It is time to flip the consultancy model on its head
Management consultancies will tell you they can solve all your problems and probably the worlds’ too…. It is also likely, that whatever area you inquire about, they will have the corresponding experts. Or it will be their methodology they tell you that you cannot live without, and it’s this methodology that you need to buy over and over again.
The aim of management consultancy is to help businesses get where they are going quicker. This can be achieved through greater horsepower, an alternate route, or by bringing innovation to your business. Management consultancies can provide:
- A driven team of people that is solely focused on solving a tough business challenge
- External, unbiased advice that is based on logic, facts and analysis
- Accelerated change through an organisation in a way that can work across different functional silos and even across different businesses
- Experience from other businesses and industries
Disruption is the latest buzzword in industry, Uber, Airbnb, Amazon Kindle and Bitcoin, but how does it apply to management consultancy? And, does embracing disruption in an industry that has survived and thrived since Arthur D. Little Inc. was founded in 1886, truly mean a better service?
For a management consultancy to truly “disrupt” the consultancy market, rather than “effectively compete” within it, the consultancy must uncover a significantly lower cost, a new type of service or an unexplored geography. Therefore, it could be said there is no opportunity for “disruption” within management consultancy because consulting services are already available across all departments, industries, geographies and company sizes.
Therefore, true disruption will only come from business models which can reverse engineer insights and fast-track frictionless paths to outcomes.
So how can we deliver disruption?
Remove the mystique from methodology and tools
The talk of benchmark data and previous experience is often a ruse; most projects start with a blank canvas. What consultancies do invest in is developing methodologies, tools and associated training modules to support change in your business – but can you call this disruption?
For example, there is a recent rise of the term “Big Data”, with many suggesting this is a disrupter to the industry. This has been demonstrated by McKinsey Solutions, software and technology-based analytics and tools that can be permanently embedded at a client, providing continual support outside the traditional project-based model. We would suggest this is an example of “effectively competing” not “disrupting”, as it is only a new way to analyse a business and not something that will change the service offered – in practice it is a bit like the arrival of Microsoft Excel in 1985.
True disruption would be if McKinsey Solutions or all of a consultancy’s methodology and training were free for all to access. Some niche consultancies are already doing this and therefore disruption may be underway. It seems customers are less active in following this trend, which is surprising as this would be a great way to get a feel for the consultancy you may engage. Or perhaps it is still in the “early adopter” phase.
The ability to understand the capability of the actual team on a project prior to the engagement starting has made it impossible to predict a consultancy’s performance in advance because businesses are hiring an outsider with knowledge that they themselves lack. You can see Bio’s, CV’s, check out LinkedIn profiles, even interview consultants before projects, but when reviewing who is best for the job, it is generally the word of the consulting lead that you trust, and in practice, this person may be focused more on profit margins. Therefore, who arrives on day one to give the all-important first impression, might not be there later in the project as the consultancy chooses to relocate its best resources.
“The “A team” arrive on day one, the “B team” quickly follow, and by the time the project has finished, the “F team” are picking up the pieces”, was how someone described a past consulting experience to me.
This is a potential area for disruption, but it would take some confidence to do it! Think IMBD for movies, Trip Advisor for holidays and Timeout for restaurants. More relevant is www.mybuilder.com where you can find a local tradesman/business who has been rated by customers.
www.expert360.com is working on a model for independent consultants and businesses to source talent for smaller engagements, it would not be much of a leap to include consultancy businesses and their employees.
Re-organise resources from a pyramid model to a diamond model
Pyramid resources model
The pyramid resources model describes an organisational structure built of many layers – each layer reporting into the next. This model suggests the highest volume of people within a consultancy are at the bottom of the pyramid and are generally the most junior. As you proceed up through the pyramid, the number of people decrease and their responsibilities increase. Therefore, it is the most junior consultants and their immediate seniors which make up the majority of the work force, and it is these teams which are primarily focused on project execution for the client, and the most senior consultants, directors and partners direct most of their attention, on marketing, sales and leadership.
