Wednesday, November 6, 2013

Consulting- An industry sitting on a ticking time-bomb!

Consulting has been one of the few industries that has remained immune to radical change since a very long time. Not a lot of things have changed in the way the fundamental business of consulting is done; send smart and/or experienced people in to a corporation to solve their most pressing and challenging problems. According to Christensen, the reason that consulting has remained “immune to change” is because of inherent opacity and agility in consulting industry. Clients are not able to judge a consulting firm’s performance because they themselves lack the knowledge on the subject matter on which the consulting firm has been assigned to work. Established consulting firms like McKinsey and Co., BCG and Bain have established themselves as leaders in the business and maintain this leadership through opacity and agility. However, the scenario is changing, and in words of Christensen, “the industry (consulting) that has long helped others sidestep strategic threats is itself being upended”.

Christensen, in his books- The Innovator’s Dilemma and The Innovator’s Solution, talks about the signals of change. These signals of change can be seen as the new competitors come with innovative business models in existing industries. These new competitors provide either a product (or service) that is better than existing leader or they serve an entirely under-served need of the customers in existing segment- taking the level of product or service quality to a new level. This undermines the position of established leaders and eventually “disrupts” the industry or market and established new parameters of competition.

Giant firms: Why should we worry?
Clay Christensen advocates that every industry will eventually face disruptive innovation at some point or other or even multiple times. In fact, the leaders in consulting are facing competition from non-traditional firms like Gerson Lehrman Group, Eden McCallum, and Business Talent Group. Although firms like these are still trying to make their mark in consulting and are far from being a direct competitor to giants like McKinsey and BCG, these big companies are themselves observing a change in their own business. According to Kennedy Consulting Research & Advisory, “at traditional strategy-consulting firms, the share of work that is classic strategy is now about 20%- down from 60%-70% some 30 years ago.” In addition, the clients are increasingly hiring ex-consultants. These consultants know how business is done and when they call in a consulting firm for their services, these new managers demand specific deliverables and services. A number of factors like these indicate that it is just a matter of time when the whole industry is disrupted.

What is McKinsey doing about it?
Even though consulting industry remains unchanged, leaders at McKinsey seem to have anticipated the wave of disruption that is about to hit the industry. In 2007, McKinsey & Co. started a series of business model innovations in order to change the way it provides consulting services. A new division, McKinsey Solutions, was created. Using software technology based data analytics McKinsey combines its expertise in strategy consulting and provides more value to its clients. This is an excellent move by McKinsey & Co. to position itself for the upcoming disruption.


As authors remark that there may be nothing as vulnerable as entrenched success, it is important to observe how the leaders in consulting try to position themselves. Further, how firms like Deloitte and Accenture, who are racing to become leaders in strategy consulting, should position themselves in this evolving industry? That will be an interesting test of their prowess in developing strategy.

PS. This blog is summary of a recent article published by Clayton Christensen in the Harvard Business Review. 

References:
Consulting on the cusp of disruption. Clayton Christensen, Dina Wang, and Derek van Bever. Harvard Business Review (Oct'13).

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