Four years ago, the Harvard Business Review published an article that predicted the disruption of the consulting industry as a result of the evolving digital economy. Over the past few years, we’ve seen that disruption start to develop. Consultants are adding digital service offerings to their portfolios and adopting digital tools to enhance their capabilities. They are testing new consulting business models.
Adoption will inevitably be slow in an industry that has not changed much since it’s inception. However, firms are now seriously rethinking the current billable hour model. Many are also struggling to keep up with talent attrition. Soren Kaplan does an excellent job of laying out the challenges firms have. Their model is largely at odds with how their clients want to work. Customers in the digital economy are increasingly demanding value from day one and customized solutions unique to their specific problems. At the same time, new upstart competitors leveraging data and technology are beginning to make waves. Their clients are starting to ask questions and, as an IBM partner recently offered, “Our clients are seeking a partner that embodies the characteristic of the Digital Enterprise that they seek to become.”
Could we be at a tipping point in the consulting industry?
Our view is that firms need to begin testing new consulting business models that leverage digital applications before they are disrupted. We’ve collected a few of our favorite examples for review.
Digitization revolves first and foremost around data. Bloomberg has entered the consulting market by offering marketing strategy, communications, and brand consulting advice. They are staffing up with big firm talent, but they are also leveraging their extensive data set from the terminal to ground their advice in a big data-based approach. Their model is the convergence of a number of business models including media, ad spending, and consulting, all of which are grounded in data. They’re not alone; many established consulting firms, like Accenture, are moving to agency services.
Fjord, a global design consultancy recently acquired by Accenture, provides an excellent illustration of the expanded value proposition. Fjord coaches clients on how to use design to improve their businesses. It also makes user-centered design a core part of its own strategy and value proposition. Fjord CEO Olof Schybergson recognized how “elegant simplicity” contributes to more than just the design of a powerpoint or a user interface. Design should be central to every system and process, as it allows for maximum return from minimal effort. Consulting firms of the past have certainly understood the importance of design in their deliverables. But Fjord’s view of design demonstrates how expanding the traditional value proposition can both open the door to new business sectors and improve internal operations.
McKinsey Solutions was born from questions about whether the firm was getting the most out of their intellectual property. Firm management took a step back to understand how they could best leverage their collective knowledge of important issues and capitalize on the tools being created across the firm. Today, the firm has over 20 solutions that combine data, analytics, software, and advice. They’ve laid the groundwork for a new consulting business model that evolves with digital opportunity.
Eden McCallum demonstrates how breaking consulting into the freelance world can be highly attractive to both clients and consultants. The London-based firm has established a network of independent consultants who can be matched to clients with hyper-specific needs. The partners of the firm take care of managing client relations and identifying new engagements. Meanwhile, the consultants themselves simply execute the projects. This approach allows for much more transparency and client control. Additionally, it also offers consultants freedom to control how much they work. While still relying on billable hours, this model eliminates corporate expense and allows support at a much lower rate. Consultants are then able to work more closely with clients and focus on delivering successful outcomes.
Digital transformation is providing consultants with nearly 40% of their revenue. It also presents an opportunity to explore new as-a-service consulting business models. For consultants, the as-a-service model might involve more long-term, smaller volume projects rather than large-scale projects for a fixed period of time. Subscription pricing, rather than billable hours, might be the new financial model. Offering on-demand services will undoubtedly play a role. While we haven’t seen many top consulting firms going this route yet, some more niche firms are exploring the as-a-service possibilities. Professional learning services company Gerson Lehrman Group (GLG) offers one example. GLG provides on-demand professional learning services to clients in a wide variety of industry sectors. The subscription-based service grants clients access to experts through GLG’s network of independent professionals and thought-leaders.
We may not know yet exactly what the ultimate end-product of digital transformation will look like for consultants. What we do know, however, is that the new digital economy demands change to the traditional consulting business model. The good news is that there are a number levers consultants can be testing to meet these demands. What can you be doing to get ahead of the changing market?