Disruptive Trends in Strategy Consulting

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Disruptive Trends in Strategy Consulting: Recent and Past

INTRODUCTION
In this report, we review three major disruptive trends affecting the strategy consulting firms in the US. To provide the full context, we also provide a brief overview of factors that trigger these trends.

There are several insightful theories and detailed explanations of these trends, which include additional trends not captured in this report due to the time and scope limits. In lieu of a full report of the additional trends, we provide a list of articles for further reading.

FACTORS INFLUENCING THE CHANGES IN STRATEGY CONSULTING INDUSTRY

1. Democratization and commoditization of knowledge.
In the past, strategy consulting firms solved their clients' problems and brought value by putting together strategic recommendations based on the consultants’ experience and skills. With the increasing amount of data available, clients are pressing for a more data-driven approach, which in turn changes the nature of the recommendations provided by these consulting firms.

With the rise of big data and artificial intelligence, consulting firms are forced to utilize these data in synthesizing their solutions. In the same token, clients also have increased access to such data and technology, making them more inclined to try to solve their problems using internal resources.

2. Increased senior-level awareness of the costs of hiring “solution-shop” consulting firms.
According to an article in Harvard Business Review, the recession in 2002 has made companies more watchful of their professional services spend. C-suite executives, who typically hired consulting firms, yet did not pay too much attention to such spend, are now becoming acutely aware of how their decisions are affecting their bottom line.

3. Disaggregation of consulting services.
As a result of the cost pressures faced by senior leaders at the client side, clients are becoming savvier in deciding which project they want to outsource to a consulting firm and which they solve internally. Instead of hiring “solution-shop” providers for the entire project, clients break down these projects into smaller chunks and split the work between internal and external teams.

DISRUPTIVE TRENDS IN STRATEGY CONSULTING WITHIN THE PAST FIVE YEARS

1. Increased use of digital platforms as deliverables and tools for consulting engagement.
In the past, the typical consulting engagement included in-person meetings and PowerPoint presentations. The drawback of this approach is that the data presented on the slides can become obsolete within weeks, reducing the value of the solution.

To keep their data and solution up-to-date, consulting firms need to leverage new technology, such as cloud and adaptive approaches in their deliverables. Implementing such technology will allow firms to provide real-time data that the client can independently update after the engagement is concluded. It will also allow firms to stay connected with their clients using the live platform.

Digital platforms also change the way clients select and interact consultants. Mobile, social and other digital solutions have allowed clients to review potential independent consultants, select and interact directly through a peer-to-peer consulting system. This system has the benefits of reduced cost while maintaining the right level of expertise of consultants needed for the project.

2. New business models of strategy consulting due to unbundling/disaggregation of projects.
As a response to increased client savviness in unbundling/disaggregating projects into smaller chunks, some consulting firms, such as Eden McCallum (EMC) and 10EQS, have created a new business model using a mix of freelance consultants as on-demand talents and in-house consultants. By using freelance consultants, EMC is able to provide specific expertise required for each part of a client’s project while keeping the cost low because it doesn’t have to invest in recruiting and training its consultants. The freelance consultants can also benefit from this model by choosing projects they are interested in and not having the demand of traditional consulting work.

Similar to the mix of on-demand and in-house approach mentioned above, other firms such as PSFK Labs offer a mix of solutions based on tailored and off-the-shelf research to meet their different client needs. This company build their reports using a network of consultants from around the world and provide their clients access to the analyses or reports, but not to the consultants.

A slightly different take on this network approach is done by the Gerson Lehrman Group (GLG), where it offers clients the option to connect directly with a subject matter expert from every industry for both short- and long-term engagements. Clients can engage by phone, in-person meetings, surveys, special reports or roundtables.

Another business model that has recently emerged is the offering of solutions for a particular step in the consulting engagement. Certain firms, such as Narrative Science and Inspirient, only offer automated data analysis and interpretation services. Others, such as Celonis, focus on process mining and modeling.

3. Asset-based consulting.
This approach consists of software solutions, models, algorithms and data-based assets, according to a book titled “Digital Transformation of the Consulting Industry: Extending the Traditional Delivery Model.” In this type of consulting, there is less human interaction. As a result, the services can be scaled and multiplied easier than the traditional consulting model. This type of services will also be less expensive because the firms can conduct multiple projects with the same consulting teams. Large firms such as McKinsey have started to adopt this model.

CONCLUSION

To wrap up, the main disruptive trends that have emerged in the last five years include increased use of digital platforms, use of data analytics solutions, use of in-house consultants, new business models such as using freelance consultants and specific solutions for a particular step in consulting engagements, and asset-based consulting.

FURTHER READING
1. Consulting on the Cusp of Disruption, Harvard Business Review, October 2013.
2. Digital Transformation of the Consulting Industry: Extending the Traditional Delivery System, Volker Nissen, 2018.

Part
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Part
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Disruptive Trends in Strategy Consulting: Future

Strategy consulting has experienced a boom in recent years as companies have sought expert advice to help them keep pace with rapid changes in technology and society. Ironically, there are an increasing number of consultants who are sounding the alarm that the consulting industry itself is at risk of falling prey to major disruptions over the next ten years if it doesn't evolve. Some of these trends, such as the increasing democratization of knowledge and businesses developing their own internal consultant groups, have already begun and are expected to accelerate over the next several years. However, the big disrupter on the horizon is the development of AI, which may take the roles traditionally played by strategic consultants and turn them over to advanced algorithms generated by the computers themselves.
Below you will find a deep dive of our findings.

