The multi-billion dollar industry is growing at a steady rate, but analysts predict downhill for the maturing industry.
In 1995, former Boston Consulting Group consultant Clayton Christensen coined the term “disruptive innovation” directed at the industry. He noted the phenomenon was in the early stage and “alarms won’t sound until it’s already too late in the game.”
Today, ALM Intelligence warns the marketing industry is headed for a “decelerating trajectory.”
Should management consulting companies be worried? Before we take a look at how big players prepare for the tough years ahead, let’s consider a brief analysis of the industry.
Flaws of Management Consulting
Historically, industries most susceptible to disruption have:
- Few major players
- Slow adaptation to technology
- Outdated business practices.
The management consulting industry meets all the above qualifications. There are a few more reasons that make the industry vulnerable to disruption:
- Human-driven. Like the taxi industry, management consulting firms rely on manual human labor as a crucial source of research, analysis, recommendations, process management, and execution.
- Hourly Billing. While industries like law shift from billable hours, per diem billing remain the rule instead of outcome-based pricing.
- High Margins. In consulting, cost of goods refers to people, and the billable rates of skilled consultants continue to rise. 38% of consultants leave their consulting firms for better opportunities and 13% leave due to compensation. Disruptive business models provide the work they need.
- Time-Bound Value. PDF reports get outdated quickly, and its relevance diminished as new issues, unforeseen disruptions, and trends arise.
- Information Asymmetry. Historically, the tools, models, and templates of consultants are regarded as intellectual capital. Knowing things other companies and consultants don’t is difficult to sustain in the internet age. The democratization of management knowledge will soon provide anyone with access to apply the best trade secrets on their own.
The industry is far from reaching a dead end. Management consulting companies can still see demand in industries like healthcare, the public sector, financial services, retail, manufacturing, technology, and defense.
Global Trends Push Industry Further Out of the Scene
Besides these flaws are global trends the industry continues to face. Industry professionals are trying to figure out the best way to respond to trends such as AI, analytics, cybersecurity, and digital trends.
Collaboration is seen as a practical move for the industry. Investment in new technologies will continue to gain revenue for companies that stay afloat. Companies also have to look into the growth strategy, acquisitions, tax, and compliance.
Adaptations in the Changing Consulting Landscape
Ex-Consultants Agency also pointed to critical macro factors that expedite the disruption of the consulting industry:
- Low-Cost Competition. Boutique firms and freelancers start to outperform mainstream consultants with little to no overhead fees. Clients favor their specializations over general consultants, too.
- In-House Consultants. Corporations have started to build in-house consulting and strategy teams, oftentimes with former consultants.
- Full-Scale Big Players. Mature players in the industry have started to acquire midsize strategy companies, a threat to other midsize players who can’t offer a full suite of services.
French corporation Capgemini recently merged its consulting brand with digital and creative businesses. Other players see the acquisition of firms to build a holistic advisory group as a strategic move.
Major consultancies have acquired digital marketing agencies to boost their offerings. Accenture spent $1 billion to purchase Karmarama. The result is a boost in the implementation of end-to-end customer experiences through customer-focused data analytics and user experience design, among others.
Big players such as PricewaterhouseCoopers, IBM, Deloitte, and BCG also incorporated digital design.
Changing the Rules
As smarter clients look to realize the economic value of consulting firms and competition in the market increases, it is crucial to pursue value-based pricing models. Move towards this fee structure is slow as consultants in strategy and other areas are not aggressive in promoting its feasibility. Clients, on the other hand, continue to complain about the high cost of traditional fee structures.
Recruitment and Retention of Talent
Business Talent Group revealed that project management, growth strategy, strategic planning, supply chain, and innovation strategy as some of the most in-demand consulting skills among Fortune 1000 companies.
Nonetheless, consulting firms continue to have issues with finding and keeping skilled consultants. Talent is a treasured asset in the management consulting industry. Firms are moving towards recruiting a diverse workforce with a focus on hiring skilled assets beyond the top universities.
Crowdsourced consulting and small specialist firms continue to be a threat to the market. Multi-sourcing is a key challenge in the years to come as it proves to be a necessity. Large firms have learned to team up with niche and complementary expertise.
Over a decade ago, Clayton Christensen revealed the industry was in the early phase of disruptive innovation. External factors like penetrating technology, low-cost specialists, and savvy buyers are not all to blame. Internally, the industry needs to shape up and change to survive the demands of the market.