The management consulting business models are designed to meet the increased demand for new knowledge and skills business leaders needed to adapt to radical market changes. Disruption is the best friend of the management consulting business unless of course the disruption ends up changing their business model.
Everyone is Looking To Create More Value
Now let’s examine how digital disruption is changing the rules and practices of business as usual including the business of management consulting.
For business creation of more value usually means higher ROI, ROE and of course an increase in customer satisfaction to make those goals. For management consulting firms the aim is the same but the method of reaching the aim is totally reliant on intangible assets, knowledge and skills. So how well are either doing at creating more value using the methods they’ve used for the last 60+ years?
U.S. public companies, the target market for consulting firms, return on assets has declined since 1965. So it seems as though the knowledge, skills and technological solutions offered by the management consulting firms to this target audience has not been successfully assimilated into working practices. Is it a problem with the method, with management or with the business model of management consulting? Or maybe both businesses and management consultants are focusing in the wrong places for value creation.
During the same period employees have become fed up with business cultures that fail to recognize the value of human capital, the importance of a trust and transparency as well as management behavior that show values which follow money before integrity. Because of digital technology, organizational attitudes, company practices and influence of intangible assets over tangible results have become more and more transparent for the world to see what was previously hidden. Customers and employees are getting smarter, outspoken and their media has more influence than traditional media.
While company leaders and management say they recognize these changes, their response is to hire expensive management consultants to help them pursue the use of digital technologies hoping to make their business more efficient, engaging and trustworthy thus more valuable.
Just maybe there is a better way of finding ways to create more value at less cost. Just maybe…….
Where Does Value Creation Come From?
We said earlier that management consulting firms rely on value creation from their intangibles, knowledge and skills. (Click on image to the right to see an example of a free report on intangibles for any firm)
This is also true for the S&P 500 as their Index shows that 80% of the market value of these companies comes from their intangibles. In addition the US Bureau of Economic Analysis recently added several categories of intangibles in figuring GDP as has the United Kingdom and several members of the European Union.
However, knowledge and skills along with the intangible now being included in GDP are a very narrow definitions of intangible capital. But the growing evidence is clear, value creation begins and ends with the intangibles.
McKinsey & Company even attempted to discuss this but missed the point. I covered it in an earlier post titled “McKinsey, It’s a Lot More Than Digital Capital“.
Digitization Transforms Intangibles
Now I am not saying that the tangible work that management consultants do like market research, competitor analysis, data crunching and modeling along with building strategic scenarios for consideration isn’t important. I am however saying the tools and resources available to do these things are and will continue to change. The change will happen as the result of firms being able to name, measure, transform and monetize intangibles using digital technology.
Barbara Shannon said it best in her comment on the Part II post of this series: 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.
In Part IV we’ll look at some of the new resources and tools that will disrupt management consulting as we know it today.