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Paying for advice? Go get a therapist. RIP management consultants

Since former BCG consultant Clayton Christensen first used the term "disruptive innovation" in 1995, nimble startups have challenged incumbents in every field from music to manufacturing. Now, a tectonic disruption is hitting management consulting just as it has hit many other industries.

The industries that have proven the most vulnerable to disruption have been those with:

  • One or a few major players
  • Relatively outdated business practices
  • Slow technology adoption
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Oddly, management consulting is rarely named in discussions about industries vulnerable to disruption (unless you ask Christensen), despite the fact that it meets all of the above qualifications.

Over the last 60 years, the large management consultancies have grown and maintained their status through prestige, branding, and long-time client relationships. Consulting itself is a $200B+ industry. But big consultancies — such as McKinsey, Boston Consulting Group (BCG), and Bain — are ultimately no more immune to the forces of disruption than any other industry.

More and more recommendations are out of date as soon as they’re made

Management consulting is primarily human-driven. Hourly or per diem billing, rather than outcome or value-based pricing, is still the general rule (even as industries like law move away from billable hours). The increasing pace of technological change means that, more and more, consultants’ recommendations are out of date nearly as soon as they’re made.

Consulting, in other words, is inefficient, inflexible, and slow to adapt. Any of these weaknesses alone would suggest coming disruption — possessing all of them points to a major fight ahead.

This also applies to those consultancies who offer advice to Fortune 100 companies and their Asian or European counterparts. These consultancies offer a highly brand-driven, prestigious, and hard-to-quantify product to Fortune 100 companies with plenty of cash to spend.

If you dig deeper into the specific types of services that these firms offer their clients today, however, it’s clear that a tectonic disruption is hitting management consulting just as it has hit many other industries before. It may be a slow and gradual change, and the big names may well endure — no matter how thinned their ranks — but a change is coming.

Thinking about customers, costs and competitors

As business became more complex and global in the 1960s and 1970s, consultancies brought cutting-edge methods of market research and data analysis — as well as access to academic and industry experts — to bear on the major challenges of business. They helped companies build more efficient supply chains, improve their product positioning, figure out which markets to exit and which to enter, and more.

Those consultancies pioneered many of the major tools and frameworks companies still use today to develop corporate strategy: the 2×2 matrix, the Experience Curve, SWOT (Strengths, Weaknesses, Opportunities, Threats) diagrams, Porter’s Five Forces, and many more.

As they found success, they began hiring the brightest, most technical business school students they could find. The MBA became, for the first time, a truly respectable career choice. Between 1970 and 1995, the number of MBAs granted per year rose from 25,000 to 90,000.Today, nearly 200,000 students graduate with MBAs every year in the US. The value of strategy is now obvious to every company.

A company such as McKinsey made about $10B in 2018, BCG about $7.5B, and Bain about $4.5B. Each is still growing. From one perspective, the position of management consulting as an industry has never seemed more secure. But just as their clients are always under threat from new players and technologies, consultants too are not immune to the forces of disruption.

The four functions of consulting

When the client-consultant relationship is functioning at its best, the consultant gives the client:

  • Information: The data and analyses that take the client’s world, industry, and market position and make sense of it.
  • Expertise: An experienced operator’s perspective on a problem and the different ways that it can be solved.
  • Insight: The rigorous, analytical application of expertise to come up with insights that will help the company succeed.
  • Execution: The roadmap to choosing and implementing the changes to be made.

In some cases, management consultants are hired to give cover to unpopular decisions or even to send a message to one’s workforce. In “The Firm,” Duff McDonald argues that McKinsey in particular “might be the single greatest legitimizer of mass layoffs in history.”

“If you were a CEO and felt you needed to cut 10% of costs but didn’t feel you were getting buy-in from your employees,” he writes, “the hiring of McKinsey generally got the point across quite clearly.”

When client and consultant are working together as initially envisioned, however, those four values — information, expertise, insight, and execution — are the “package” that consultants offer, and each one of these values has been disrupted in ways big and small over the last several years.

Information about customers and competitors is more available than ever. Expertise has been disaggregated. Insight has been productized (and, in some cases, commoditized). And execution has, in many cases, been brought in-house or outsourced to freelancers.

There is a lot about how management consulting works that would lend it to being vulnerable to disruption:

  • It’s highly dependent on manual (computational) human labor — something that computers are doing more and more of.
  • It traditionally has very high margins (and doesn’t bill based on outcomes but time spent).
  • The value is largely time-bound, in the sense that the advice often gets outdated quickly.
  • The value is largely driven by information asymmetry (knowing things other consultants or companies don’t), which is harder to maintain in the internet age.

 


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