Indian Institute of Management-Calcutta
Foundation Day Lecture
16th November 2015
Roopen Roy
Founder and CEO –Sumantrana Management Consultants LLP. Innovation is disrupting the consulting industry
Thank you for inviting me to deliver this Foundation Day Lecture at IIM Calcutta. It is a great honour and privilege for me to have the opportunity to exchange my thoughts with you. IIM-C has a special place in my heart. I started coming here as a young consulting partner of Price Waterhouse scouting for talent. Some of the recruits are now partners in consulting companies like IBM, PwC and Deloitte Consulting. Many of them are in the US or Europe. Then I started coming here for the occasional talk and finally, when the Peter principle caught up with me, I served on the Board of Governors of this great institution. I have been a consultant since 1986. For almost three decades, I have consulted with a diverse set of clients both in the private sector and the government. I have had the privilege of being the consulting country leader of both PwC Consulting, which was acquired by IBM, and Deloitte Consulting. I have also had the privilege of serving on the global leadership teams of both PwC and Deloitte and, therefore, have had a close view of how the consulting industry has grown and evolved. According to both Kennedy Consulting Research and
Advisory and Gartner, the size of the global consulting industry is about $125
billion, give or take a few billions. Therefore, it is by any measure, a large
service industry. Despite the dramatic changes around us, I would tend to agree
with my HBS Professor Clayton Christensen that the consulting industry has
remained more or less the same for the last 100 years. If you concede that I am
still a consultant, what do we consultants do?
We are engaged to solve complex business problems. Some of these
problems have to be tackled globally. Multinational corporations operate
seamlessly across national borders. Therefore, they expect their consultants
and trusted advisers to do the same. You can count the number of global
management consultants on your fingertips. Reason: to achieve a consistent
quality and scale across the globe, it requires sustained investments in
people, processes, technology, knowledge management and, yes, brand. It is not
easy. The entry barriers are very high. A famous HBS professor was asked by a plucky student to explain the difference between strategy and operational excellence in 30 seconds. He had written several books on the subject but he was perplexed by this, “Dad what do you do for a living? type question. Not to be intimidated, he told the student next morning, “Operational excellence is how to fish better, cheaper, faster in the same water body and Strategy is knowing where to fish.” Where and how are now blurred. While the 3 big daddies of strategy (McKinsey, Bain, BCG) are pushing down to operational consulting, the Big 4 (Deloitte, EY, KPMG and PwC) are climbing up. There is no clear distinction anymore between “pure” strategy and “pure” implementation. The line has been blurred. What is changing? Many clients are looking for, to borrow an expression from the car industry, “dream to gleam” services. They are saying do not simply provide me with strategy and design services, I want you to partner with me and implement the strategy until I see the gleam of polish on the new car that is now ready to roll out from my factory. Come and share with me the risks and gains. This is a far cry from traditional time-based or fixed fee billings. When I became a consulting partner at Price Waterhouse I was taught that the five levers of profitability could be summed up in one acronym: RULES. R stood for rates, U for Utilization, L for Leverage, E for Expenses and S for Speed of billings and collection. Profitability of a consulting project is higher if you can drive rates up, achieve higher utilization and have a bigger leverage which is known as “shape of the pyramid”. If rates and utilization are the same in two projects, the one which has a broader base in the pyramid will make more money. The second two levers must be minimized. The faster you bill and collect, your investment in clients will be lower, less money will be locked up in working capital and this will have a favorable impact on your project profitability. Let me explain the rationale briefly. That high rates of hourly billing are better than low rates do not require any explanation. But utilization needs a little elaboration. The available time of a consultant is a highly perishable commodity. Just as the revenue potential of an empty airlines seat vanishes as soon as the aircraft takes off, the revenue possibility of an unbillable consultant perishes if he cannot be assigned to a consulting project. Therefore, higher the utilization, the greater the contribution to both the top line and the bottom line. Leverage on the other hand is the partner to staff ratio on a project. Leverage is a major driver of profitability for large, global consulting firms. In any consulting assignment, data collection and analysis and requirements definition were jobs that the young, bright analysts did with great alacrity and confidence. They clocked a large number of hours that were billed to the client. Thus you had a both high utilization and high leverage.
Times are changing. The client has increasingly sophisticated approaches to big
data and analytics. Data collection and analysis have been either largely
automated or outsourced. Thus, the pyramids of consulting teams are shrinking.
