Why Management Consulting Will Be Disrupted: Part 1

by Jay Deragon on 08/12/2013

Wisdom_vs_KnowledgeLooking back over business history we can see that management consultants have influenced institutional thinking, the language of business, and, above all, the re-organization of people’s lives.

The leading gurus of management became famous because of their academic accomplishments, books they’d authored, new business insights they’d created and political influence gained with industry leaders.  The gurus’ play book fed the appetite of a business ego-system obsessed with short-term results to satisfy Wall Street, stockholders and self-serving management agenda’s.  Employees always knew a layoff was imminent whenever management announces a new initiative (re-engineering, reorganization, and quality improvement), being implemented by yet another management consulting firm.

New initiatives, or this year’s management de jour, show management trying to come to grips with radical changes yet recognizing they do not have the knowledge necessary to find adequate solutions. So what has management traditionally done? Hire in the knowledge gurus, management consultants.

How Much Does It Cost to Get Knowledge?

Companies pay executives to manage the business. Managing a business requires knowledge. Management’s job is not only to have the right kind of knowledge to do the job but to continually acquire new knowledge necessary to manage the changing dynamics. The problem is management doesn’t have time to acquire new knowledge so the easy thing to do is hire someone else who has it.  The reason they don’t have time is because their time becomes tied up solving old problems.  I guess the old knowledge was inadequate.

Management consulting has been and still is an industry that capitalizes on the study of macroeconomic, technological and social change then creating labels  for new management theories they’ve discovered from their infinite wisdom.  Also known as factories of new knowledge for sale, you can only get the knowledge from their books, their anointed apostles who’ve been trained in the practices or you can get it from a copycat at cheaper prices.

Ira Sager writes in a June 13, 2013 Bloomberg BusinessWeek article:  Over the next 12 months, 82 percent of the U.S. clients surveyed by market researcher Source Information Services say they won’t cut the amount they spend on outside help. And nearly half, 42 percent, plan to bring in even more consultants, while 5 percent expect to boost their spending on consultants by more than 50 percent.

The U.S. market for management consulting grew 8.5 percent last year, to $39.3 billion. The fastest-growing areas: marketing and sales (25.6 percent), operational improvement (11.3 percent), and technology (10.1 percent). 

Where do U.S. companies need help? Not surprisingly, digitization is high on the list, which the research firm says is benefiting consulting companies IBM (IBM), Deloitte, and Accenture (ACN), leaders in this area. “Where the rest of the world talks about globalization, America talks about digitization,” according to the report.

U.S. companies, however, are spending much less on strategy consulting. That sector is expected to grow just 3.7 percent next year, not good news for McKinsey, Bain, and other leading strategy specialists.

Management consulting has been and still is a huge business because, understanding and applying new knowledge is the solution to every business problem. This is especially true when markets are undergoing dramatic changes.

The Business of Knowledge is Being Transformed

The word “consult” means to ask advice or opinion of or to deliberate together. We are living in a knowledge driven economy that is data-to-wisdom1heavily influenced by collaborative forces sharing intangible and tangible assets to create new value.  The internet has accelerated collaboration and people are learning from the interactions.

Note the Bloomberg BusinessWeek article states that the fastest growing areas companies are seeking help in are marketing and sales, operational improvements and not surprisingly digitization.  So the obvious question that one might ask is whether the answers to these issues exist within the organizations “social network” and “resources of knowledge” or does it only exist in the minds of expensive management consultants?

The internet will be disrupting the management consulting industry’s business and mental models because more and more people are seeking wisdom while many consulting firms are still trying to sell knowledge. Knowledge has become a commodity because of digitization. Wisdom comes from transforming knowledge into a skill that changes your results.  Now there are tools to help the transformation.

We’ll look at these issue further in Part II through Part IV next.

{ 78 comments }

Jerry Gray November 1, 2013 at 1:24 pm

Hmmm…

I was a director at a small-medium sized consultancy in 2004 when the management team participated in a workshop to look at strategy & opportunities. I remember the workshop facilitator saying: “Who really believes that in the future management consultancy services will continue to be delivered mainly face-to-face at the client’s premises?”. Well, I’ve been waiting for the ‘big disruption’ for nearly 10 years now and I still don’t see it coming.

Where’s Robo-Consultant, backed by a serendipity-style knowledge base – with its brilliant & natural user interface – that allows execs to ‘get answers’ that they normally pay blokes in suits thousands for?

Despite some limited headway (some of it recorded in replies here, well done to you if you’ve had some success introducing this type of service) the dominant model remains with blokes in suits and eye-watering fees. But that’s because this article cites knowledge & wisdom as the main value of using consultants. Sorry, but after many years in the industry I don’t think that’s the case. It’s not primarily about ‘getting answers’.

