Disruptive Business Models in Management Consulting
- The shifting priorities and demands from clients
Clients are increasingly preferring consultants versed in information technologies especially big data and analytics. Christensen et al. (2013) explains that clients are embracing new technologies and thus, expect that the consultants shift to technologically supported business models where they use automated systems for pricing and costing. Besides, they have to use technologies to analyse and manage customer relationships. Anand, Gardner and Morris (2007) explain that the clients are posing new demands unlike in the past when the traditional consultant firms had so much bargaining power. As a result, new disruptors are finding it easier and cost effective to use technology-assisted models that will enable automation of the consultancy processes. When combined with the subscription models, it becomes more cost effective and cheaper to offer consultancy services.
In addition to the shifting priorities, the customers are more aware of the industry unlike in the past years. Because of the deeper knowledge on the functioning of the consultation industry, they are seeking lower prices and higher quality services. These shirts in the priorities and demands by the clients has been necessitated by the generational change where millennial clients have more access to information and knowledge and are more inclined to seek for the most value from the services being delivered (Johnson, 2010). This change is unlike the previous generation of clients who believed that higher prices automatically translated to better quality. The frugal nature of the millennial clients is likely to continue transforming the industry, thus the consultancy firms have to come up with more efficient business models that will enable them to cut costs and maximize profits.
- Challenges to the structure of the management consulting industry and to how management consulting firms are organising their activities in a changed environment
Unlike the traditional business models, where incumbents thrived on the opaque nature of the consultation processes, the new patterns of disruption, synonymous with new business models have led to introduction of new business models supported by information technologies. As a result, the traditional structure of the industry has been destabilized from its initial dependence on knowledge commoditization to knowledge democratization (Heusinkveld & Benders, 2005; Osterwalder et al, 2011). By embracing a new structure of management where clients have access to knowledge, they can easily make changes to their internal processes without needing the expensive traditional consultancy firms. Notably, the traditional structure of consultancy is quite expensive for the clients and this is the reason why emerging and disruptive consultancy firms are taking over their market share. As reported by Christensen et al. (2013), the market share has reduced from 70% to 20% in the past three decades. According to Christensen, the traditional consultancy firms operated by sending talented individuals to the clients premise for an agreed period. The consultants would then diagnose the complex organizational problems and propose solutions. As a result, the structure of management used by the traditional firms thrived on the opaqueness of their processes which made the clients believe in them as the only legit solution shops (Von Nordenflycht 2010). Because of the secrecy, the client hired these firms based on social proof and brand reputation rather than tangible evidence of results.
Another important element of the traditional structure is that the firms immune to disruptions since they had mastered the art of agility and opacity. Clients could hardly judge the performance of a consultancy firm in advance since they were hiring these firms for the specialized capability and knowledge they lacked (Prahalad & Bettis, 1996). Therefore, they used price as a measure of quality. On the other hand, the top consulting firms had the best human capital as their primary asset which gave them remarkable flexibility compared to their rivals. At the moment, these traditional structures and the resultant competitive advantages are quickly being eroded by alternative staffing models, technology and other macro and micro forces. This includes democratization of knowledge. In response, the traditional firms are downscaling their operations since the traditional structures are no longer sustainable.
- The extent to which the role of consultants and the functions they provide for clients is changing, and if so how?
The role of consultants is changing rapidly and significantly. The traditional role of the consultancy firms was determined by their business model which embraced four main dimensions; the client value proposition, the profit formula, key resources, and key processes. Sioo (2016) explains that the traditional firms relied on expert and process consulting to provide a superior value proposition for the client. Secondly, the firms profit model was designed in a way that it charged clients for the billable hours using the fee-based leveraged model. The key resources offered by the traditional consultancy firms was mainly knowledge based in the sense that the firm could send experts to the client to diagnose and make recommendations (Sniukas, 2015). The fourth function that made the traditional consultancy firms successful is the key processes where a number of consultants were involved in the diagnosis process.
By using diverse consultants, they were able to combine different skills and knowledge, deliver quality services and capture repeat business. However, findings by de Man et al. (2016) show that disruptor models as evident in Netherlands have transformed these elements of the traditional model. The three notable models that have changed the role and functions of traditional consultancy firms are; first, the collaborative model where disruptors are using virtual, open network, and closed network consultancy to engage directly with the clients. Secondly, the continuous model entails the use of data analytics and subscriptions where consultancy firms require clients to subscribe to online tools and databases. These models create continuous and mutually beneficial relationships between the client and the consultancy firms. The third model that has challenged traditional functions and role of consultants is instant consulting (Vermeulen, 2014). This model ensures clients benefit from consultant in a short time span or whenever the needs emerge. Instant consulting creates sustainable and strong relations with clients.
- The skills and knowledge of those working in the industry, how these are accessed and how they are managed within consulting firms
The consultancy industry is knowledge and skill intensive. This is because the whole work of consulting revolves around diagnosing and offering solutions that add value to the client. Failure to meet the client’s need of offering valuable services would greatly compromise the reputation and sustainability of a consultancy firm. As a result, their employees need to be highly knowledgeable. The most important skills in consultancy include commercial awareness, good numerical skills, attention to detail, analytical skills, interpersonal skills, persuasive tact and ability, team working skills and information technology skills (Werr & Stjernberg, 2003). At the managerial level, the individuals hired require problem solving as well as strategic planning skills, creativity and innovation, and ability to cope with tight deadlines and intensive pressure.