This model often comes with an expectation that an employee’s development is achieved by moving through the levels within a set time period. Smaller consultancies can become trapped by over promoting to a level, the result can be stagnation, stopping others from progressing. To counter, they introduce yet another management level creating more hierarchy and complexity as they go.
Diamond resources model
A diamond model offers a new way of organising a consultancy’s resources which focuses on delivering what the client really wants – project execution. Re-inventing the model can ensure the number of people conducting the consultancy – and therefore, responsible for delivery – is highest across the middle where the ‘talent’ exists. The top of the diamond would be responsible for driving the functions of sales, marketing and people development with the bottom of the diamond responsible for administration, finance and other support functions. This would also allow, from a scalability perspective, the option for interim executives, single-team projects, short-project consultancy and more.
A diamond resources model offers a more agile organisational structure but would also require a level of acceptance by the partners that some employees may move on as they search for the next promotion or hierarchal level of authority.
Letting employees move on through consultancy into industry to support their development and balance their life needs is something to be proud of. In this new model consultancies will need to accept some of the best will move on to greater things, but also plan that those moving on will remember the development and enjoyment they got from the time being a consultant, and may in the future come back to the consultancy at a higher level after they have got more experience and business breadth.
Streamline the business model
The world of consultancy is pretty simple; salaries are the biggest cost, followed by fixed overheads, training, business development and marketing. Therefore, the number one metric is utilisation of employees.
Small businesses often use contractors. Hiring contractors rather than permanent associates can ensure the most efficient utilisation of people but it will come at a higher day rate and lower potential levels of employee engagement and loyalty. It can also prevent businesses which hire the contractors, from scaling up with customers, as they may question who someone is really working for and will they be there the next time they ask for help.
The consultancy firm Eden McCallum may have found a way around the negative perception, by actively marketing that fact that the people conducting the project are contractors rather than permanent employees. This is because lean project teams of freelance consultants can come at a fraction of the assumed cost because they do not carry the fixed costs of unstaffed time, expensive real estate, recruiting, and training.
Could even closer relationships and partnerships between consultancies and the businesses they work for, positively impact the costs of underutilisation and overheads, without needing to rely on contractors?
The right relationships between a consultancy and a major customer might allow resources to work, when available, on low-margin work that although important, is not driven by an immediate timeframe and can be flexed with the demands of the business.
This then leads on to further questions such as; why does a consultancy have its own HR, office space, payroll or finance team? A client with an established and complete back office could complete these in exchange for value adding consultancy days.
Could a hybrid model take this even further? What if a business could use a consultancy to help build its own internal consultancy team?
Several big businesses have built internal consultancy teams with varying degrees of success. The biggest risk for a business trying to build their own internal teams is recruiting the right people – how do you know who in your staff may be a good consultant or leader?
Well you could let a consultancy build it for you: creating IP, a framework, scoping, governing projects and allocating resources to maintain utilisation levels. Top this up with the removal of other overheads such as payroll and financials which usually are built into a consultancy fee and you have surely disrupted the model…
If building internal consultancy team could be delivered for a fixed operating cost at a significantly lower margin? What is in it for the consultancy?
Firstly, reduced risk and an exciting opportunity to really be making a difference for a business, which is what gets most consultants out of bed! Secondly after 3-5 years running this as an outsourced service and building the IP, this could be purchased by the business and transitioned into a fully internal model that is firing on all cylinders.
Change the game
A consultancy is usually first engaged by a business to solve a tough business problem. It is usually driven by one individual within that business, such as a CEO or divisional lead, identifying a need or gap that cannot be filled by internal staff.
The future of consultancy could be for businesses to use tools like “big data”, “super-talented people” and industry specific experts to spot opportunities to transform industries not businesses, projects that require competitors, customers, suppliers and partners to work together.
It would then be the consultancies that become the leaders, with businesses buying into the venture based on the potential returns to them. A new funding model would be required to share costs and rewards across the value chain engaged in the collaborative approach.
Disruption is inevitable
It may start from a management consultancy being humble enough to think about the true value they deliver to their clients. I suspect that the ones that truly succeed to disrupt the market will do it through excellent execution of more than one edge of disruption, creating a new service, solution and cost model.