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Disruption in consulting—still on the cards?
In the five years since the Harvard Business Review published its article, Consulting on the Cusp of Disruption, the term “disruption” has continually been on consultants’ lips. It’s been an opportunity to talk to clients about innovation and potentially disruptive change: Could they be the next to be Netflix-ed? Would their industry be Uber-ed? But five years on, we don’t see much sign of disruption in the consulting industry itself.
Yes, there’s been change. Robotic process automation, big data and analytics and, increasingly, artificial intelligence have all changed the way consultants gather certain kinds of data. I don’t think, for example, that you could be credible in the forensics market these days without such tools at your disposal. Moreover, change has happened gradually enough that most firms have had time to adapt. Yes, some of those firms are clearly adapting to change better than others, but evidence of actual “disruption”, by which we mean the mass migration of customers from one supplier to another, hasn’t occurred.
The question we’re now interested in is whether it still could be disrupted.
Answering that depends on being able to identify the forces that drive disruption, specifically in the B2B, knowledge-intensive environment that’s typical of consulting work. We’ve identified seven: Four from the supply side, and three from the demand side. If we look at other industries, customer dissatisfaction with the quality of the products or services they get has been a highly disruptive force: Netflix benefited from the fact that trailing down to your local Blockbuster on a dark, wet night, wasn’t a particularly pleasant experience, certainly not as comfortable as streaming films directly without having to move off the sofa. By contrast, the quality of consulting work is perceived to be very high. Around three quarters of the senior clients we survey are positive about the service they receive—hardly fertile ground for disruption. There is evidence of market inefficiency apparent to clients: Consulting remains an opaque market (how can a client be sure that the expertise a firm claims to have will be available in practice?) and we’ve never found a client who didn’t want fee rates to be lower. And there are significant concerns about the efficiency of service consulting firms provide, which is why clients have latched on to RPA and are keen to see firms replace some of their expensive people with software assets. But automation, for now, is confined to the type of repeatable-but-expert work we’d classify as low-cost consulting: It has yet to extend its reach into high-value work.
So far as demand-side drivers of disruption are concerned, perhaps the most obvious would be that clients’ needs are evolving—and they clearly are. Digital transformation was just a glimmer in a technology vendor’s eye five years ago but now dominates the consulting market. But, like our earlier forensics example, many big consulting firms have been able to keep pace, again more or less successfully. Perhaps of greater long-term significance, we also hear clients talk about the way their organisations are likely to change in the future, their expectation being that more services will be bought in, creating greater flexibility at a time of political and macroeconomic uncertainty. This is likely to boost the size of the consulting industry, much as the refocusing of businesses on their “core” functions did in the 1990s, and it may even lead to some firms becoming much larger than they are today, but it’s unlikely to shift the industry’s underlying rules of engagement. Other industries have been transformed when constraints are removed: Energy markets in many countries have been re-shaped by regulatory changes that opened the door to greater competition. But consulting isn’t regulated: Procurement processes may be cumbersome, but their existence is proof that clients have a choice. There is a different way in which choice can be introduced, however—and I’d argue, not only that this is the most important potential driver of disruption, but also that there’s plenty of evidence that it’s disrupted the industry in the past. Integration.
One of the things that’s distinctive about the consulting process is that it has no firm boundaries. When you buy a packet of breakfast cereal, it’s helpfully contained in a box you can pick up. Consulting isn’t: Its “box” is what a client makes it, or what a consulting firm argues it should be. If you control the definition, you control the service you provide, your competitors, and, ultimately, the market. Lose that control—and anything can happen. Let’s wind the clock back a few decades. In the run-up to the Second World War and its immediate aftermath, the archetypal consultant was a strategy consultant. He (and it was almost always a he) would advise business owners about what they could do better and differently, based on information he’d gathered and prior experience. By the 1970s, clients were starting to want more, they wanted help making changes to their organisation (the first person to complain that consultants should do more than just advise was the chief executive of a US insurance company in the early 1980s). Strategy consultants’ reaction was to look puzzled, to shrug in a mildly self-deprecating fashion, and to carry on doing what they’d always done. Which is one reason why they found themselves squeezed out by technology firms and the embryonic Big Four, which recognised that the answer to clients’ needs was technology. The consulting process, which had been one thing, became two, and strategy consultants only got to do one part of it. That same process is being repeated today: Work that, a few years’ ago, would have been assumed to be part of a single service (strategy, operational improvement, change management, etc.) is now being broken into components, and firms that have been accustomed to doing all of the work, may find themselves doing only some of it, ceding place to other types of firms and, of course, technology.
Our hunch is that it’s this disaggregation of consulting services that is likely to be the most powerful force pushing the consulting industry off the cusp, over the edge, and into a period of actual disruption.