Successful consultancy firms ensure they have experts across different fields. For instance, a firm involved in supply chain consultancy will have diverse experts to offer professional guidance, advice, and propose actionable solutions superior to any solution that could have been derived in-house (Von Nordenflycht, 2010). Traditionally, the consultancy firms had to hire experts to access and tap into these skills. The process of hiring the experts involved advertising and engaging them in interviews after which the shortlisted candidates could be considered for hiring. The new hires were then inducted into the company and oriented on the services the firms offered to their clients. With the rise of disruptors, this tradition is likely to change as more firms will be sub-contracting experts as opposed to hiring and managing them in-house. The gig economy promises faster and easier access to different experts as opposed to hiring and keeping them with the organization on long term contracts (Hill, 2016). The short-term contracts offered through the gig economy ensure that firms reduce on costs of managing consultancy experts thus creating shared value for the clients.
- Produce a short set of recommendations as to what the company may need to consider to adapt to its new environment.
Anand, Gardner and Morris (2007) propose that the medium sized consultancy firms need to focus more on improving their knowledge base. Anand et al. note that firms that develop consultancy expertise by combining tacit and formal knowledge are more efficient in executing their tasks. The authors add that these firms rely on their staff to gain competitive advantage by applying knowledge-based innovations, thus consulting firms need to continually embrace new knowledge-based structures to sustain their innovativeness.
The first recommendation is that the consultancy firm ditches all the traditional models. This includes abandoning all the four dimensions that influenced traditional consultancy practices. The process has to begin with transforming the client value proposition by relying on less experts and instead, using technology to sub-contract. Second, the profit model should be changed from billable hours or the fee-based leveraged model to a more flexible billing option (Sniukas, 2015). Third, the firm needs to improve its knowledge collection and sharing avenues by investing in artificial intelligence. The key processes could be improved by sourcing knowledge from different sources including big data and analytics.
The medium sized consultancy firm needs to introduce technology-assisted business models. This includes embracing technologies ranging from subscription systems, customer relationship management systems, big data, hard analytics, and predictive technologies (Christensen et al. 2013). These systems can be combined together to enable automated delivery of services. This option is not only cost saving but also, in line with the changing behaviour of the client who demand more real time and high quality consultative services at the lowest possible price.
Kaplan (2017) backs up this recommendation noting that information technology will enable the consultancy firm to apply the three models that are defining the future of consultancy. These models are collaborative models, continuous model, and instant consulting models. Technology will enable collaboration by sustaining virtual consultancy, in addition to the open and closed network consultancy services. It will equally boost the continuous model since it will enable good relationship management thus continuous interaction between the consultancy firm and the client. Third, technology will enable instance consulting as the systems will ensure customers are satisfied and thus, keep them coming back for real time solutions.
Anand, N., Gardner, H.K. and Morris, T., 2007. Knowledge-based innovation: Emergence and embedding of new practice areas in management consulting firms. Academy of Management Journal, 50(2), pp.406-428.
Christensen, C.M., Wang, D. and Van Bever, D., 2013. Consulting on the Cusp of Disruption. Harvard business review, 91(10), pp.106-114.
de Man, A.P., de Man, M. and Stoppelenburg, A., 2017. New business models in consulting: An analysis of practice. In ISPIM Conference Proceedings (pp. 1-20). The International Society for Professional Innovation Management (ISPIM).
Heusinkveld, S. and Benders, J., 2005. Contested commodification: Consultancies and their struggle with new concept development. Human Relations, 58(3), pp.283-310.
Hill, A., 2016. When McKinsey met Uber: The gig economy comes to consulting. Financial Times, 6. Retrieved from: https://edenmccallum.com/wp-content/uploads/2016/10/FT-When-McKinsey-met-Uber-7th-Oct-2016.pdf
Johnson, M.W., 2010. The time has come for business model innovation. Leader to leader, 2010(57), pp.6-10.
Kaplan, S., 2017. The Business Consulting industry is Booming, and it’s about to be Disrupted. Inc. com. Retrieved from: https://www.inc.com/soren-kaplan/the-business-consulting-industry-is-booming-and-it.html
Osterwalder, A., Pigneur, Y., Oliveira, M.A.Y. and Ferreira, J.J.P., 2011. Business Model Generation: A handbook for visionaries, game changers and challengers. African journal of business management, 5(7), pp.22-30.
Prahalad, C. and Bettis, R., 1996. The Dominant Logic: A New Linkage between Diversity and Performance’, Strategic Management Journal, 7(6), 485-501.
Sioo. 2016. The Three Emerging Business Models in Consulting. Netherlands. Retrieved from: https://www.sioo.nl/wp-content/uploads/2017/12/The-three-emerging-business-models-in-consulting-Sioo.pdf (This is an extended version of the de Man et al (2016) paper)
Sniukas, M., 2015. Reinventing the Business Consulting Model. Retrieved from: https://innovationmanagement.se/2015/07/13/reinventing-the-consulting-business-model/
Vermeulen, F., 2014. What Happens when all employees work when they feel like it, Harvard Business Review. Retrieved from: https://hbr.org/2014/12/what-happens-when-all-employees-work-when-they-feel-like-it
Von Nordenflycht, A., 2010. What is a professional service firm? Toward a theory and taxonomy of knowledge-intensive firms. Academy of management Review, 35(1), pp.155-174.
Werr, A. and Stjernberg, T., 2003. Exploring management consulting firms as knowledge systems. Organization studies, 24(6), pp.881-908.