In Part I of this series the post ended with: The internet will be disrupting the management consulting industry’s business and mental model 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 result. Now there are tools to help the transformation.
McKinsey, Bain, Boston Consulting Group and all the other well-known strategic management consulting firms hire some of the top graduates from the Ivy League schools because they’ve proven their intellectual capacity through achievement of academic honors in business, science, engineering, technology and math. Once hired by the consulting firms the graduates begin to learn applications of the knowledge gained using it in context of different institutional situations. Over time the new hires begin to sharpen their skills and can help clients solve problems or design strategies to gain competitive advantages.
All consulting firms hire smart people but some look to hire experienced specialist in specific knowledge disciplines i.e. IT, organizational development, training, sales & marketing, digital technology etc. While strategic development is usually included in their services it is not the primary focus of their practice.
The management consulting business model is to sell knowledge and skills by transforming these two intangibles into tangible examples used to highlight their “insights”. The transformation happens by publishing research, creating media, speaking at industry events and a constant stream of published best practices and case studies used to highlight their “insights”.
The business model is expensive. The top management consulting firms get seven-figure annual retainers to bless you with their presence. There is no “rate card” for buyers to compare the cost of one consultant to another. Buyers are paying for use of knowledge and skills they don’t have but need and they perceive it will help them make improved results.
Knowledge refers to theory and skill refers to successfully applying that theory in practice and getting expected results. If a company needed help the smart thing to do was to hire a management consulting firm who had the knowledge and skills required to solve the problems. But being smart doesn’t always equate to having wisdom.
The Wisdom of Disruptive Innovation
Everyone knows that over the last ten years the internet has disrupted industry industry. The disruption is caused by innovative business models fueled by the speed of technology and creativity of those who dared to believe they could rewrite the rules that governed industry after industry for generations.
The management consulting business model has historically succeeded at the high-end of the market because this is what has historically helped suppliers succeed: by charging the highest prices to their most demanding and advanced customers at the top of the market, companies have achieved the greatest profitability, i.e. McKinsey, Bain, Boston Consulting Group and a host of others.
The lower and middle market businesses are by the branded management consulting firms primarily because of the high cost to acquire the knowledge and skills these firms offer.
However, the current management consulting business model opens the door to “disruptive innovations” at the bottom of the market. An innovation that is disruptive allows a whole new population of buyers at the bottom of a market access to new “knowledge and skills” before not offered by management consulting firms that was historically only accessible to firms with a lot of money or a lot of skill.
Disruptive innovation describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors using old business models.
The 21st century is clearly demonstrating that business as usual is in the middle of transition. The transition requires that the rules and practices that determined success in the industrial economy need rewriting in a connected, globalized economy. The rules and practices for the management consulting industry are being disrupted by new tools that enable access to existing as well as new knowledge and resources that help organizations internalize new skills.
Stay tuned for Part III and Part IV.