Why Management Consulting Will Be Disrupted: Part II

by Jay Deragon on 08/13/2013

data-to-wisdom1

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

disruptive_innovation_id46489581_size485Everyone 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.

{ 18 comments }

Terry August 21, 2013 at 11:19 am

It seems to me that, in its simplest form, wisdom could be considered the thoughtful and appropriate application of our knowledge. Since large consulting firms are usually heavily staffed with recent MBA grads, they may bring adequate knowledge, but rarely bring the experience needed to wisely apply it. The change that I see in the market is that there are many experienced leaders and managers who are becoming advisors and consultants to fill the wisdom gap. The availability of the latest theories and ideas through the internet makes it easier for them to bring knowledge outside of their experience to their clients.

I can’t tell how much I agree with the author’s viewpoint in this post, because parts of it are almost unreadable. It would benefit greatly from clearer writing and proofreading before publishing. Not a criticism, just a suggestion.

remy GEOFFRAY August 19, 2013 at 2:40 am

It is clear that digitization creates wonderful means for everybody connected to the web, unfortunately it is not the case for 80% of the world population. However, the great thing is that wisdom is not only a question of being very well educated and skilled.
It seems to me that being wisdom is more a question of deepening yourself and widening your own concern to play with your own capabilities in solving problems mobilizing your energy.In that sense, wisdom is much more spread in humanity that digitization which is only a mean of saving access time to knowledge, but do not be worried we will die totally ignorant about alpha and omega …
We are ever creating new tools to follow Michael Porter business paradigm in order to live, wisdom is really something else that we cannot so easily explain… Refer to Maslow’s pyramid…

Ana Maria Moreno August 18, 2013 at 4:15 pm

Please include me in your mailing list to receive future posts and articles.

charlie August 17, 2013 at 7:29 pm

I strongly agree with the author that the traditional paradigm of management consultant as a transferable recipe for a secret (yet nevertheless repeatable) sauce is on the wane if not entirely dead. The traditional idea of what knowledge is–literally the substance of knowledge–is breaking down before our eyes. The reductive model of wisdom can decompose to knowledge, knowledge to information and information to data is very much a product and paradigm of the enlightenment. As is the idea of knowledge as an asset with a fungible value (the cornerstone of the traditional management consulting industry). However, upon closer inspection what we have considered knowledge (and some times call explicit or codified knowledge) is really nothing more than an artifact of knowledge. From this perspective, what knowledge really is, what we might call natural knowledge is what we have called in the past tacit knowledge. Natural knowledge or perhaps in situ knowledge is part of an active thinking process as well as an active social process. Today’s focus on collaboration as the key to “knowledge work” gets at the heart of the matter.

One proof point that the management consulting industry is moving to a new paradigm is the rapidly growth of coaching which I believe is supplanting the more traditional expert knowledge-transfer consulting model.

Roger August 16, 2013 at 1:32 am

People make things change. Hopefully, well informed informed, knowledgeable and/or wise people.
Where the internet is disrupting Management Consultancy is through a spreading belief that anything can be ‘Googled’. This is seductive because it sounds like results without work, and none of us have time anymore.
Two recent examples. First a client with an IT based distribution project who commented ” We don’t need to spend time on analysing our project risks, there’s a similar project on the net with a checklist”. Secondly I was surprised how up-to-date a senior, and very busy, manager in the finance sector was on current management books. Apparently, they employ an intern to read the books and give them a one page summary with the “relevant bits” Bad knowledge not only comes from bad data but also from bad interpretation of the data.

David August 14, 2013 at 8:56 pm

Had to laugh at:

“Companies of all sizes can now buy Wisdom directly, by implementing what Authentic Systems’ Founder John Voris has discovered and teaches about Motivation.”

So Wisdom is a commodity now…I don’t think so!

The referenced material is actually quite good which may display a lack of understanding by Biz or a poorly worded comment.

It’s about systems and process (people, processes. technology) in combination.

IT is INFORMATION Technology, we are nowhere near WT (Wisdom Technology) yet and I don’t support the view we ever will be.

Wisdom is a human condition which we should all aspire to.

Biz Burnett August 14, 2013 at 9:51 am

Companies of all sizes can now buy Wisdom directly, by implementing what Authentic Systems’ Founder John Voris has discovered and teaches about Motivation.

Emily Hall August 14, 2013 at 9:38 am

Having been part of the management consulting industry for over 2 decades ranging from one of the largest global firms to tiny shops, I agree with the article. But, I believe it misses the most disruptive element – the changing work force and talent access. The big consulting firms are still built on a “closed system” model wherein they rely on a fixed group of talent (employees) that they train in their own methodology. Talent today is moving freelance – wisdom is not staying full time in-house for decades into partnership tracks anymore. These firms are becoming irrelevant because they rely on a closed model of wisdom access. New models of networked firms are disrupting how clients access wisdom in a real time, customized, open source way.