Clients are no longer willing to buy vast amounts of “junior hours”, they want
the heavy hitting experts to weigh in. That creates a new scenario, where the
old “Rules” acronym works not, new rules must be written. We all know how SMAC continues to transform the world around us and how it is impacting the consulting industry. We are talking about social media, mobility, analytics and cloud. Let us take one example of disruption in each area. We will discuss social media first. The C-suite and the Board are keen to understand, for example, how the company is being viewed in social media, what are the live issues and if it can respond or adapt in any way as the “news breaks” not two days later. Consulting firms have developed algorithm-based solutions whereby live feeds are analyzed and a snapshot created of the positive, negative and neutral perceptions of the company. It is possible to drill down where the negative perceptions are coming from and if there are groundswell issues. Social media has now become a new battle ground for brands and corporate image. Mobile technology is of particular relevance to India because of its ubiquity and penetration. Mobile technology is spawning a large number of start-ups which are focusing on payment systems, learning and development, on-the-job training, marketing, healthcare and wellness, safety and tracking and supply chain solutions. In Analytics, the big area is predictive and prescriptive analytics. The client is not satisfied with a perfect set of diagnostic reports anymore. They want to know: what is to be done? Analytics is being used in areas outside business: to fight crimes, to understand election outcomes and to protect the environment. Increasingly, consulting in this area will be IP based. The Cloud is disrupting the world of IT services as never before. The first disruption in IT services came when engineers were made electronically portable through connectivity. Now students from IIM are launching bootstrapped start-up projects because they no longer need huge campuses to compete with the Infosys or Wipro of this world. They have access to huge computing power and storage on a pay-by-the-drink basis, they do not need to own the bar and its infrastructure! Increasingly the campuses will be an overhead like the townships of steel companies became. I shall now talk about a sweeping change taking place in internet space literally above the cloud and grasp its implication for consulting. A new storm of disruption is coming and this time it is
Aquila, the drone. Aquila has a wingspan longer than a Boeing 767. But it uses
lightweight materials that allow it to weigh about one-third of a Toyota Prius
car. It is the face of Facebook’s new battle in the sky to achieve supremacy in
internet connectivity. There is a second huge disruptive technology that is going to change the world of business, not just financial services. It is the Blockchain technology. Blockchain technology helps us to by-pass third parties and creates a cheaper, faster, better and more efficient method of consensus. For instance, if I sell my shares in Tata Steel I have to go through a broker of NSE or BSE. In the future I could rely on Blockchain to do that. Blockchain applications will be used for land registry, domain name registration on the internet, sale of content like books, music, films and it will extend way beyond monetary transactions. A mysterious programmer using the name Satoshi Nakamoto minted a new coin, which he called the Bitcoin, not out of gold or other metal but using mathematics and encryption technology. He wrote a whitepaper titled, “Bitcoin A peer-to-Peer Electronic Cash System” in which he said, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing willing parties to transact directly with each other without the need for a trusted third party.” Bitcoin is built on blockchain technology. Bitcoin and other digital crypto-currencies and the blockchain technology can transform our business landscape. We will need visionary and creative individuals. You do not need an army of consultants, you need real experts to leverage this technology. The advent of collaborative software like Yammer and Chatter are changing the way subject matter experts (SMEs) collaborate across the world to deliver solutions to a client. For instance, if I am a partner of a global consulting firm and I have a client in India in the beer industry which needs to solve a specific problem. Let us say my firm uses Yammer. I can go and post the problem in brief in a forum of beverage experts in my firm. It is more than likely I will not only find solutions but also experts who have actually worked on such assignments. I will have the ability to fly those deep experts to India to work on my client’s problem. That can be really powerful and I have seen this work magic. There is another trend. The consulting industry is disrupting much the way large consulting firms are using connectivity tools and the internet to harvest the knowledge and expertise residing within their global networks. There are a number of large, global companies which are knitting together virtual networks of independent experts and consultants to deliver outstanding value to clients.
Take the case of Gerson Lehrman Group (GLG). Today, they are the
world’s largest membership network for one-on-one professional learning,
comprising more than 425,000 thought leaders and practitioners, including
business leaders, scientists, academics, former public sector leaders and the
foremost subject matter specialists. They serve more than 1,400 client
companies in 40 countries. These clients include Fortune 500 companies in
nearly every sector and the leading professional services firms and financial
institutions.
I would like to conclude by quoting from the famous song of Bob Dylan: The line it is drawn What lies ahead are interesting times and a courageous voyage into an uncharted blue ocean. One thing I hope will not change: consulting will continue to be an exciting profession. You know why? Because it thrives on change and disruptive discontinuity. |
Chez Roopen >