OVERVIEW

Author and speaker Braden Kelley sees three major disruptions that are already "attacking" the strategy consulting industry:
The first and second "attacks" are already occurring now, and so are somewhat outside the scope of this question. However, the effects of these ongoing trends will cause great disruption in the strategic consulting industry in the coming years, and therefore must be discussed for the sake of context at the very least.

DEMOCRATIZATION OF KNOWLEDGE

There is an increasing body of publicly-available information, thought leadership, and strategic knowledge and wisdom online. Where once, the "models, templates, and tools of the consulting trade" were "kept 'secret' by consultants and locked away as intellectual capital," the "'democratization' of just about everything, including management information and knowledge, will continue so that anyone can access and apply 'best practices' on their own." This results in "increasing numbers of line managers feeling that they know enough to tackle the challenge themselves that they might have otherwise outsourced to a consulting firm," Kelly writes.
It's interesting in that light that of the example companies given for this project, GLG and 10EQS do not have blogs on their sites, and their news and media pages contain articles about the companies, but nothing that might give away their "models, templates, and tools." Expert 360, on the other hand, has a rather prolific blog which includes many interesting case studies and other articles which certainly seem to demonstrate their expertise, but which are so detailed that they might be accused of giving away the store. (We did not find any articles germane to the question at hand.)

INTERNALIZATION OF CONSULTANTS

The second trend, according to Kelley, is that "an increasing number of senior leaders are becoming fed up with spending $500/hr on newly minted MBA’s from McKinsey, Bain, BCG, etc. when they could hire them on full-time for $75-100/hr. by taking one of their promising senior leaders and having them spin up an internal consulting group." In addition to being ultimately less expensive, these internal consulting groups are less likely to take the insights learned (obviously, not including proprietary information about their clients) and use the experience gained to consult for a competitor than a traditional, neutral consulting firm.
The stream of talent from consulting firm to client is nothing new. What is new are the innovations of consulting firms to retain that talent. One is to offer more flexible employment than most companies are willing to entertain: "Whether the 3-day working weeks or 7 months on 5 months off type models have more traction, will be interesting to see." The second is for smaller consulting firms to build "freelance pools" to "better manage utilization" and "provide more flexible models of delivery to clients (i.e., longer term; lower touch)," which previously only firms the size of the Big 4 (PwC, Deloitte, EY and KPMG) could afford.

AI AND MACHINE LEARNING

Strategic (and other) consultants have long used computers as a potent weapon in their arsenal. Presented with a mystery, they identify the patterns (heuristics), from which algorithms and code can be derived. However, AI promises to remove human analysts from the equation with the creation of "computer programs that write themselves and eventually to heuristic identification and algorithm creation at some point in the near future." Consequently, there is a real risk to strategy consulting firms that their roles will be taken over by the technology firms currently developing machine learning and AI. Innovation Point notes that the strategic consulting industry is already seeing significant competition from "upstarts" like Domo, Looker, Qlik, Radius, CBInsights, and upBOARD. "By creating solutions at the intersection of big data, data analytics, the cloud, cognitive computing, visualization, and cross platform anytime access, these firms provide a glimpse into the type of automated, scalable data gathering, insights, and decision-making made possible by next generation technology."
This disruption of the strategic consulting industry is particularly ironic, given that keeping up with the rapid pace of technological development has long been strategy consulting's bread-and-butter. However, rather than wait for technology firms to take over their jobs, many consulting firms are developing AI of their own. Bainbridge Consulting, for example, announced working on developing their own AI at the SXSW 2017 conference.
In short, we may be looking at a time in the very near future where the strategic roles traditionally played by consulting firms are completely taken over by technology firms, but at least some consulting firms are aware of the danger and are actively working on developing AI of their own.

ON THE CUSP OF DISRUPTION

Consulting firm MoveMeOn states, "Consulting has been on the cusp of disruption for two years now. Whilst there are clearly changes afoot, we think this is just the beginning. We expect to see further hollowing of the center, with more specialized firms/ freelancers and continued consolidation of larger firms. We are also expecting freelance to continue its growth, and will increasingly take the more peripheral work from the larger consultancies." Innovation Point believes that the "first to feel the detrimental effects of disruption will likely be the large research and advisory firms such as Gartner, Forrester, and IDC. With models that rely on armies of analysts, PDF reports that become outdated the moment they’re published, and significant annual subscription fees, these firms embody the most significant vulnerabilities of the larger consulting industry."

CONCLUSION

Apart from the imminent development of AI, the major disruptions that will shape (and possibly decimate) the strategic consulting industry are already trending: The knowledge and models that were once trade secrets are now openly available online and more corporations are building their own internal consulting teams to control both costs and the flow of information to their competitors. The result is likely to be a consolidation of the industry over the next decade or more, and it may well be that younger, smaller, more specialized and more flexible firms will be the ones best prepared to take their own advice and change with the times.
Sources
Sources