Coming up with a strategy and actually helping a client implement that strategy are two completely different things.
Consulting firms have been aware of this for a long time. Contrary to the narrative that consultants just tell companies what to do, without helping them do it, the strategy side of consulting has always existed alongside a dedicated execution side.
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From the 1960s through much of the 21st century so far, however, the strategy side has been the dominant force inside most management consultancies.
Selling pure strategy is almost always a higher-margin activity, especially when you can package up your strategy into certain, repeatable templates.
Today, the wide availability of tools that help companies collect and analyze huge amounts of data, on-demand domain experts, and previously “black-boxed” consulting resources and ex-consultants have taken a chunk out of the strategic value proposition of the big management consultancies.
Strategy on its own has become more commodified, forcing a reconfiguration. Big consultancies, more and more, are having to double down on execution in order to stay relevant and useful.
How consulting used to work
By the mid-1970s, every consulting firm knew the average client company needed help executing on their recommendations. The strategies they were prescribing had gotten complex, the result of an intellectual-industrial arms race started by the “strategy buffs” at BCG. Each consulting firm dealt with this pressure differently, but one firm emerged as a standout: Bain.
Bain had always prioritized intimate client relationships where it could drive greater value, preferring a few high-value engagements to having more numerous but less valuable relationships. The company made 3 crucial decisions early on about how it would work with clients to make that happen:
- It would work with only one company in any given industry.
- It would only work with clients on multi-year contracts.
- It would commit large amounts of time, money, and manpower to helping those companies get results, including (at times) sending Bain employees to work on-site to learn on the job.
To maintain confidentiality, “Bainies” did not carry business cards (no one at Bain did for the first 7 years of the firm) and would only refer to clients by codenames. The depth and secrecy of these long, intimate relationships led to Bain’s reputation as the “KGB of management consulting.”
Bain’s habit of embedding itself as part of the team made it a darling consultant of the 1980s. Wall Street enshrined “shareholder value” as the ultimate good, and Bain made shareholder value its North Star metric.
This would occasionally get Bain into trouble.
For example, Bain was working with Guinness when it was uncovered that 4 men — the so-called “Guinness four” — had been manipulating the stock market in order to inflate Guinness’ share price.
At the time, Bain had 35 consultants working at Guinness headquarters and was bringing in $20M a year. One of those consultants, Olivier Roux, was “on loan” as a controller, financial director, and member of the board. This link prompted concerns of a conflict of interest for Bain.
At the same time, that embedded team of Bainies helped Guinness sell 150 companies from its portfolio and make a powerful expansion move into hard liquor with a few strategic acquisitions. Profits for Guinness grew six-fold after these changes, and Bain was never officially accused of any wrongdoing.
How the disruption works
Among the forces disrupting management consulting forces on the execution front are independent freelancer networks like Eden McCallum and Business Talent Group (BTG).
Eden McCallum and BTG bring ex-consultants and other strategically trained, experienced operators together to form lean teams for client projects, and contract them out without the overhead of working with a conventional management consulting firm.
There are billions of dollars a year in massive, business-rethinking kinds of projects that CEOs can only justify to their board if they hire a big name like Bain or BCG. But McCallum and BTG aren’t necessarily angling to take on the entire consulting market today. They don’t need to overcome the branding of those firms to beat them, because they can chip away from the small end. They can build a client base among companies looking for more niche help and more routine projects with better defined parameters and clearer expectations.
“In consulting, as in every other industry, the unlocked entryway is in the basement of the established firms,” Christensen says. “While consulting’s core apparatus is focused on bigger and bigger client engagements, small customers are unguarded.”
A new CPG brand, for instance, trying to figure out how to price its products has a fairly routinized problem on its hands. That’s not a problem that necessitates a McKinsey-level of involvement — and the company can probably get similar results by working with a pricing expert sourced through a network like BTG.
Disrupting the disruptors
One model for the disruption of management consulting could be the “inside counsel” revolution that began sweeping the legal world in the 1970s.
Corporate legal departments were once regarded as backwaters for lawyers. The real clout, and money, lay in outside corporate law firms.
Over time, as outside law firm fees rose higher and higher, companies started to look for alternatives. Globalization was driving new transnational legal issues, and this increased complexity made it beneficial for business leaders to have legal support close and on-call at any time.
Moreover, with an explosion in the general amount of litigation and activism across the world, corporations realized they needed to “make” expertise “inside the organization,” as attorney Ben Heineman puts it, rather than “buy” it outside the organization.
Forty years later, it is usually the corporate GC (general counsel) who most closely advises a company’s CEO on legal matters — not some senior partner at a corporate law firm. While corporate law firms have their purpose, corporations now mostly prefer to keep their legal work in-house.
Similarly, consulting and strategy teams could be increasingly brought in-house, rather than hired externally.
As Clayton Christensen points out, the inside counsel model is made possible by the fact that general counsels and their staff today have access to powerful legal workflow and on-demand staffing tools like Axiom. They can get customized support from networks like AdvanceLaw. And they can outsource more basic tasks like document and data review to firms like LeClairRyan, which run leaner and cheaper than a conventional law firm.
A lot of the value that traditional management consultants have offered their clients has been similarly disrupted by technology. But as we’ve seen, consulting firms are nimble. It may help that they themselves invented the concept of “disruption.”
Of course, there’s no guarantee that consulting firms will survive forever in their current state. Every day, there are more ex-consultants ready to share their expertise. Every day, the tools that companies can use to form their strategy get better and more advanced. And every day, consulting firms need to prove that they can be relevant in this new world — and not simply the prestige name that Fortune 500 CEOs hire to get the board off their back.
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