Saturday, June 6, 2009

No more excess in the consulting industry?

I started consulting at Arthur Andersen back in the 90s. For management consultants, those were the golden days. Business-class travel, 5-star hotels, expense accounts. And high fees. I recall that our fresh-out-of-college analysts with no experience were charged out at $1,000 a day. I always wondered how that was possible. Sure, the client was buying the brand name behind the work and the access to a knowledge network but still...

Today, things are different. Even the most prominent consulting firms are curtailing their expenses. But the changes of the last 15 years seem more fundamental. Management consulting seems to have been losing its luster among both the college grads and the clients. Here are some thoughts on this topic:

1.) The "product" has matured. Like any product, management consulting has entered the stage in the life cycle when it's no longer a hot item that everyone wants to buy. It is transforming from a cow to a dog, to use the most famous 2x2 consulting matrix. How are consulting firms responding to this situation?

2.) The customers have matured. The days of awing clients with fancy frameworks and extravagant graphics are over. Clients demand actionable recommendations that are grounded in reality.

3.) Availability of information has increased dramatically. Access to quality data and other information on the internet is much more prevalent than it was even 10 years ago. The value of the "knowledge network" that global consulting houses touted so proudly is no longer so awesome.

4.) Companies use consultants predominately as temp workers, as opposed to gurus determining strategic decisions. It is more cost-efficient for many companies to hire external help for their research and analysis, and focus their resources on core competencies. This is not to say that

So what do we do? How do we adjust? What works and what doesn't work today?

First, I think that the "generalist consultant" model is no longer viable. Consulting firms that want to succeed must offer subject matter expertise, not just visions. This presents a challenge to the traditional consulting model of hiring bright people and throwing them at projects as they come. Specialization is a difficult thing to obtain at large consulting houses that are obsessed with chargeability. On the other hand, boutique firms with deep expertise seem to be doing well, especially if they partner with other firms that fill in the gaps.

Pique Solutions (www.piquesolutions.com), a boutique marketing consulting and global market research firm based in San Francisco, is a good example of this. Pique Solutions assists exclusively large technology vendors in their B2B marketing and market research efforts. Pique has created a vast network of independent subject matter experts who are deployed on projects based on their expertise, not availability. In fact, constantly expanding this network is at core of Pique's business model. Under a traditional consulting model (where all the consultants are in-house), such perfect match of skills with project objectives is nearly impossible, as these companies have to adher to economies of scale and chargeability targets. In addition, Pique partners with several leading data collection and market intel houses to get the exact data that it needs for any given project. This hub-and-spoke model is proving to be extremely effective especially during economic downturns, as it affords providing top-level talent to the clients at very reasonable fees.

I would like to open this discussion to both management consultants and our clients. I look forward to your comments and contributions.

10 comments:

  1. Marek - interesting article!

    Just to add another point: many Fortune 500 corporations have significantly grown their own in-house consulting capabilities as well - often hiring directly from the top management and technology consulting firms, who then bring the same models, skillsets, and processes that were prevalent at their prior firms.

    I absolutely agree that specialization is an inevitable by-product, but still think that the resources and breadth that global consulting firms can bring to bear on problems - provided they are well-integrated - will give them a competitive edge.

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  2. Thanks, Kevin. Great point. At the risk of turning this into an ad absurdum argument, why would anyone pay the fees charged by the top 3 when there are so many independent people who spent 5+ years there and can be hired for a fraction of that. Also, in my experience, you typically really need only a maximum of 1-2 McK type of consultants on any given strategy project.

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  5. what has been the affects of technology on the consulting industry as a whole?
    what affects has it had on the key business processes of the consultants?
    who can fill the void or spaace, big 5 , vendors, niche firms, efirms or strategy houses???

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  6. Great post Marek. I agree with a lot of your points on specialization and have worked recently myself with a firm for management consultancy that had a similar view and they were hugely helpful.

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  7. Nice article. thanks for sharing.

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