Clients use consultants for a variety of purposes, some legitimate and some not, but the knowledge & expertise thing is actually pretty low on their list of consultant value-add.

Much higher up the list (and quite legit) is giving their tired and change-weary organisations a shot of adrenalin: making things happen with an energy & focus that sometimes only outsiders (on big fee rates) can bring. Then there’s working out how to ‘communicate the case for change’ to their people, when they are too busy or too important to bother with such trivia (rather less legit). And of course there’s driving through savings which involve sacrificing people and in the process largely absolving them of any blame – ‘the consultants identified this needs to be done to stay competitive’- (not legit at all in may opinion). None of these services will never be delivered over the web.

And that’s before we consider HOW the big consultancies actually get their work. Knowledge and wisdom matter much less than connections and relationships.

A partner with one of the big firms is not going to worry about a knowledge-base or app or crowd-sourced answers that clients can access. Not when he’s spent the last 2 years wooing the CFO of a major corporation in the safe knowledge that when that CFO becomes CEO, he’ll get the call … and with it a 3 year transformation programme worth millions.

Francis Hilotina October 16, 2013 at 3:21 am

The ‘data’ channels of the Internet as a whole are no different in analogy from a crowded airport terminal where one finds all kinds of information are exchanged. Observations, hearsays, emotions, notions and assumptions, they fill up the bandwidth of one’s focus and attention. At the end of the day, does this experience make one an expert in any particular knowledge or understanding? Does knowing the truth fulfills one’s search for meanings and informed decisions? Consultants can be different from this crowd in that they eliminate guesswork, simplify thinking, and provide alternatives and clear courses of action for customers. It doesn’t what channel you are tuned in. What matters is not who gets to the truth first, but who gets things done right quickly. I think the demand for correct action is ever increasing, and so is the need for consultants like you.

Business Consultant September 28, 2013 at 5:13 am

Hello,
I really appreciated your article and I think the mention of Wisdom as a parent of Knowledge is the most interesting part of it.
However, you main point is that today connectivity is accelerating the information provision and sharing inside organizations, and hence their might be no place for skills and knowledge selling in the future, which would mean Management consulting in the future.
I do see two positive thinks you missed in the articulate:
1/ Connectivity accelerates problems at the same speed as to how it accelerates information sharing. So we are getting even more complexity and less visibility on the Business world.
2/ Wisdom itself is versatile and can be traded in the future, by Management and Strategy consultants.

L Hiram(LARRY)Adams September 18, 2013 at 10:27 am

Was one long before Dr. Edward Verlander,Professor of Business and Management,Columbia School of Business defined Management Consultant from the academia side in 1986.
Visit us at http://www.smadaandassocs.com
Eevn today there are those who do NOT know the difference between a Management Consultant and a Consultant to Management and this is very important to the acceptance of your work. August 1955-December 1992.December 2005 continuation of one carrer from finance,banking to white collar crime investigations.

I enjoyed this article take heed everyone there is much very sound advice here and I shall stay tuned even though retired after 48 years, August 1957-December 2005.
Thanks for your time.
Larry

Jay Deragon August 29, 2013 at 3:42 pm

Sandra….Loved your model and your comment. Thanks for taking the time and sharing your thoughts.

Everyone might be interested in a FT article that appeared today titled “The strategy consultants in search of a strategy” http://www.ft.com/intl/cms/s/0/f15acee6-0f2d-11e3-8e58-00144feabdc0.html#axzz2dNZLlMD7

It seems as though others see lots of disruptive forces in the management consulting industry besides myself :)

Stay tuned for further updates in future post and everyones input is greatly appreciated :)

Sandra Pickering August 28, 2013 at 5:47 am

I am looking at the same forest as you, Jay and would like to share our own small example of disruption.

As we shaped our own consulting business model, we visualised the consulting industry on a ‘jobs to be done’ map.
So, I agree with Steven Chapman’s comment above: consultants are hired for a number of different jobs to be done, not just knowledge / wisdom.
One of the key jobs to be done (JTBD) by a Big Consultancy Co. is to act as a signal/badge to the market/shareholders. This is a brand benefit provided by BigConsultancyCos and demands an appropriate, large price premium.
There are many other JTBD that could be addressed: ego-massaging, taking the client to dinner. communicating difficult messages to employees from management, doing other stuff that the client can’t or won’t do.
These are all valuable benefits.

At opento we decided to be disruptive by focusing on maximising efficiency of our core added value knowledge and experience-based assets. We built interactive products that use our knowledge base (created from decades of managing brands and businesses at the front line as well as from consulting experience).
Our members use these products interactively online at http://www.opento.com to work on their own brand and business model challenges with the opento experts providing direction remotely.
By focusing on maximising efficiency, we are able to deliver high added value fast and at a competitive price.

