Innovating the World of Management Consulting
Management consultants find opportunities for improvement and innovation. Are they applying these skills to their own industry?
Soren Kaplan recently wrote an article for Inc entitled The Business Consulting Industry Is Booming, and It’s About to Be Disrupted. In it, he argues that business consultants operate in a profitable, mature industry, exactly the stage at which other industries stagnate and become especially vulnerable to new methods of delivering value.
Consultancies, he says, are focusing on lowering costs rather than driving value. “In any industry, when the basis of competition becomes efficiency versus innovation and new solutions, disruption lies on the horizon.”
He lists five “fatal flaws” that make the industry “susceptible to technology-driven disruption”:
- Labor intensive
- Billable time-based business model
- High margins
- Time-bound value
- Knowledge commoditization
I agree that much of the industry is vulnerable to disruption, but I don’t think Mr. Kaplan takes his ideas far enough. There is nothing particular about these five that require technology to disrupt. Consultancies can start now.
In fact, some of us have such disruption baked in.
Management consultancies sell their labor, so it shouldn’t be surprising that the work is labor intensive. However, consultancies that serve their clients well will look for ways to reduce expensive labor.
Thinking as a client, does your project really need someone onsite regularly or even continuously? Perhaps. But if it’s not adding value to the deliverable, why make a client pay for it, and as a client why accept paying for it? There is no substitute for face-to-face interaction, but the tasks that require it are less numerous every year.
Keeping down the costs of labor goes hand in hand with properly scoped projects and their fee structures, which is covered in the next section.
Billable Time-Based Business Model
Charging by the hour is easy for the consultant, but results in perverse incentives. Clients are on the hook for the consultant’s inefficiency. As pricing strategy consultants, we at Wiglaf Pricing preach value-based pricing. Consequently, we primarily use fixed-scope project plans to keep our and our clients’ interests aligned.
Relatedly, the hourly rates that many consultancies charge for junior staff are padded generously. High hourly rates and an incentive to spend more hours creates a dangerous situation.
Such rates are often justified by appealing to the brand of the consultancy. You may be getting junior staff recently out of undergrad, but they represent a big name and therefore must be worth it. Unfortunately, we often hear that, to borrow a line from advertising, results may vary.
It’s easy to throw money away without getting real results. That’s why we and other consultancies dedicated to creating value for the client orient projects toward delivering that value, not maximizing our own revenue.
Clients of consultancies that focus on delivering a specific point of data do indeed find that what they pay for loses relevance faster than ever in today’s face-paced business environment. That is especially true in the world of pricing, where executives have to make continuous adjustments to maintain their market position. That’s why we say that pricing is a verb, not a noun.
At Wiglaf Pricing, we focus on building the people, processes, and tools to make pricing excellence an integral part of organizations. Knowing the “right” price for a product is an unattainable goal, and even if it weren’t, its value is time-bound. Building a pricing team that knows how to manage and implement pricing strategy in a continuous improvement cycle is both attainable and of long-lasting value.
Consultancies that depend on purportedly secret tools and knowledge are going to be in for a rough time as the information economy assimilates their industry. Those of us who have always welcomed sharing knowledge and best practices welcome it.
Thomas Edison was right: between inspiration and perspiration, the latter is the true special sauce. Ideas have never been easier to access, but the expertise to plan, organize, implement, and analyze is as scarce and valuable as ever. Effective executives are made so by executing ideas, not just by thinking.
Mr. Kaplan is right that these five fatal flaws are not only bad for the industry, but also run contrary to the best interests of clients. But even without a technological revolution, the industry is susceptible to disruption by consultancies that focus on value delivery and what’s best for the client.