Dissolving of boundaries lets in more competitors

Andrew Hill | 14 November 2014

The industry is having to adapt as technological changes redraw the landscape, says Andrew Hill.

When Grant Thornton wanted to devise its latest global strategy, the accounting and advisory group did not call in a team from McKinsey or Bain. It organised a 72-hour online “jam” for its 38,500 staff worldwide.

“It was essential to us that we didn’t present a strategy that was done in a darkened room by people sitting round a table,” says Francesca Lagerberg, head of people and culture, who describes the September jam as “like Facebook on speed”.

When a new chief executive wanted to shake up Leeds Teaching Hospitals NHS Trust last year, he asked his 16,000 employees to create a new template for the hospitals’ values, vision and objectives, using a process devised by crowdsourcing specialist Clever Together.

The trust had used traditional consultants before, but Peter Thomond, Clever Together’s managing partner, says that while the outcomes of staff consultations are “not as pretty or as slick” as consultancy strategy documents, “thousands of people write them and the buy-in is massive”. The exercise helped the trust come up with a five-year strategy and a leadership framework called “the Leeds Way”.

Sometimes it seems as though we are all consultants now. The scale, scope and sophistication of networking tools allows organisations to collect ideas and disseminate the results of consultations easily and cheaply.

Many executives are either former consultants, who have fanned out from temples of strategy to run organisations worldwide, or MBA-holders imbued with theoretical and practical knowledge of management. By combining analytical tools, social media and their own expertise, they can afford to be choosier about when they hire consultants and what they pay them for.

The fast-changing nature of business has also made it harder for consulting groups to sell the same strategic frameworks to clients as they used to, as a group of McKinsey consultants, academics and corporate heads of strategy acknowledged in a debate for the 50th anniversary edition of McKinsey Quarterly, published this autumn.

Michael Jacobides of London Business School told the Quarterly: “When the environment changes profoundly, the maps with which we navigate it may need to shift as well. For instance, from telco to healthcare to computers, sector boundaries are changing or dissolving, and new business models are redefining the competitive landscape.”

The same deep changes affecting consultants’ clients are affecting the consultancies themselves. That is one explanation for the consolidation at the top of the consulting industry. PwC completed its acquisition of Booz & Co (rebranded Strategy&) this year. Significant acquisition activity also takes place below the radar of daily headline news, where large groups such as Deloitte continue to absorb dozens of boutique companies annually, expanding their expertise.

Smaller consulting groups see opportunity in the changing landscape, too. “Whenever you shift the players in the game, [clients] think: ‘How can I play differently?’,” says Liann Eden, founding partner of Eden McCallum, which operates what it calls a “pure consulting” model, bringing together bespoke teams of independent consultants to tackle clients’ specific needs.

The movement could be characterised as a combination of shift and drift. As demand for some services declines or margins diminish, companies, forced to move into new areas, shift their own position deliberately, or drift into adjacent areas involuntarily.

At the same time, competition both for business – and for deals – is increasing between consulting groups and companies from outside the sector that realise they can offer their industrial expertise as a service.

For example, Cardinal Health, originally a US pharmaceuticals distributor, made a calculated decision to move into management consulting for hospitals, building on its knowledge of healthcare supply chains and regulations.

Advertising agencies are making use of their knowledge of digital media – and their deep network of corporate customers – to compete with traditional consultants in selling advice about the digital revolution. Publicis’ purchase of the consultancy Sapient, announced last week, will further blur the distinction between the two sectors.

Technological change is a battleground to which most consultants have shifted resources in recent years. Rich Lesser, chief executive of the Boston Consulting Group, established BCG Digital Ventures in January to “help clients build digital products and services”.

The company-within-a-company is staffed by what BCG calls a “multidisciplinary group of professionals”.

At almost exactly the same time, established Accenture Strategy with 8,000 consultants (out of a workforce of 305,000), half of whom are technology strategists and half business strategists. Andy Tinlin, head of Accenture Strategy in the UK, says its consultants’ role has “evolved from being either an adviser or an implementer to being much more a hybrid of the two”.

Companies such as BCG, McKinsey and Bain, among the traditional “strategy houses”, tend not to talk publicly of large technology-based groups such as Accenture and IBM as direct competitors, and vice versa. But it is no surprise that such cross-disciplinary and hybrid teams are proliferating, and starting to bump into each other in the field.

Perhaps only when the tag “digital” is so ubiquitous that it becomes superfluous will it be possible to assess which companies have the best skills and model for the new world.

Tom Rodenhauser, managing director of advisory services at Kennedy Consulting Research & Advisory, describes the technological challenges consultants face as “the four horsemen of the apocalypse”: social media, cloud services, analytics and mobility. But they represent an opportunity as well as a challenge. The fact people are increasingly active on social networks and via mobile devices is as much a societal as a technological transformation. It goes to the heart of how businesses operate.

“When consultants talk about digitisation, what they are really asking is: how are these phenomena affecting the way businesses operate and how can consultants facilitate that? And I don’t know whether they have the answer,” says Mr Rodenhauser.

Even if they do not, they have little to worry about for now. Figures collated by Kennedy for its 2014 Global Consulting Forecast show revenue growth overall accelerated from 3.7 per cent in 2013 to 4.6 per cent this year. A resurgence in merger and acquisition activity and advice, information technology integration and cyber security consulting, and strategy and operations work related to companies’ growth initiatives, has pushed annual revenues in the industry towards $247bn.

The Big Four accountants-turned-advisory-groups show some of the strongest growth in the top 10 consultancies – a sign perhaps that their bet on becoming large-scale one-stop shops is paying off.

No wonder that against this backdrop of growth in standard consulting services, innovative developments such as crowd-sourced strategy-making seem to pose little threat. BCG’s Mr Lesser says consultants can still offer “deep understanding of economics and competitive advantage, customer needs and rapid technology evolution in many sectors. I don’t see crowdsourcing being able to implement that in a world of resource constraints and intense global competition”. To be fair, neither do the crowdsourcers themselves.

Ms Lagerberg says that once Grant Thornton has examined the outcome of its “jam”, “we may go back to some of these traditional consultants to say: ‘We want you to help us achieve this’”.

Similarly, Mr Thomond at Clever Together says the business world is “always going to need super-high-end brains to solve super-complex problems”. He adds: “We’re not here to eat [consultants’] lunch, we’re here to eat some of the crumbs off the table.”

Yet all those nibbling at the growing consulting pie are hungry for more.