There is a downside of course: we generally don’t take our members out to dinner – which means we also don’t include the cost of that dinner in our prices :)

Pranav Mehta August 26, 2013 at 12:05 am

Superb article excellent! To be updated one needs to acquire skills by learning or hire someone who is knowledgeable to help them formulate the strategies to gain desired results.

Avinash Kulkarni August 21, 2013 at 11:29 pm

Excellent article. Most of it is, so far, a common general knowledge for the readers who have spent some 20 odd years in managing organisations in some capacity or the other. But then why excellent?…… It is well articulated and focussed. Looking forward to reading the future parts.
Regards……….. Avinash Kulkarni

Mr. Adel Gaballa August 19, 2013 at 4:21 am

Thank you jay for the knowledge and wisdom contained in your article; but, it is not the case in each country and each business culture. I worked as a consultant over a time of 30 years, and in areas that covered operations, corporate planning, and reorganisation. And in industries that covered: Airlines, Aviation, IT, Healthcare, Education, and Telecommunications. When I was hired, the organisation wanted, not only my knowledge, but also that I implement (wisdom) one of the alternatives (knowledge) that I put before them; and not to leave the organisation until the implementation is successful, otherwise I am in trouble and have to pay back the money paid to me. Another higher wisdom that you may reflect on is: when a consultant works in a number of organisations and in various industries, he/she brings a variety of industry knowledge and wisdoms (yes, plural !) that the particular organisation never knows about; and thus, benefits greatly from such consultant. Here is an example: I planned the operations of customer services activities for the sixth biggest airline in the world for 3 years ahead. The airline handled the passengers of 90% of the airlines using that international airport. This is strictly an airlines activity. However, when the airport authority wanted to plan for the future expansion of the airport and its facilities and standards of services, and asked for the airline’s view; I was able to provide them with my forecast for passengers growth, the increase in aircraft movements and types, and other operational variables.
I have also grown as a very wise consultant, and into very wise retirement from such demanding, but highly enjoyable profession.

Not just English August 17, 2013 at 10:16 am

Knowledge is knowing that a tomato is a fruit. Special knowledge is knowing that this is not the case in all languages. Wisdom is preparing for the eventuality that a tomato may not be a fruit.

Steven Chapman August 17, 2013 at 2:52 am

I disagree with one of the basic precepts of this article. It says that companies hire consultants for knowledge. While in some cases this is true, there are two other reasons why consultants are hired: second opinions/validation and delivery.

In the strategy space, consultants are certainly hired for knowledge and insight, but they are also hired to get a second opinion. You may have the expertise in house, but you want to get a second opinion and some level of validation before spending millions on executing a plan or idea.

With the multi-discipline consultancies like Accenture, IBM, Deloitte, etc., they are certainly hired for knowledge and insight but most often they are hired for delivery. In many cases, the company does not have the capacity to deliver “that new thing” because all of their people are operating the current business. In addition, with an operational efficiency focus from the last 7 or 8 years, there are no excess resources to do anything outside of run the current business. In other cases, the consultants are hired for delivery because its what they do and irrelevant of whether the capacity exists, the company does not have the wherewithal to get the effort completed.

Sandeep Dayal August 16, 2013 at 10:42 am

Actually, the McKinseys of the world are doing just fine. If you want to know how the partners at these firms make it all work, see our latest POV at http://bit.ly/14e9Q47.

Curt Becker August 16, 2013 at 9:55 am

Wow… Substance! Excellent!

George Jones August 16, 2013 at 9:32 am

I paraphrase a quote from Columbo (Peter Falk) that goes:
I’ve seen a lot of murders in my career, and the murderer only has seen one. I always win.

George Jones August 16, 2013 at 9:31 am

I paraphrase a quote from Columbo (Peter Falk) that goes:
I’ve seen a lot of murders in my career, and the murder only has seen one. I always win.

Hubert August 16, 2013 at 8:22 am

Having (involuntarily) worked with management consultants many times it is my strong believe that most of them only collect data that is readily available to anyone taking the time and effort to look for it within their own company. With that knowledge I came up with my own two definitions of a consultant:

1. A consultant is a person who asks you for your watch to tell you what time it is.

2. A consultant is a person that knows 50 positions for sex but no woman.

BKR September 26, 2013 at 10:11 am

That was very original (20 years ago).

Geoff Parcell August 16, 2013 at 7:20 am

….and innovation is putting tomato in a fruit salad!

Jay Deragon August 16, 2013 at 7:17 am

I appreciate every’s feedback, even the grammar critics.

