Hello and welcome back to Smart Consulting Sourcing, your compass through the dynamic world of consulting. I’m Helene, your guide and in today’s episode we will dissect the ever-changing Consulting Value Chain.
We will take a closer look at how firms are adapting to change, and we will also talk about what it means for you, the clients. But before we do that, let us take a brief stroll down memory lane and recap last week’s episode which was all about consulting disruptions and impact of AI.
The consulting industry has been speculated as ripe for disruption, given its high margins and consolidated landscape. However, the anticipated seismic shift has not fully materialized. Instead, the industry has seen a gradual evolution with new players entering but not displacing the top firms like McKinsey, Bain, BCG, and the Big Four. Internalization of consulting practices within corporations and the rise of expert networks and specialized research firms have impacted the industry, but not as substitutes.
The argument against disruption lies in the highly personalized and complex nature of consulting work, resistant to easy commoditization. While AI is making inroads, particularly in automating tasks and analyzing data, it is viewed as an augmentation rather than a replacement for human consultants.
AI’s strengths in automation and data analysis complement human creativity and emotional intelligence, but it falls short in areas of building meaningful relationships and contextual reasoning.
Despite the proactive response of consulting firms, forming alliances and investing in digital capabilities, the industry has not experienced the drastic disruption predicted. The integration of AI into the consulting toolkit is seen as an evolution rather than a revolution.
To navigate this change, consulting firms are adopting strategies like self-disruption, mergers and acquisitions, and strategic partnerships to stay competitive in the evolving landscape shaped by sustained value delivery, technological integration, and adaptive strategies.
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From Tradition to Transformation – Unfolding the Journey of Consulting Value Chain Evolution
Max McKeown once said, ‘Adaptability is about the powerful difference between adapting to cope and adapting to win.’ That’s what we’re seeing in the consulting industry – a move from coping to winning through evolution.
Now, when we talk about the ‘consulting value chain,’ we’re referring to the full spectrum of activities that consulting firms engage in to deliver value to their clients. From the initial marketing and sales to the final delivery of services and everything in between, each step is crucial.
Let’s take a step back and examine this through the lens of disruption. Annet Aris from INSEAD laid out three factors that indicate an industry’s disruption potential: the amount of waste, the profits made from being opaque, and a lack of customization and flexibility. In consulting, we’re seeing at least one definitive ‘yes’ to these factors. This spell out an undeniable transformation for the industry, leading to more transparency and performance for those who know where to look.
The consulting industry, resilient and adaptable as it is, has shifted its value proposition from work optimization to strategy and beyond. In the ’70s, it was about implementing strategy. By the ’80s, we saw a return to operational effectiveness roots, diversifying offerings as clients became more strategy-savvy. Fast forward to the 21st century, and digital layers are now an integral part of consulting services.
If you’re interested in digging further into the evolution of consulting, check our must-read piece, “History of Consulting.” Uncover insights into how the industry’s past shapes today’s strategies. Don’t miss this enlightening journey through consulting’s history and its impact on the present and future.
A Look into the Key Components of Consulting Value Chain
Let’s zoom in on some key components of this value chain and how they’re evolving:
First up, Marketing & Sales. Relationships are still the foundations here. But the way consultants build those relationships is changing. They’re now publishing thought leadership, getting their names out there through articles and books. And let’s not forget digital – the place where potential clients go to verify your expertise. It’s a race for content, and even the smaller players are now leveraging digital platforms to carve out their niches.
Knowledge has always been at the core of consulting. But guess what? Search engines and expert platforms are leveling the playing field. Information is no longer a guarded treasure – it’s out there for anyone to grab. This is shaking up the traditional knowledge bases that large firms have relied on.
Data Analysis is another arena seeing a major shift. The rise of analytics software is empowering companies to make sense of their data in-house. This is a real game-changer, opening up opportunities for consultants but also leading to more internalization.
When it comes to Management Tools & Methodologies, we’re witnessing a trend towards productization. Consulting firms are packaging their tools, making them accessible at lower costs, and expanding their reach.
Services are getting a makeover too. Quality deliverables were once the differentiator for larger firms. Now, the gig economy and specialized companies are making high-quality output accessible for all.
And talent – the ‘War for Talent’ is fiercer than ever. Consulting firms are not just competing with each other; they’re up against startups and tech giants for the brightest minds.
Finally, let’s talk about Substitution. The rise of in-house teams, the gig economy, and networked consultancies are offering alternatives to traditional consulting services. This shift presents new substitutes that are flexible, cost-effective, and specialized.
So, what does all this mean for consulting firms and their clients?
How Consulting Firms Are Adapting to Change?
It’s a thrilling time in the industry, and we’re seeing some real chess moves from players of all sizes. So, let’s unpack this, shall we?
The big players, the titans of consulting, are harnessing the windfall of new opportunities. Digital transformation and sustainability are no longer just buzzwords; they’re integral parts of the service mix. These firms are also doubling down on implementation consulting, cybersecurity, and all those hot-button issues that dominate boardroom talks.
Then there’s this fascinating trend of productization. The consulting behemoths are crafting solutions, tools, and platforms that generate a steady stream of revenue. McKinsey’s Solutions, for instance, is changing the game with their suite of analytics and benchmarking tools. But let me tell you, there’s a disruption undercurrent even here. My friends, there’s room for medium-sized firms to shake things up with their own spin on productization. Think about it – the software space is no longer exclusive to tech companies. Consulting firms are venturing into this territory, and the lines are blurring.
