Transforming the Business Models of Management Consulting

by Mary Adams on 08/21/2013

disruptive business

Going forward, traditional consulting firms will be forced to compete against business models that threaten their historical margins, streamline their processes with technology and automate many of their traditional activities.

So what will the new business model for management consulting look like when it arrives or has it arrived? You can help answer both of these questions.

Let’s start by looking at the current business model so we can look at how digitization is changing that model.

Current Management Consulting Business Model Canvas

Peers: Management Consulting specialist by practice, by industry or by location
Competencies

Financial

Statistical

Analytical

Research

Intellectual Capacity

Strategic Thinking

 

Processes

Proposing/Scoping

Research

Statistical & Financial Modeling

Analysis, Planning & Recommendations

Project Management

Recruitment

 

 

Value Proposition

Access to our people, knowledge, skills and expertise to get smart recommendations to build shareholder value.

Brand(s)

McKinsey & Company

Boston Consulting

Bain & Company

Booz & Company

Deloitte, Accenture

Monitor. A.T. Kearney

PWC, E&Y, KPMG,

IBM Global

Customers

Large Businesses

Governments

Non-Profits

 

Production PartnersPast Clients and industry experiencesE

x-Partners & Associates

 

Knowledge/IPPublished findings

Proprietary databases

Proprietary tools

Methodologies

Knowledge management systems

 

Partners-ChannelsMedia

Academia

Governments

Trade Groups

Associations

 

Culture

Ego-system

Performance driven

High stress

Lots of travel

Focus on outcomes

 

Tangible Assets

Computers

Stakeholders

At Client Management, Employees, Customers, Investors

Externally  Business community, Media, Local and national economies

 

OpCosts + Tangible                                + Intangible Capex

Profits

Revenues

Reputation and Valuation

The current business model has served both multi-national firms as well as regional and local firms well for decades.  However the days of unrestrained corporate spending on big consulting contracts are long gone. Corporate clients are getting more demanding and smarter about how they access consulting services.

Some corporations have built their own internal consulting staffs. At the Walt Disney Company a consulting unit called The Disney Institute is now teaching other firms how to better engage their customers. The Ritz-Carlton Leadership Center, a unit of Ritz-Carlton Hotels is teaching client firms how to give high levels of service to picky customers.  Zappo’s, the online shoe retailer, is teaching others the importance of an “engaging” culture and outstanding customer service at Zappo’s University.  The list continues to grow of other high performance organizations that have staffed up with their own in-house consulting resources to both continue to improve their own organization and to share their wisdom with others.  Sharing wisdom is popular, free and valuable to a brand in the 21st century. 

Digitization Accelerates Transformation

The change away from the traditional management consulting model are being accelerated by technology. Digital technology has automated a lot of the research, modeling and analysis processes traditionally provided by consulting firms. This ups the bar for these firms. There is greater need for synthesis of large amounts of data.  And beyond that, wisdom.  This will drive changes in both organizational processes and human capital competencies.

Technology is also impacting the value proposition of traditional management consulting firms. Providing access to proprietary knowledge and expertise is not as unique as it used to be. Whether it be accessing, learning, processing, preparing and assimilating knowledge or finding local resources to aid in those tasks, companies are getting smarter  at (and have a lot more options for) finding ways to gain new knowledge faster and at lower cost.

Management consulting firms will need to reinvent and reorganize their own  intangible capital. They will need to develop new competencies, processes and value propositions. They’ll need to use new digital tools that may be unfamiliar to them.  Ultimately, this will drive a new business model for the consulting industry.

We’ll look at that model next.

{ 23 comments }

Mark Runnalls October 15, 2013 at 6:19 am

Re digitisation of consulting models. Would you like to discuss this off line? I was the partner in charge of the roll out in Australia of EY Online and on the back of that we built EYWARE, the first re useable digital tool platform to engage with clients. This was back in 2001/2002 :-)

Cheers

Darcy Elliott September 5, 2013 at 1:59 pm

I just responded to an article by Jay Deragon and ended my comments by suggesting it would be interesting to see an discussion of changes in the consulting model itself. Then I went back to the website and found this!

But I am still not sure that I am talking about the same thing as you are when you talk about the consulting model. Your table does a good job of itemizing elements of the consulting business, but most of the discussion above seems to reflect the same old model that clients hire consultants as arms length third parties. We go about it differently but every consulting project involves data gathering, analysis and recommendations. Sometimes we actually get involved in implementation, which is a nice change, but the model is still fundamentally the same. There are two fundamental consulting models – project consulting and process consulting – but they have been around since before David Maister and every consulting engagement will be one or the other, or a combination.

