Posted , in Business model
The end of the firm is not nigh
One of the most important ways in which consulting firms have adapted to the current crisis has been to shift much of the work they’ve traditionally done in person on clients’ sites to remote delivery, enabled by new technology. One of the likely consequences of this will be to increase the extent to which conventional consulting work is replaced by a new generation of managed services. As everyone adapts to this new way of working, individual expertise will remain important but it will exist alongside, and be supported by, software “assets” and proprietary data. But how will the growth of managed services-style delivery change the organisational structure of the consulting firm?
As I imagine every reader of this blog is aware, consulting firms have traditionally been pyramid-shaped, with expensive time of the senior partners at the apex being leveraged across increasing numbers of increasingly junior people. The width of the pyramid varies with firm type: While a strategy firm might have 10 consultants/analysts per partner, a technology firm might have a hundred. Variants have emerged but rarely lingered: Older readers will recall the short-lived hourglass and mushroom models. One hypothesis is that managed services, because the software will be focused on automating repetitive tasks performed by junior consultants, will result in an inverted pyramid with all investment being focused on the senior people needed to leaven the information being provided by the software and data. But there are several problems with this organisational model in practice. Recruiting this type of person has never been easy, and the idea that you’re going to find far more of them is implausible. Keeping them is also an issue. Our research suggests that as consultants become older—and usually, more specialised—what they’re looking for from an employer changes. Working for iconic client brands and accelerated career development gives way to wanting job security and interesting work. The challenge around managed services is that, where they’re being delivered on a retained basis, the experts involved could find themselves dealing with similar issues day in day out, often for the same client. The work will become less varied and interesting, and there’s a clear danger that people are expected to deploy the information they already have, while being given scant opportunities to acquire more. They’ll get bored and leave, in other words. Profits are a third potential problem. Most firms earn most of their profits from the people in the bottom layers because they’re highly utilised and can be charged out at levels well in excess of what they cost. Partners at the top spend much more time selling new work and managing the business, and are disproportionately expensive.
What this means is that, while the shift towards managed services is likely to even out the layers of the pyramid, it’s unlikely to result in a world turned completely upside down. More likely is that the definition of what constitutes expertise will become, let’s euphemistically say, a little blurry. With more heavy lifting being done by software and data, consulting firms will find it hard to resist passing work, which would have been done by subject matter experts in the past, to less experienced people slightly further down the pyramid. And, of course, they’ll be able to build this assumption into the design of their assets so the latter don’t just replace routine work, such as gathering data, but help more junior people deliver more challenging work. That has an additional benefit: Getting more junior people to do more complex work won’t just protect a firm’s margin but will also help retain people because the work they’re doing is more interesting. The winning formula in organisational terms is therefore likely to be the diamond shape: Jobs will go at the bottom of the pyramid because so much work done by junior analysts can be done better and more quickly by technology. But for the junior people that remain as well as for the senior managers sitting above them, there could well be a chance to do more interesting work, mitigating against the demand for expertise at the top.
The firm of the future will certainly feel different, though it isn’t about to change overnight.