Bengt Skarstam August 14, 2013 at 9:08 am

I agree with the model and unfortunately we are still on the data/information stage in our actions and usually go from this to action with fatal consequences (see the system iceberg by Peter Senge). This can be seen in our actions to the shift we perceive in the climate: full speed in acting without understanding since if we had reached understanding and knowledge we would spend our actions on more intelligent endeavours!

Amanda Davie August 14, 2013 at 7:42 am

I work for a digital management consulting firm. So yes, we sell knowledge (of how digital technologies and consumer behaviours are driving the need for new business models and practices) but we also help businesses to adapt culturally to a dynamic age where their strategies are in perennial beta.

I agree that the traditional management consulting model must – and will change. For example, our consultants are all ex-practitioners (as opposed to MBA graduates) so that we can provide highly practical solutions.

There are also a couple of trends that we have observed, which are either indicators of – or drivers of – change in industry in the next 5-10 years:

1. The large management consulting firms – McKinsey being particularly front of mind – are losing talent to the fast-growing tech firms like Google and Facebook.

2. The large management consulting firms are acquiring digital talent in volume, largely through acquisition of digital agency businesses. Will this make the difference? Will they succeed in embedding and learning from the necessary cultures and infrastructures that these digital talent businesses bring? I seriously doubt it.

Shawn Davis August 13, 2013 at 9:28 pm

Interesting article. The comparison of the two paradigms warrants a comparison of the client segments and their longevity in their respective market places. Most businesses with the means and fortitude to engage a strat firm are and have been giants in their spaces. It seems incongruent to compare an up and coming mid tier company’s selection of consultant when their staying power is a flicker in the sky compared to the traditional client of a strat firm. ATT, IBM, international governments were my clients as a management consultant. Disruption garn
ers attention and raises funds, strategy and profound positioning supports decades on top of the market.

Thomas Martin August 13, 2013 at 8:53 pm

Great analysis, thanks. I am wondering if you could look deeper at the execution aspect in your next releases. results = skills * information * experience * execution. Management consulting and also the rates they can demand are on a constant decline since about 2000. Their clients are increasingly able to attract similar skills/talent and the data/information is easier to access – thanks to the internet. So the MCs decline is due to one part to the erosion of their exclusive access to information and talent. The other part is that clients often only see limited results. They spend a lot on the strategy consulting program, just to see it wither away and falter during execution. MCs are disadvantaged compared to more implementation focused consultants as they rarely implement what they develop. So they are missing the experience and are rarely hired to do the execution. This falls into the hands of the clients or other consultants who do not have the capacity and/or intimate knowledge about the matter. So execution suffers. The consequence? companies e.g. McKinsey are increasingly getting into operations consulting.

Dan Robles August 13, 2013 at 6:01 pm

Great post Jay; You have all of the components of the WIKiD tools model; Data ->information->Knowledge->Innovation->Wisdom. The interconnectedness of these factors cannot be ignored – in fact, if you remove ONE of these components, you lose all of the others. Bad Data leads to very bad Wisdom – after decimating the organization with bad information, bad Knowledge, and bad Innovation. Likewise, when “innovation” impacts this series, all other components must change to accommodate. This is what troubles so many companies. I recently had an experience where I introduced Internet Innovation to the Construction Industry and it paralyzed them into fear and inaction – they feared disclosure of their practices the most. They could not handle it – that seems to be the nature of the disruption ahead and a HUGE opportunity for competitors to enter.

Barbara Shannon August 13, 2013 at 4:33 pm

Disrupting traditional big consulting is already happening in two ways and the second is more interesting and will be the most impactful. 1. We are starting to see mid-size consulting firms target the middle market. And the middle market is buying. It’s a good fit. These middle market consulting firms are often staffed by alumns from the bigger firms so they bring a wealth of expertise at a better (although still high) price point. But they still do consulting the old way…by the hour…or by the project and very hands on. 2. Innovative consulting companies are looking at brand new ways to monetize consulting services and to productize and package previously high priced tools, training and capabilities….think “there’s an Ap for that” consulting. Consulting to tomorrow’s most successful organizations will be owned by brand new approaches to bundling packaging and delivering knowledge. Consulting services and products will be available across a wide suite of price points. Lots of organizations around the world will want it and be able to afford it. The big consulting companies don’t get this yet. Some smaller companies are starting to think this way. We are at the beginning of yet another Big Shift change.

John Gremm August 13, 2013 at 4:19 pm

Egotistical people always check their spelling and grammar.

Debbie Narver August 13, 2013 at 3:14 pm

Very interesting article. I have observed that public sector organizations are still operating from the previous paradigm – high priced consultants with long resumes. However, I think the private sector has a more innovative focus, where the old models are no longer relevant. We need consultants that can keep pace with the rapidly adaptive, creative new businesses that are emerging.

Kim Karme August 13, 2013 at 11:27 am

I agree with conclusions in this article. It seems that there still is a demand at the large companies and traditional management consulting but innovative startup’s have become a new growing segment. This is challenging, but also rewarding if you are able to use the wisdom generated through experience.

Mahmoud Abdulhadi August 13, 2013 at 10:15 am

well done

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