What I mean about changing the consulting model is truly changing HOW we do our work. I don’t mean focusing on technology, or training, or implementation support. I don’t mean bringing in new ideas. I mean changing our fundamental way of doing business. The thing I have been interested in, and experimenting with in a limited way, is changing the client-consulting relationship in a way that changes how we do business. Is there a model in which the consultant is a trusted business partner of the client in a much more strategic and long term manner than a third party engaged from time to time for diagnostic, facilitation or advisory services? Is there a model that isn’t project or process contract based, one in which we share our intellectual capital and add value to the organization through ongoing day to day relationships with clients? Is there a model in which the third party consultant serves as a member of the organization in some way other than an employee or contractor? Is there a model in which the consulting profession redefines a role that bridges theoretical and applied research, post secondary education and the business community.

To me, these would truly be about reinventing our profession. There are of course, some changes happening. For example, executive coaching is a rapidly growing field and fundamentally a different approach to what we have done in the past. Long term strategic vendor relationships have been increasingly practical ways of providing more value for clients. And I have seen clients create their own internal consulting units (the natural evolution of internal value for rmoney auditing perhaps). But this seems to only scratch the surface. I would be interested in how others view this and what is being done today that I am not aware of.

Thanks for your patience in reading this far, and thanks for a thought provoking article.

Mary Adams September 11, 2013 at 8:56 am

Thanks Darcy for pushing the thoughts even farther along! My reaction to your comments about new business models:

I think there is a distinction to be made between the personal contribution of the consultant’s experience, knowledge, relationships and everything else they bring to the table (let’s call it their personal intangible capital)–and the tools and knowledge and everything else that the firm brings to the table (the firm’s intangible capital).

There are probably new business models for each of these. On the personal side, there are surely ways of creating new business models so that there is shared economic benefit, for example, for both the consultant and client (these have always existed but maybe technology could facilitate a new approach?). On the firm side, I think that there will be much more “automation,” the use of apps and tools to do work that was formerly done on an ad hoc basis by consultants. Consultants have not been creators of software in the past but I think that this is going to happen much more because it’s easier to do than ever. By packaging methodologies in an easy-to-use and -replicate form, a firm can get a much higher return on its intangible capital.

(We’re trying this path at Smarter-Companies, trying to create simple tools to help speed diagnosis of a company’s core value- and performance-drivers)

Sandra Pickering September 1, 2013 at 2:19 pm

Mary,
This article could be interesting for you too: The strategy consultants in search of a strategy – FT.com http://on.ft.com/190VEfc

Mary Adams September 2, 2013 at 10:07 am

Thanks Sandra – It’s a great article that gets at the trend we are all seeing.

Mary Adams August 27, 2013 at 3:02 pm

Suharto – You are right to talk about the fact that digitization is just a tool. And, on one level, I agree with you. We have many, many new tools than must be understood as a varied set of options, as ends to means.

However, digital tools (IT, the internet, social, to name just a few of the big categories) are collectively the drivers of the change away from the industrial era. In the industrial era, everything from agriculture to education to production to healthcare to government were all “industrialized,” using principles of mass production and concepts of efficiency and economies of scale.

This new era (which continues to have many names too: digital, knowledge, social, collaboration) will end up influencing the dominant ways of thinking as well. What will each business look like once it is “digitized” or “knowledge-ized” or “socialized” (OK that last one probably won’t make it as the moniker of choice:).

It is in this context that I also read Matt’s comment right before yours. How do we help organizations function effectively when the digitization is driving a greater (not lesser) need for trust, engagement and communication?

Both of you talk about the value of conversation and engagement. I think this gets to the heart of what we have all been saying about the value brought by a consultant today–to pull back and help draw out the talent and knowledge that is already there but is blocked by tools and models optimized in the industrial era.

Dr. Suharto Alkayed August 27, 2013 at 1:40 pm

It is agood article where many can contribute in discussing the timely subject. I am a management consultant for more than two decades now, however, I do think that the consultancy model is always changing based on the organization enterrnal and external environment where the management structure , culture , human resources capacity development level, utilization of technology level, and talented leaders at different levels availability accompanied with a talented consultant will decide what kind of model will be more appropriate for certain kind of consultancy. Needless to mention that digitization is only a tool at the end of the day that can be very helpful , but all depend on the the way of convining our main clients through a face to face discussion , taking in consideration all factors affecting the success of the mission at tha first place. Again it is valuable discussion.
Dr. Suharto Alkayed

Matt Alston August 27, 2013 at 11:16 am

Mary,

My career led me to become a change manager as I have restructured, reorganized, bought, and sold business units 9 times. In addition I built business in 36 countries so I have tested my model in many cultures.

