional services firms remain the benchmark standard in the industry but sometimes can be considered as brand-selling, with less of a clear differentiation.

So, how has the landscape changed and what are the issues facing management consulting firms going forward?

The edges around the old distinctions between consulting, staffing and outsourcing are fading. The mix of management and IT consulting has brought together strategy, people, process, and technology. The distinction between doing a project and providing resources to do a project is not always evident in buying patterns.

How to adapt and what does this mean for business consulting firms over the next twenty years? What is the added value of their services and how do they grow?

A famous quote from Darwin comes to mind: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

One of the major evolutionary trends is the progressive development of new collaborative frameworks, allowing a mix of large and small organizations to come together across specializations to create value for their clients.

These partnering models have become ubiquitous. Some of them are long-standing one-to-one alliances, for example between technology vendors and business consultants. And some of them are new structures of multi-party collaboration to gain global coverage and capabilities in research, sales and delivery of products and services.

Ecosystem development is the latest evolution in modeling alliance management:

In the USA, for example, which is by far the largest market (half of all consulting spend worldwide), many companies are struggling to define their market position, their brand and their identity. “We are (fill in the blank): industry experts, functional experts, global, local, a partnership, advisors, implementers, specialists in…”

Relationship selling is the way many US consulting companies want to go-to-market. A recent discussion with a key executive in a mid-sized firm (200 consultants) told me “we hardly ever bid on tenders, maybe once or twice a year.”

The selling process is either small, value-based proactive proposals, or frequently a simple staffing assignment (short term resource requirement fulfillment), to get a foot in the door and grow the account.

The buying process is a client with an immediate need, an ability to engage funds for a small project (under the procurement radar) and confidence that the consultant has the skills and the firm has the credentials to deliver.

It all comes down to time, skills, money, urgency of need and of course timing.

Consultants are typically hired to do a job because the buyer lacks the time or skills to do it in-house. In-house hiring is often more difficult and time-consuming than hiring of contract labor. Variable rather than fixed costs are sometimes easier to budget.

So, does the value reside in the firm (internal knowledge and best practices) or the consultant (experience and expertise) or the process (timing and availability)?

What surprises one most when we compare US vs European based business consulting models is the hybrid staffing/consulting models which have over-taken the North American market.

Here are some data points to do a quick self-assessment of the hybrid model:

• Time and materials vs project based fees
• Hourly rates vs daily, weekly or monthly rates vs fixed price bids
• Use of blended teams (FTEs are a mix of permanent staff and contract labor) vs permanent employees (staff the bench, first)
• Do anything generalist vs highly specialized team of experts
• Weak alumni club vs strong alumni club
• Hire to project vs hire to grow capabilities
• Resume-based selling vs project deliverable model

In the emerging markets (Latin America, Middle East, Africa and Asia Pacific), the story is very different. The management consulting maturity level is less than one generation old. Highly educated and quality labor has been used massively for the information technology and now business process outsourcing markets.

On-shore/off-shore models involving in-sourcing/out-sourcing resources are now filtering down from the multinational companies who have been leveraging the opportunity for years to lower costs, to the mid-tier markets.

The so-called “SWITCH companies” of the last generation (Satyam, Wipro, Infosys, TCS, Cognizant and HCL) all have significant traction in worldwide IT markets (Engineering, R&D, Custom IT, ERP / CRM), and are moving into Business Process Outsourcing.

Digital Transformation is a game-changer. Consulting companies doing Change Management outside of technology are experiencing rough sledding, and the terrain is getting rougher by the day. Strategy consulting firms are finding it more difficult to provide value in pure studies, and are now in the strategy execution business.

The most exciting and potentially high reward model is ecosystem development whereby the individual company has a mix of in-house core staff, with contractor expertise and outside partners who provide capabilities across four dimensions:

• Geographies – regional delivery teams
• Accounts – knowledge of and relationships within target clients
• Industry Expertise – deep understanding of sector issues
• Product/Service Offerings – bundled solutions creating stronger value

The evolution of the consulting industry, largely speaking has evolved over the past 60 years from studies to implementation to managed services:

• Research – academic studies of management as a discipline
• Strategy – assistance to position product/service to markets
• Advisory – organizational design & optimization
• Process Re-Engineering – large-scale cost reduction
• IT Design, Delivery & Support – outsourcing, SaaS
• Ecosystems – bundled product and service offerings

The professional services sector is still largely lagging behind many of the other industries in working their alliance relationships. But some of the more evolved management teams are now embracing partnership models, to the benefit of their clients, their teams and their organizations.

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