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Consulting 4.0: The Future of Consulting or just a Trend?

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Traditional management consulting – the end of an era

Structural changes have been part of the industry since its beginnings. Just think of the industrial revolutions, mainly evolving from the increasing number of mechanical inventions and the emergence of mass production or more recently from the technological developments in the area of micro electronics and information technology. Since decades the consulting industry has always made money selling advisory services to client organizations impacted by fundamental economic changes because these turmoils haven't had any impact on the traditional business models of management consultants. Today, the same forces that disrupted so many businesses are starting to reshape the world of consulting.

For decades, the fundamental business model of the management consulting industry revolved around sending smart people into client organizations, in oder to solve their most prevalent challenges and problems. Whether it involved the definition of a new strategy, cost cutting programs or the implementation of new technologies, the consulting industry always had the right recipe at hand for their clients. High double-digit growth rates became the norm. Now, consulting companies worry about declining revenue growth, fierce competition and market consolidation. The years after the financial crisis in 2008 led to the decline of some renowned consulting companies: Roland Berger and A.T. Kearney feared for their future, Booz, Allen Hamilton and Monitor have been acquired, previously successful boutique consultants such as J&M, Management Engineers and Brainnet have been merged into the Big Four firms.

 

Consulting 4.0 – the beginning of a new era

2013 Clayton M. Christensen, Professor at Harvard Business School, has stated in a well-received article, that disruptive changes have hit the consulting industry, too. The consulting industry faces the challenge to have to reshape itself: new business models, new growth areas and innovative products and services are required.

The term consulting 4.0 borrows from the various industrial revolutions (from industry 1.0 to industry 4.0), but is far from being as clearly defined. However, similiar to the fourth industrial revolution, consulting 4.0 is proclaimed to have begun, spurred by interconnected digital technology. Consulting 4.0 is more than the digitalisation of the consulting industry, though. Consulting 4.0 describes the fundamental change of an industry which for a long time has escaped the need to respond to the threats of disruption. This is pinpointed in the next section which describes the causes and implications of these fundamental developments in the consulting industry.

 

Consulting 4.0: The causes

But what happend actually? The factors which led to these disruptive changes in the consulting industry are many and varied. The volatility and uncertainty that have increasingly come to characterize the global economic environment as well as the economic downturn have to some extent contributed to the progress of disruptive forces. The growing sophistication of the consultants' clients and their increasing savvyness about when and which consultants they want to hire is a development that was already triggered by previous recessions. New technological developments (digitalization) of course affect the consulting industry, but they have always done so. Nevertheless, the consultancy sector finds itself on the brink of a new beginning. The traditional management consulting business has changed fundamentally.

In search for the real causes, one has to turn to the ones that buy consulting services: the clients. The demand for consulting services has changed in important ways. What other driving force than commercial benefits would make the global industry leader, McKinsey, invest as early mover in business model innovations that could reshape the way the global consulting firm engages with clients? For a long time McKinsey's value proposition, like the one of the two other mayor strategy consultants - Boston Consulting Group und Bain, has been high-value strategy services to the most prestigous companies in the world, judgment-based and forward-looking answers to the most prevalent questions of top executives based on bespoke diagnoses, analytical skills, methodological rigor and functional expertise. Today, the share of work that is classic strategy has been steadily decreasing and is now about 20% of its original volume.

It's not that client organizations do not need any strategies anymore. But client organizations become less dependent on consultants (i.e. they are able to do a lot of the work which the have hired consultants before by themselves) and more savvy (i.e. they do not buy the traditional management consulting services – delivered by a bunch of junior consultants, involving extensive analyses and data gathering and based on opaque solution development processes – without weighing a variety of factors in deciding whether the expensive services of a consulting firm made sense). In addition, after decades of engaging consultants to conduct (the same) efficiency and cost improvement programs based on proven methodologies and tools further potentials of improvement are limited.

A complex and uncertain global economic environment created many and varied new challenges for client organizations. And contribute to a shift in the demand for consulting services.

 

Consulting 4.0: The implications

Client perceptions are reshaping the consulting industry, essentially pulling it into two distinct markets: Low-cost consulting that is ultimatively about problems and solutions that clients understand. Because they understand them, they know exactly what work is required; as a consequence, they bring consultants in to fix those issues. The best buyers of consulting services therefore focus their efforts on articulating precisely what’s required, so that no time, effort or money is expended without cause («commodity" consulting). And high-value consulting that is about situations when clients are less confident about the question and the work needed and that is far closer to traditional management consulting and depends of the ability to think and act in a creative and informed way about complex issues. In addition, recent developments in technology have also contributed to the shift in clients' demand for consulting services. In various industries new competitors with new disruptive business models are emerging based on these new technological opportunities, undermining the competitive position of longtime incumbent leaders and often causing the “flip” to a new basis of competition. Furthermore, technology-based data collection and computer-based analyses spurring the ability to capture and store vast amounts of data (e.g. about financial performance, client behavior, operational effectiveness of the supply chain and production systems) allow to implement new solutions to further exploit the possibilities of raising efficiency and effectiveness of operational processes. These new (digital) solutions are deployed to optimize functional processes such as financial reporting, sales or maintenance operations.

 

Consulting 4.0: The providers

Who's is actually offering consulting 4.0 services and who is able to do so, respectively? It can be observed that consulting 4.0 (similar to digitalization) is an attractive and widely used "marketing buzz word" of consulting firms. All kinds of consulting companies (e.g. see the consultants listed at BDU) use to term to attract new clients.

The expertise which is expected from a consultant has not changed a lot in recent years: A consultant has to bring in and demonstrate specific methodological know-how, expertise in an industry or industries as well as functional areas. New challenges, new client needs and demands require more, however. Much of management consultants' value lies in their functional know-how and expertise, the real value from a consulting engagement however is increasingly received by the ability of the consultant to influence and improve the operations or direction of a client's business in the long run through innovative, actionable solutions a complex market environment for a fair or adequate price. This requires multiple specialist know-how due to the current convergence of strategy and marketing (i.e. traditional agency and PR services), of strategy and technology, of conceptual and implementation support and software-based data collection (i.e. analytics, predictive analytics) and consultative data interpretation.

It is still hard to tell who will be the biggest winners able to exploit the transformative power of digital and structural changes in the consulting industry. The consulting industry's market leaders – strategy consultants, IT consultants and system integrators or the Big Four – take the chance to position themselves as multi-specialists, sometimes by eagerly acquiring smaller specialist consulting firms. But also smaller consulting companies on their own, with their deep specialist know-how and/ or innovative business models and solutions, could be well-positioned to make a remarkable amount of work in nearly all sectors as clients realise the possibilities for wide-ranging change, major transformation, and the rethinking of business models in order to help them thrive in the markets of the future. The players in the consulting market have therefore become even more and increasingly varied. To be able to navigate through this consulting service provider jungle in the consulting market, transparency is needed. For clients which seek out the right consultants for their businesses this will be one of their major challenges for now and the future.

 

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