There is always a system and a team of people using the system that generates the result in any business unit. My observation has been that the management structure and fixed beliefs behind those structures is the root of the problem.

When you take a team of people and they suddenly are acquired by a new management team you see that the management approach is now an isolated variable in the results and the effects of the different management approaches can be seen in sharp relief.

The management style and beliefs in my experience are often well behind the current state of the art. Dan Pink has made a very well written case for this in his latest book, “Drive”. His observations show research data into how management styles influence performance and his work mirrors the results I have seen in my work.

It may seem counter intuitive but I have seen a 100% increase in performance from simply changing a few key elements of the management structure. If you investigate that closely you find that the interpersonal environment in the team can change the outcome by 100% to 300%.

I think as consultants we have all seen parts of this process but the underlying model touches a very delicate subject of individual beliefs. If you believe in using incentives to get performance then reading Dan Pink will open your eyes to why you are not getting the results you expect now that we have moved from the industrial age into the information age.

If you go one step deeper into digitization you step on the next level of the problem. Communication theory demonstrates that 56% is in the look, expression and body language, 37% is in the tone, inflection and rhythm, and only 7% is in the words. Email and text messages contain only about 7% of the total spectrum of human communication.

Digitization and digital communication have led to a significant drop in personal communication skills, and a strange side effect of expecting an instantaneous solution to a problem. My observation is that it takes face to face communication, trust building, and synergy in a team to unlock the real potential of a unit. That said the dilemma is clear.

High performance comes from autonomous intrinsically motivated action and it is in clear conflict with a top down compliance based management model.

When I work with clients the first thing I do is assess their willingness to try different approaches and ideas. If they lack the willingness to look at themselves, see blocks in their thinking, and engage in changing themselves then a change initiative in their organization is not likely to be deeply and permanently successful.

Walter Strobl August 27, 2013 at 10:29 am

Our experience is, that customers are requesting and steering specific topics to consultants; i.e. customers a more mature and demanding instead of reacting to consulting offers. The demand is not “a general study about…” it is “help me to implement a BI Excellence Center”, or “help me to transform a disseminated technology into…”, “can you provide me with an RFP for a migration from BAAN to SAP”. It is more operational then strategic and ussualy based on new technologies (smart phone, cloud,…).

Mary Adams August 27, 2013 at 9:35 am

Thomas – Thanks for the reference to Schwaninger. I’ll check it out.

I use intellectual/intangible capital as a framework for understanding the collaborative knowledge side of business: people, partners, process and purpose. Each organization has a unique set of intangibles that are owned/built/attracted in service of a purpose, to solve existing or new problems. The goal is to understand what you have, how well it works for your stakeholders and where there are new opportunities. -Mary

Thomas Walbert August 27, 2013 at 4:56 am

Kinetic Value – I fully agree! I am a consultant myself and use the tools of systemic and complexity management. Companies need advice on how to build sustainable, high performance systems – knowledge, innovation – the people already have. The question is how to make it usefull in order to fullfill the companies purpose – deliver solutions for customers needs. Very inspiring is, I think, the work of Markus Schwaninger “Intelligent Organizations”. For the design of organizations – to release kinetic energy – the work of Stafford Beer (Viable Systems Model and Team Syntegrity) is excellent.

Has anyone experience with an excellent framework to develop strategies in this context?

Thank you, Thomas.

Niraj Goyal August 26, 2013 at 10:43 pm

Good article. In my view consultacies will need to partner in the the achievement of results by Facilitating companies tosolve their problems by using the techniques and methods of analysis that they propagate. This adds real value while creating a conviction that they can demonstrate what they say and creates long term relationships with clients.

Richad Syrek August 26, 2013 at 7:04 am

Interesting article. I agree that change is coming, but it must include the tangible knowledge of the consultant that comes from real life experiences. Also important is that the consultant can broaden the view of the client to the needed business model. Clients know there product, but often do not integrate the whole business model to assure success. Consultants need to adapt their approach, but must not sacrifice their wisdom.

