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

The post-disruption future of management consultants

To understand just how this has all come about, and what the post-disruption future looks like for the big management consulting firms, we take a look at each of the four consulting functions. Our goal is to understand exactly what type of value the consulting firms are offering, and where various disruptors are, or are not, displacing them.

1. Information

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In management consulting’s golden days, young associates would gather critical information about their clients’ businesses by doing things like sitting in parking lots and counting the number of customers leaving a store with shopping bags.

The rise of market research firms and databases has made it possible for companies to collect valuable, actionable data themselves. The rise of business analytics tools has made it possible for them to collect information about the performance and operations of their companies — also on their own.

Today, a retailer can access imagery of their own parking lots from a satellite camera. They can use those images to analyze store traffic. Internally, because virtually every aspect of fulfillment, delivery, and purchasing is digitized, they can access a similarly detailed level of information on almost any aspect of the supply chain or the customer experience.

“Organizations are now amalgams of software-enabled systems (at point-of-sales, managing inventory, tracking production) that dutifully log and store data.” — MIT Sloan Management Review

How consulting used to work

There was a time when companies would come to management consultancies with virtually all of their strategic problems, and the consultancies would hire the best and brightest out of college to sit at desks and manually collect the data that would be used to solve them. They would use every available resource to understand industries, markets, consumer sentiment, and companies’ product lines. Then a senior partner would come in, make sense of the data, package it, and present it to the client.

At that time, clients’ understanding of their own businesses was generally at a primitive level.

For decades, one of the most effective sales techniques in consulting was asking a potential client whether they knew how much business they were doing across all divisions with their largest customer, and how profitable that business was. The answer, as Kiechel points out, was usually “no.”

Since those days, both internal company data and industry/market research have become more accessible than ever before. Today, knowing the answer to a question like that is table stakes — the differentiation comes in with the depth of further analysis you’re able to do with that data.

How the disruption works

Today, tools like Looker, Tableau, Microsoft Power BI, Qlik, SAS, and Domo allow companies to instantly generate reports and dashboards on phenomena like:

  • Customer lifetime value across demographic and behavioral cohorts
  • Conversion rates (site-to-item and item-to-cart) across an entire product line
  • Efficiency of marketing spend and ad targeting

As technology progresses, it’s likely that the bar may fall lower and lower. Startups working on business intelligence and analytics know they’re fighting for a prize worth many billions of dollars, and dozens upon dozens have emerged to help Fortune 500 companies get the kinds of insights they might otherwise be getting from a Bain or a BCG.

But even if “big data” doesn’t obviate the need for expert guidance completely, it can open up a space for more specialized consulting firms that deal specifically with applying the insights from analytics and market research.

Other relative newcomers are applying those insights to challenge the dominance of management consulting’s old guard. Software company Palantir, which specializes in large-scale data analytics applications, is one such firm.

Founded in 2004 and drawing early investments from the CIA’s investment arm, Palantir has grown to become one of the federal government’s largest vendors. The company reportedly has $1.5B in contracts across numerous federal departments and agencies, including the Department of Defense and the Department of Homeland Security.

But Palantir’s expertise extends far beyond its big data work for the federal government — and that expertise is putting legacy management consultants on the defensive.

The company offers two separate software platforms: Palantir Gotham, designed primarily for defense and intelligence applications within government agencies, and Palantir Foundry, aimed at commercial businesses. Foundry, which was the product of a former Palantir project named Metropolis trialed extensively at JPMorgan Chase in 2009, has been used by corporations including Airbus, Ferrari, and Merck.

What differentiates Palantir from virtually every other data analytics software provider is that it combines its software with bespoke consulting services into a single information product that it licenses to its clients. Palantir’s filings with the Securities and Exchange Commission (SEC) indicate that the average value of its contracts was approximately $5.6M in 2019, highlighting the considerable revenue potential of the company’s hybrid approach.

For governmental entities like the Department of Defense, Palantir’s business model is highly unorthodox. The federal government typically pays its consultants separately from its software vendors, and Palantir is a rare exception to this rule. For many private companies, however, Palantir’s hybrid model could offer a glimpse of what the future of management consulting may look like.

Ultimately, legacy consultants may find themselves with little choice but to invest in the development of their own proprietary technology platforms that can compete with the hybrid model pioneered by Palantir and business intelligence companies such as Verint Systems.

 


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