We’ve been told for a long time, that ‘traditional’ management consulting is being ‘disrupted’ (or even ‘dead‘). The idea being that new entrants, the democratization of knowledge, the competition for talent (especially from technology companies) and the rise of ‘asset-based’ consulting (read consulting + databases & software) will knock the incumbents off their thrones.
But, to paraphrase Mark Twain, reports of consultancy’s death are both exaggerated and premature. Indeed, given the lack of barriers to entry, the longevity of the consultancy powerhouses is the most remarkable thing about the industry: Bain, BCG & McKinsey have been around for a minimum of 50 years, whilst the oldest ingredients of the big 4 (albeit in their auditor form) are over 100 years old. The real question is ‘is this going to change over the next ten years? And if so, how?’.
“The forecast is cloudy with silver linings”
I’ve been talking to Partners at both the big brand names (MBB + Big 4) as well as some of the fastest growing newcomers, and the forecast is (TL/DR) cloudy with silver linings. The top players will continue to come under pressure, but their size, reputation and assets provide huge benefits which smaller players can’t lever.
First, we should note that whilst the names of the dominant players may not have changed, the consulting industry has changed significantly over the last ten years: strategy houses now do implementation, everyone does digital (whatever that means), the demonstration of value is more important, utilisation rates are up and profit margins (on average) are down. These ‘dinosaurs’ can dance.
Second, big players continue to dominate because they buy the competition. Acquisitions by consulting companies peaked five years ago, and have remained at that high ever since: if you buy up everyone that knows Blockchain, then clients have little choice about where to go for advice. Of course, these acquisitions raise their own challenges: a few partners have told me that the potential value of their acquisitions have been killed by the buyer’s culture or processes.
Third, ‘digital’ is much less of a threat to incumbents than is often stated. The massive economies of scale offered by the large players in both operations and deliveries lend themselves to digital: data can be accumulated more easily, the risk involved with digital R&D can be spread, and successful digital assets have a massive pre-existing market.
Fourth, whilst it is true that media companies and banks have increasingly edged out consultancies from the ‘most attractive employers‘ lists, what is not happening is top graduates heading to lesser known consulting brands. Moreover, when business students from top institutions are asked consulting is still the number one employer, and nearly 50% of graduates end up in consulting or banking. To a great extent the brand power of companies like McKinsey & Co. mean they exist in a virtuous cycle: the brand attracts top graduates, which attracts top clients, who pay top whack, which reinforces the brand (note, this doesn’t necessarily mean top work). It’s hard for new entrants to break into this cycle without the deep reputational and financial pockets that MBB offer.
Yet, there are major challenges out there and not all consultancies are adapting their strategy fast enough to stay ahead. The challenges that emerge from the four points above include:
- how to be innovative without killing margins and leverage
- how to assess the viability of digital asset investments;
- how best to combine multi-skilled teams with emerging digital technologies;
- how to do talent development when junior time is increasingly spent coding and cleaning data
- how to ensure that acquisitions do not get killed by the buyer’s culture;
- how to demonstrate value to clients beyond mere project delivery;
- how to keep millennials working at 90% utilisation without increasing turnover;
- how to share (and update) knowledge and skills in global company
There was a real mix in Partner awareness of (or being bothered about) the changes that the industry is facing. Accenture and Deloitte appear to have made significant strategic and structural changes over the last few years to respond decisively to these – many strategy firms, less so. As one Partner commented ‘Shell & BP know they need to embrace renewables, but it’s hard to move away from a tried and tested model’. All were well aware that being a Partner in the 2020s would be more challenging (‘interesting’) than perhaps at any previous time. As one pointed out, ‘when the market is expanding all these challenges seem quite academic (no offence), but the next contraction will really shake up the industry’.