There is an expression “seeing the forest for the trees” which implies to discern an overall pattern from a mass of detail. This was an article not a research paper designed to be referenced with other materials to support a position. This is my opinion based on the “patterns I see appearing in the marketplace” of management consulting services. This is also the patterns I see appearing in big data, analytics and intangible capital trends as the internet of everything transforms business as usual.

A few other points to keep in mind. I am not a journalist and yes I should check my grammar and spelling before publishing my articles. Thanks for reminding me and pointing out the errors of my ways. This article is part I of IV with my conclusions discussed in Part IV so one should not make conclusions on my opinion on the subject matter until they read the whole story and struggle with being tripped up by the remaining trees :).

Eduardo La Madrid August 16, 2013 at 6:32 am

hi, just to interject, knowledge will always be a stage that we cannot discount because it is directed towards wisdom after its applications in the business world. Wisdom will always be a reinsertion of the rudiments of management outside the complexities established and created by the politics of ideas turned solution to a management problem. Its a concept in management define as marketing.

stefsz August 16, 2013 at 2:28 am

You have a problem with English:
“layoff was eminent”? are you sure it’s not “imminent”?
“The guru’s play book”… Which guru? Oh! That’s about gurus in general… In which case the spelling should have been “The gurus’ play book”…
For the remaining ones I’m charging.

Aditya Malik August 16, 2013 at 12:37 am

The author doesn’t seem to clearly substantiate the assertion viz. Management consulting will be disrupted. If the incremental assertion (without proof) is that ‘organizations now need wisdom, consultants don’t have it, the internet does’.. well.. a a small step through a long article!

Charles Loewenberg August 15, 2013 at 12:18 pm

Haven’t read all the comments…and…my 35 years consulting to large and small companies, in The US and The UK informs that much of the time solutions to a company’s issues are firmly embedded within the knowledge base and creative abilities of that organization, but often lacks ‘the process’ to get at it.

Other times it may be essential to introduce new knowledge or technology into the mix (management’s primary task shouldn’t be to acquire new knowledge, rather managing). And it’s also critical for the organization to have a system that can digest and utilize that (often excellent) information. That comes from good management, and thoughtful leadership. I have stories.

Peter Quintana August 15, 2013 at 7:57 am

The danger in writing articles like this is that the research required is very extensive, and if a key area is over-looked, such as the fact that high growth businesses typically bring in outside help – and that outside help is a mark of a high growth business – then the key message winds up being diluted to the point it has little value.

Miles Kierson August 15, 2013 at 7:26 am

A thought-provoking article as well as a downright provoking one. I don’t agree with much of it, or at least I don’t think I do since I don’t know what the author means by the words “knowledge” or “wisdom” — certainly not what I mean. And as some comments alluded to, management consultants at their best understand that the culture of an organization will only produce more of the same, and significant change will rarely be successful from the “inside” alone. Ergo, management consultants, leadership consultants, and executive coaches will prevail. We are much needed — now and for the foreseeable future. And the good ones are worth hundreds of times what they charge.

Bela Bartis Jr August 15, 2013 at 6:21 am

Excellent article and some very good comments. Learning from each other and getting fresh prospective is very important, while the managers and leaders often are very busy to take care of the business, and playing the inside politics, while trying to lay off more employees to increase profit, and even worse is the fact that unfortunately most business are still looking at short term results. Even the article points out ” The U.S. market for management consulting grew 8.5 percent last year, to $39.3 billion. The fastest-growing areas: marketing and sales (25.6 percent), operational improvement (11.3 percent), and technology (10.1 percent) ” Marketing and sales grew by 25.6 percent, and that is the short term perspective that often leads to the end of the company. The management consulting should focus more and more on the long term benefits of the company, but that takes commitment from both side, something the our society is not trained anymore. The best similarity is like the marriages today, get to know someone, get married, guest big party, maybe kids, lots of spending, glamorous period, short time benefits and many divorces and bankruptcies. Not looking at the long term and having many nonfunctional people because they did not have any stable childhood. Similarity with the company, laying off XXX employees, increases short term profit, or getting some new marketing gimmicks increases sales, and the manager and the consultant is happy and will be rewarded with some bonuses. However they did not look at the long term that the other employees who stayed behind lost loyalty to the company, and by not building a “relationship” with customers the spike in sales lasted only a short time many six month to a year. In my conclusion management consulting will be disrupted because sooner of later companies will realize that the current approach is not working in the long run.

Lindsey August 15, 2013 at 2:54 am

I agree with Matt’s comments. The grammatical errors made it difficult to read. If the author does not take the time to proofread (or hire a copy editor, as Matt suggested), it leaves me wondering how much time was spent researching the topic at all. What could have been a great article now lacks credibility.

Tamara August 14, 2013 at 10:53 am

it is a very good article and is giving a lot of information such as some Nations looking at Globalization and whilst America forecasting on Digitalization.

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