The Consulting Value Chain: A Strategic Perspective
The consulting value chain refers to the series of steps that a consulting firm takes to deliver value to its clients. These steps can include activities such as identifying client needs, defining a project scope, conducting research and analysis, diagnosing problems, developing recommendations, and delivering final solutions.
All the steps individually and collectively contribute to the revenues of the firms and help them to be more efficient. As a client, why should you care to understand the consulting value chain? Because this understanding will help you to make informed decisions about which consulting firms to work with, and how to manage consulting projects effectively.
How The Consulting Value Chain Is Evolving?
The consulting value chain is evolving. This is due to a variety of factors, including the increasing globalization of businesses, the rise of new technologies, and the changing needs of clients.
As businesses become more global, they need consultants who are familiar with a variety of cultures and who can help them navigate the complexities of the international marketplace.
New technologies, such as artificial intelligence and blockchain, are also transforming the consulting landscape. Clients are increasingly demanding consultants who can help them understand and adopt these new technologies.
Finally, as the consulting industry grows, clients are seeking firms that can provide a full range of services, from strategy to implementation. Firms that can adapt to these changing trends will be well-positioned to succeed in the future.
Now, let’s take a look at how the consulting value chain is evolving to become more efficient, effective, and outcome-focused in delivering services.
#1. Marketing & Sales
It is a known fact that the foundation of the consulting industry are relationships. Currently, humans still purchase from other humans. Network expansion is the most difficult aspect of the commercial process for consulting partners. To survive, they must cultivate fruitful relationships with executives. It requires a great deal of vigor and some good fortune. Indeed, you must connect with a decision-maker who could require your specific expertise and who is also a potential client (or has access to one).
The key is to establish their credibility and to grow their network through inbound connections. Consultants began to disseminate thought leadership in the form of management books, lectures in MBA schools, and pieces in the Harvard Business Review.
In today’s digital world, mature customers examine to see if the consultants in front of them have written anything relating to the problems they’re trying to solve. When the background check is done rapidly using publications, relevant experience and case studies are no longer a sure pass to make the short-list.
This content war is on, with both beneficial and negative consequences. It’s possible to have too much content. Besides, keeping track of who is saying what and comparing the offerings can be challenging at times. Big players will continue to play a significant role. Smaller businesses, on the other hand, can now use digital platforms to address certain niches with hyper-targeted content.
The consulting value chain or rather the process has traditionally revolved around knowledge. Large consulting firms have amassed vast knowledge bases in a variety of industries throughout time. They provide their clientele with performance benchmarks or insight into the most recent advancements.
Moreover, if we had conducted a core vs. non-core exercise in a consulting firm a few years ago, knowledge would have been regarded core and strategic, making outsourcing impossible. But the times are changing, and this segment of the consulting value chain is undergoing significant changes.
To begin with, anyone can attest to the fact that search engines are improving every day and have become an integral part of most executives’ daily routines. Whether you blame or bless Google, information is now at your fingertips.
Secondly, customers get direct access to expert platforms such as GLG, Third Bridge, Alphasight, and Coleman. The consultant’s added value is determined by his ability to frame the problem and assess the expert’s data. Some clients decide to perform those tasks themselves and opt for disintermediation, de facto reducing costs on their end.
Thirdly, firms like Evalueserve provide management consultants with outsourced knowledge services such as knowledge management, business intelligence, market-specific or client insights to aid business development. They currently operate on a global scale, mining data from a variety of sources and providing services to a variety of consultancies. They’ve reached critical mass, giving them a significant competitive advantage over internal resources.
Lastly, given the significance of knowledge, some businesses have realized that their old method is no longer up to date. A few startups, such as Klutch, have developed consulting-specific knowledge management software. These solutions enable them to efficiently manage all of their knowledge while adhering to compliance and confidentiality regulations.
Almost every executive has heard at least once that consultants use your watch to keep time for you. But guess what? It is both true and false: they are utilizing your data to read the time, and they are not using an already built watch to do so. Making sense of data necessitates a method, experience, and the use of the appropriate instruments.
Until recently, most businesses had no or extremely limited data analytics resources. That situation is going to change, thanks to all of the buzz surrounding artificial intelligence, big data, and machine learning. To take advantage of its data and establish new business models, many corporations are forming teams of data scientists.
