Posted , in Differentiation
Will 2015 be the year someone cracks the consulting business model?
It’s hard to find a topic that stimulates a more – or more forceful – debate in consulting circles at the moment than the question of business models.
We shouldn’t be surprised. Our research last year suggested that clients were plumbing new depths of frustration with consulting firms: “They’re dinosaurs: their business model hasn’t changed in decades,” raged one entirely typical senior executive. Clients, like consumers the world over, wanted more for less, but what they were really after were solutions which crossed commercial boundaries, combining traditional consulting teams with freelance consultants and a dash of outsourcing. Some want consulting to be a people-based utility in which consulting firms are committed to keeping the lights burning in resource terms (ensuring clients could get things done despite headcount freezes and spikes of activity) but are only paid when their consultants are being used. Others want specialisation on their doorstep: yes, expertise is important, but why should they pay for someone’s travel time in order to get it? In response, the majority of 2014’s many consulting start-ups claimed to be revolutionising the consulting industry rather than selling a niche service or a particular sector skill.
But for all the sound and fury no clear winner – or winning concept – has emerged. The race to the right business model remains confused and inconclusive.
I think there are three reasons why that’s the case.
The first takes us back to the dinosaurs. Dinosaurs didn’t die out because they got too fat or because they got outrun by plucky little mammals: they died out because a rather sizeable meteor crashed into the sea off the coast of Mexico, throwing up so much debris into the atmosphere that the light from the sun was blocked for long enough to destroy their sources of food. Large consulting firms, which tend to embody traditional consulting structures, may appear lumbering, but they’re still money-making machines by the standards of most industries. In the absence of an in-coming meteor, they’ll survive – and that will make it difficult for another species of consultant to gain a firm foothold on the ladder of evolution.
A second reason is people. For all the disruptive forces bearing down on the consulting industry, and for all the temptation to assume that technology will be the catalyst for change (the meteor, in effect), consulting remains a people business. And people, we know, don’t change nearly as quickly as technology. Moreover, attempts to replace consultants (people) with knowledge-based systems (anyone else remember EY’s Ernie?) ignore the fact that an awful lot of consulting is about emotion, not data. If anything, this has become an increasingly important part of consulting in the last two years with ever greater emphasis from clients on execution and implementation. Technology may radically alter the way we embed content in the consulting process, but it’s a long way from changing the process itself.
Finally I think there’s a conceptual reason why 2014 didn’t see a single breakthrough business model emerge as the clear winner. So far the focus of change has been on the supply side: it’s been about restructuring consulting firms to help them address the challenges they face in putting the right people in the right jobs for the right price. This does benefit clients (giving them cheaper consulting at a time when they’re under pressure to cut costs) but it’s mostly about the consulting industry changing itself. But perhaps the greatest potential for profitable innovation lies on the demand side, exploiting rather than side-stepping the fact that so many clients are former consultants. Clients may cherry-pick individuals more than they used to during the sales cycle, but the involvement of them and their staff in the consulting process hasn’t changed significantly in decades. What happens, for example, when the tables are turned, when clients provide the expertise and work on projects, while consultants run the business-as-usual processes?
The danger for consultants lies in clients getting there first, and writing the rules. It may be a new year: whether it’s going to be a happy one for consulting firms could well depend on their ability to crack the business model question before it cracks them.