Lonnie Bewernitz August 26, 2013 at 6:52 am

Hello Mary,

Thank you for the article. You point out that the consulting model is changing, and I agree. It has changed, and will continue to change. However, many companies will continue to utilize consulting firms in areas that the leadership recognizes drastic change is needed, and it doesn’t have the internal expertise to drive the change. In order to remain competitive, companies are changing their culture to take advantage of their biggest asset, their employees. If an organization embraces Continuous Improvement with team based employees, their need for outside help from a consultant isn’t as great.

However, our economy is experiencing the launch of many new medium and small firms. These firms are typically the result of an entrepreneur with a vision and business expertise in one functional area. They have initial success but the stresses of “covering all of the bases” becomes a barrier. This is where the expertise of an outside consultant is invaluable. By working with the organization’s team to fix or develop processes that improve customer value, and working with the entrepreneur to set up an ongoing Management Review process, the consultant can deliver value that the client can measure.

Walter Strobl August 26, 2013 at 2:07 am

There is a value in business consulting which will still remain; it is to show its customers the “forest hiden by the trees”; i.e. it is difficult to discover improvement potencial from inside.

Sandra Pickering August 23, 2013 at 6:03 pm

Thank you, Mary,
So pleased to see someone else interested in disrupting the old model.
We’re on the journey.
We think it needs:
1. deep and extensive domain experience
2. a well-structured knowledge base
3. the ability to develop models and algorithms that bring efficiency and effectiveness.
Come and join us at http://www.opento.com!
Sandra

Colin August 23, 2013 at 2:27 pm

Great stuff. Very interesting to see if big management consulting houses adapt or fade away. I wonder if tree is a Google or Facebook of consulting in the wings.

bryan August 22, 2013 at 6:58 pm

Thank you for a very interesting article. I’m looking forward to the sequel, Mary!

Paul Wilson August 22, 2013 at 9:02 am

Technology has already transformed consultancy and reduced the research and analysis time. I like the differing points of view and I am sure technology will have further and dramatic impacts on our industry.

The performance of a business is usually set by what people and systems do on the front line and changing what people or systems do everyday can improve performance. I do hope we don’t forget these frontline skills in our quest for digitisation. Making the improvement happen on the ground requires facilitation and strong interpersonal skills. I have just been working on the front line at an Accident and Emergency Unit and it has reminded me how important it is to ensure the change reaches the front line and work in practice.

Nick Close August 22, 2013 at 8:03 am

agree with the sentiment of the article. Technology will advance and enhance the client offering, becoming part of the extended value-add package that includes knowledge transfer and software as a commodity to sell on. This is part of the conclusion we reached in a White Paper earlier this year….http://tinyurl.com/adapt-prosper-wp

Marcio Teschima August 22, 2013 at 1:50 am

Totaly agree, in Brazil we are moving fast and foward developing digital / digitized services, changing manual labor and getting automatized process theought BPMS + ECM process using PKI and biometrics for nato-digital legal process

Mary Adams August 21, 2013 at 1:05 pm

I think the problem is that the medicine is outdated so taking some of its own medicine is part of the problem in management consulting.

The art and science of management is changing as employees, customers and stakeholders become the source of innovation and value creation for organizations. “Managing” these situations using top-down, “we know the answer” approaches can be very dangerous. I’m not sure that people inside organizations or consulting firms) have the right tools. They do have the knowledge and experience to find new, more productive paths to the future.

What’s missing is the thinking and action to release what you rightly call the “kinetic value.”

Francis Lambert August 21, 2013 at 7:06 am

Thanks you Mary for the interesting article. Could this mean that the consulting industry will have to take some of it’s own medicines?
To me the only real business model in consulting is delivering value that exceeds the cost ( Alexander Proodfoot’s 1946 model). Although I have to agree that finding ways to extract value has become more difficult, there is still plenty of value out there. I like to think of it as kinetic value. Just like kinetic energy is innate to every object, every part of an organizational system has innate value it can generate when the right conditions are present. Most organisations don’t need new tools and methodologies, they are not fully using the ones they already have. Management or the organisation itself often stands in the way of progress and evolution. To release the kinetic value the organisation’s needs to interact in harmony and play there part to perfection not unlike a symphony orchestra.
I believe you are right in your evaluation of the trends. I would also add that large consulting companies may still be able to offer scale but the smaller players can be more flexible and attentive to customer needs. To borrow a cliche, the ground and low hanging fruits may have been picked, but the real prize is the sweet fruit at the top of the tree.
Cheers

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