Amitabh Ray, Managing Director, Ericsson Global Services India
All these years whenever an organization wanted to plan its growth strategy or battle a crisis, they turned to smart people called strategy consultants. They came in with hefty hourly rates, produced amazing Power points and complicated reports with plenty of graphs, charts, and told you what to do. The consulting industry’s fundamental business model had not changed in more than 100 years. It has always involved sending smart outsiders into organizations for a finite period of time and asking them to recommend solutions for the most difficult problems confronting their clients.
Well, after all these years, these very same smart people are facing the biggest disruption to their business that even some of them (not all) couldn’t forecast. No one thought that strategy consulting which is all about knowledge and its application could be disrupted by technology; after all knowledge resided in people not in machines; it was supposed to have the indestructible human edge. However, there was a rude shock waiting for the consulting industry when Big Data and Analytics upset the applecart.
Technology was disrupting the strategy consultants business in other ways too. The Big professional services firms like Deloitte, PwC, EY and KPMG, – found their audit business being impacted by automation and the extensive use of IT in financial processes and reporting. To balance the drop in audit revenues, these companies turned to strategy consulting more aggressively than ever before. Much of that territory they had to evacuate in 2002 when the Sarbanes-Oxley Act, came into force after the collapse of US energy multinational Enron, restricting auditors from providing non-auditing services such as consulting to their audit clients in the US.
Most of these audit firms had disposed of their consulting arms. However, the non-compete agreements with their former consulting divisions expired soon enough, paving the way for them to rebuild their competencies in the area, encouraged by high margins at a time when revenue growth rates from auditing and tax work had slowed down. Strategy consultants like McKinsey or BCG found that these professional services firms have made inroads into their territories.
Disruption to strategy consulting was also happening as the new tech giants like Facebook or Google weren’t hiring their services as they themselves were owning their Big Data which using Analytics was giving them more than what strategy consultants could deliver. Companies such as Google and Amazon have three core assets: data storage, data analytics and cloud technology and all these are being leveraged to create the competitive advantage. Corporations were no longer interested in strategy or market reports — the vast bulk of consulting cases focus on just one deliverable: a 200-odd slide PowerPoint presentation that tells the CEO what he probably already knows.
Realizing that their traditional consulting models are under threat some companies responded on focusing on innovating and new delivery approaches. While McKinsey is delivering technology driven modular solutions for specific problems in sales, marketing and other functions, Accenture’s digital service is focusing on emerging digital and big data challenge built around Social, Mobility, Analytics and Cloud services.
Interestingly enough the Big Four and the strategy consulting firms have realized that it would better to form alliances with the technology companies to reinvent themselves in this age of digital transformation. PwC has struck an alliance with Google for Work which takes a business-focused approach that brings together PwC’s business transformation, process and organizational change capabilities and Google for Work's collaborative and innovative applications & technologies. KPMG signed a joint venture with McLaren to use predictive analytics in its audit and consulting work. EY acquired data analytics firm C3 Business Solutions to support clients to move beyond basic data collection by providing a full life cycle of information management and advanced analytics around strategic goals.
It is very clear that the pure play strategy consulting business has to reinvent itself to stay relevant. They are already doing so by creating technology offerings themselves, forming alliances with technology leaders and growing through acquiring specialized data and analytics companies. But the biggest strength the consulting firms have is the soft power they exercise through their ability to shape thoughts that often steer global economic discussions in the directions that benefit their customers; this is known as thought leadership.
Their other much more powerful strength that is often spoken of in whispers is the clout of their alumni. Their CEO-heavy alumni network provides the strategy consultants with an instant sales route into the Fortune 500 list of major companies. However, despite all these advantages it is certain that consulting will never be the same again and the new organization will be built on technology platforms, capable of leveraging data analytics using machine learning and AI in delivering thought leadership. They would have either undergone a digital transformation themselves or would have been digitally disrupted for good.