Now, acquisitions – it’s like a game of strategic chess. If there’s a capability gap, it’s quickly bridged by snapping up a specialist firm. This aggressive M&A approach is reshaping the landscape, but one could wonder about the antitrust implications here.
As for alliances, we’re seeing an interesting dance. Consulting firms are teaming up with tech giants, creating a web of partnerships that’s a bit of a mystery but undeniably powerful. Take Accenture’s joint venture with Microsoft, Avanade – it’s a profit powerhouse.
So, what’s happening with the rest of the population – the boutiques and the mid-sized firms? Well, they’re not just spectators; they’re active players in this game. The cost of doing business has dropped, enabling them to innovate and productize their services at an astonishing rate. And with the strategic ‘grow to sell’ approach, these firms are becoming hot commodities themselves.
But it’s not just about growth for the sake of growth. The associate model has gained traction, making it more acceptable for firms to maintain a lean core team supplemented by associates. This flexibility is key in today’s market.
Let’s not overlook automation. CRM systems, professional service automation – these tools have become affordable and accessible, leveling the playing field for smaller firms.
Partnerships and reselling arrangements are becoming more common too. Collaborating with other boutiques or reselling software allows firms to punch above their weight, challenging the bigger players.
Then there’s internationalization. While traditionally risky, many firms are finding success by partnering for cross-border expansion rather than going it alone.
And finally, the focus on innovation. Clients are tired of cookie-cutter solutions and are turning to boutiques for fresh, tailored services – the kind of bespoke consulting that used to be the domain of the big names.
So, what does all this mean for you, the client?
Implications for Clients of the Changes in Consulting
The disruption in consulting isn’t just a challenge; it’s brimming with opportunities for you. The wave of change is bringing more customized services, access to previously gatekept analytics, and strategies that are no longer one-size-fits-all. Now is the time to leverage these changes to your advantage.
The value you get from consulting has traditionally been linked to the brand. There’s been trust in the weighty names, but there hasn’t been a clear performance measure across the industry. This is where things get interesting. It’s no longer just about the brand; it’s about the value and the quality, which isn’t always proportionate to the price tag. Boutique firms can offer the same, if not better, quality on niche expertise without breaking your budget.
But let’s address the elephant in the room – procurement processes. They can be a double-edged sword, can’t they? Qualification processes are lengthy, payment terms can be stretched thin, and this all can strangle your ability to work with agile, innovative firms. And let’s not forget the self-inflicted wounds of inertia. Clients sometimes unwittingly cut themselves off from smaller firms that can bring expertise, seniority, and flexibility. So, it’s time to rethink procurement, to be smarter about sourcing, and to consider the value rather than just the cost.
Now, what about digital solutions and the convergence with traditional consulting? Digital gives you direct access to market research, expertise, and tools that were once the exclusive domain of big consulting names. The lines are blurring, and as a client, you’ve got a front-row seat to the show.
The buzzword in the room? Implementation. Everyone’s jumping on it, and why not? It’s where the rubber meets the road. Strategy is essential, but implementation is where you see results. And sometimes, you don’t need a McKinsey consultant at a premium price to get the job done.
Turning our focus to the consulting value chain, remember our earlier discussion about solutions and platforms? This sector is poised for significant disruption. The exclusive domain of large firms is now being democratized, making once-guarded solutions widely accessible and altering the consulting landscape. Now, directly available to clients are specialized resources like subject matter experts through expert networks and consulting platforms, comprehensive market research, and advanced analytical tools.
As clients become more discerning and informed, the consulting industry must evolve accordingly. Embracing smarter consulting sourcing practices is no longer optional; it’s essential. This is about maximizing value – getting top-notch expertise without breaking the bank, ensuring each project not only meets but exceeds expectations.
The market is continuously evolving. Many small consulting firms are gaining traction, and organizations are increasingly open to collaborating with these smaller players. Clients need to refine their procurement processes, stay attuned to the dynamics of the consulting market, and eliminate outdated practices that hinder collaboration with these emerging firms.
To illustrate, let’s look at a real-life example from the French government. They structured their consulting needs into several lots, with strategy consulting being one of them. Three firms were awarded this lot, each presumably handling a third of the strategy projects. While this approach might seem like sound procurement practice at a glance, it falls short in the context of consulting. Why? Because it doesn’t necessarily guarantee the best fit or value for each unique project. It clearly indicates how traditional procurement methods can sometimes clash with the nuanced needs of consulting procurement.
Closing Thoughts
In conclusion, the consulting landscape is changing, and as a client, you’re in a position to capitalize on these changes. Whether it’s by engaging with boutique firms for their specialized knowledge or by demanding more value from your traditional consulting partnerships, the power is shifting into your hands. So go ahead, ask the hard questions, demand transparency, and ensure every dollar you spend on consulting brings the impact you’re looking for.
Looking ahead to our next episode, we’ll delve into ” Direct vs. Indirect Procurement: Understanding the nuances”. We’ll explore direct procurement and its role in production and product development as well as we’ll deep dive into what constitutes indirect procurement and look at their key differences and impact.
Alright then! Thank you for joining me on this journey through the consulting value chain. Your thoughts and feedback are always welcome, so feel free to connect with me on LinkedIn or drop an email at hcl@consultingquest.com. You know I am always game for a chat.
Until next time, stay safe and keep up the smart consulting sourcing game. Au revoir for now, and happy sourcing!
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