The Disruption of Traditional Consulting
(Views are personal)
When Harvard Business School Professor Clayton Christensen speaks, you turn a deaf ear to him at your own peril. He has now co-authored a seminal article titled “Consulting on the Cusp of Disruption” along with two of his colleagues Dina Wang and Derek Van Bever in this year’s October issue of the Harvard Business Review (HBR). The article argues that the fundamental business model of management consulting has not changed for 100 years, but is now ripe for disruption.
The authors believe that parts of the consulting value chain are being commoditised. Challengers like Business Talent Group (BTG) are modularising. They claim to be delivering pieces of the consulting value chain faster and cheaper. They are doing so by using tools like analytics, using public domain big data and automation. The authors have quoted BTG’s CEO, Jody Miller as saying, “Democratisation and access to data are taking out a huge chunk of value and differentiation from traditional consulting firms.” Therefore, the authors have asserted that, “Scores of startups and some incumbents are also exploring the possibility of using predictive technology and big data analytics to deliver value far faster than any traditional consulting team ever could.”
As disruption in consulting happens, the authors have predicted four outcomes:
(1) Consolidation of the consulting market: Those players that cannot adapt to the disruption will be disrupted and will either be taken over or will cease to exist. “Winners will be differentiated from losers by their understanding of the evolving pressures on their clients and by their ability to bring clarity and skill to fulfilling clients’ new requirements.”
(2) Disruption will begin with smaller clients: The consultants will protect their fortress of large clients keeping the flank of smaller clients and startups unguarded. “Industry leaders and observers will be tempted to track the battle for market share by watching the largest, most coveted clients, but the real story will begin with smaller clients — both those that are already served by existing consultancies and those that are new to the industry.”
(3) Blurring boundaries of professional services: The authors have discussed the business model of Deloitte Consulting (an organisation I work for) which is “ideas to impact” . Not just generating smart solutions to complex problems but also partnering with clients to implement them. In the words of the authors, “Another example is the Big Four accounting firms, which have moved into a diverse array of professional services; like IBM and Accenture, these firms aspire to be “total service providers.” According to a 2012 Economist article, Deloitte’s consulting business is growing far faster than its core accounting business and, if the pace continues, will be larger by 2017. The other firms in the Big Four divested their consulting services almost a decade ago, after the introduction of Sarbanes-Oxley legislation and other US reforms, but are now catching up and starting to stake a claim in the higher-margin management consulting business.”
(4) Invasion of hard analytics and technology in consulting is a certainty: I have absolutely no doubt about the need to use analytics and technology in predicting scenarios to clients and providing them with unique insights. Those consulting outfits that do not have core strengths in technology and analytics or, for that matter, in mobile applications and cloud computing will struggle to be at the cutting edge of innovation and creativity.
I agree with the authors that unless the consulting firms innovate and change their business models ahead of the curve, they run the risk of being disrupted. The authors are not proposing that consulting firms are on a journey to Jurassic Park. They are contending that the way consulting services will be delivered in the future and charged for will be dramatically different from the “here and now” scenario.
But I am a little sceptical about ‘the automation of service’ bit. In 1996, when we were about to set up a large software factory in Salt Lake Electronic Complex, I was told by one of my former bosses that it was an extremely risky proposition. There was a new invention, he said, called CASE (Computer Aided Software Engineering) tool, which would automate the production of defect-free software without any human intervention. We, of course, did not listen to him and went ahead with our project. The rest, as they say, is history. If Indians had listened to such predictions, we would not have created a powerhouse of IT services industry, which exceeds $100 billion annually in revenues and contributes 8 per cent to our GDP.
In 2002, we heard that consulting would become extinct because everyone will “outsource” their non-core businesses and there would be no need for technology implementation services. That did not happen. It is now being predicted that robotics and 3D printing will hollow out manufacturing in emerging countries and re-shore them back to the US, Japan and Germany. Clearly, these new disruptive technologies will change our lives. However, the world is a much more complex place. To take a cue from Mark Twain, the rumours of the death of manufacturing in China and India are greatly exaggerated.
I have no doubt that the consulting business will have to embrace dramatic change. Its value chain will be disaggregated and some parts will be commoditised. The tools of trade will change, methods of analysis will vary, the business models will morph and the dependence on cutting edge technology will be even higher.
As businesses sail into uncharted waters, the need for the smartest minds, the best solutions and the most robust analysis will be even greater than before. Those who solve the clients’ most complex problems and partner with them from strategy through implementation will be the winners of tomorrow.