In addition, business analysis software applications such as Tableau, Qlik, Dataiku, and Looker, have all made significant progress. They now enable the analysis and organization with massive amounts of data, enabling consumer analysis through streamlined interfaces while managing access rights and preserving confidentiality.
#4. Management Tools & Methodologies
Management consultants have developed and cultivated strategies and tools to make thought leadership actionable, whether they have developed it or not. It is both to win business and to be more efficient in execution to codify and structure knowledge for use in client context.
Clearly, consultants continue to put a lot of money into management tools and techniques, which are at the heart of their value proposition. However, two noteworthy phenomena are emerging in this portion of the consulting value chain today.
On the one hand, we observe the commercialization of processes and tools created by consulting firms. This development has various advantages for clients and consultants alike. For clients, the adoption of off-the-shelf tools reduces expenses. For consultants, it enables them to enter new territories they were not previously addressing and to have a scale effect independent of human resources for the first time.
On the other hand, a number of young and not-so-young startups now provide consultants and executives access to training and packaged approaches in a do-it-yourself style. This new solution provides independent consultants access to a rich knowledge base to which they would not otherwise have access as sole proprietors or small businesses. It is also a wonderful resource for internal consultants and excellence teams that lack the necessary number of members to create it.
These trends are still in their infancy, but they are gradually leveling the playing field between consulting companies of all sizes and providing executives with access to fundamental resources and tools.
In the future, we may envision a market in which consultants share the processes and tools they’ve built while also distributing the value they’ve created. We may also envision a future in which the efficiency and effectiveness of internal consulting or excellence teams, regardless of what name they are known by in your organization, are de-multiplied.
If you have had the opportunity to work with both major and boutique consulting firms, you have likely observed many parallels in terms of experience, competence, and advise quality. In fact, many boutique firms are spin-offs founded by former partners of large firms, therefore there is no distinction between individuals.
The formatting and quality of deliverables, however, are an area where the differences are frequently striking. Some seasoned consultants will tell you that formatting accounts is close to fifty percent of the perceived value.
As a result, majority of large consultancies establish back-office teams that structure slides. It also contributes to the development of a client-recognizable visual identity. In addition to formatting slides and white papers, these teams offer specialized resources for proofreading as well.
Substitution Manifests in A Variety of Forms and Shapes
In traditional frameworks of strategy, substitution refers to items or services that consumers can acquire in lieu of the industry’s offering. There are three situations in which the risk of substitution is high: when the new product is less expensive, when the goods have equal or better quality or performance, and when switching costs are minimal.
The Rise of In-House
CEOs have the option of executing any project in-house or bringing in external consultants. During the heyday of strategy consulting, the decision always favored external consultants. Even organizations may outsource their entire strategy effort to consulting firms.
This still occurs even today, and there are instances in which strategy teams will not undertake important efforts without the assistance of renowned consultancies. However, the proportions have shifted, and organizations are now more eager and able to handle their own initiatives, particularly when they have an impact on the enterprise’s future.
Indeed, the experience gap with external consultancies on strategic matters is narrowing. Frequent movements between consulting firms and strategy groups, combined with an almost systematic use of MBAs or leadership development programs, have provided corporations with the talent, knowledge, and experience to manage the strategic agenda on their own, relying on consultants for only the most specialized projects.
The trend to replace external consultants with internal resources, which began in the strategy department, has now spread to other departments and activities. Depending on the organization, they may be referred to as internal consulting, a transformation team, an excellence group, etc. These teams are frequently led by former consultants with domain-specific expertise. Creating a condition that benefits both sides.
Former consultants have the opportunity to join a company in a transitional capacity that allows them to utilize their experience and gain corporate knowledge prior to assuming further duties. Therefore, businesses enjoy the luxury of having experienced resources in-house to manage their projects or consulting assignments for a fraction of the cost.
The Gig Economy
The emergence of the gig economy has provided conventional players with an entirely new set of alternatives. Professors, platforms, integrators, and networks can be grouped together as four distinct groups.
If you have studied the origins of consulting boutiques, you have likely observed that a considerable proportion of them were founded by renowned academic professors. For instance, Michael Porter created Monitor, John Kotter created Kotter Inc., etc.
The pattern is pretty straightforward: professors teach executives, executives seek assistance with their initiatives, and professors establish consulting boutiques to provide advisory services. Whether or not they have a dedicated consulting boutique in their name, the majority of MBA instructors today offer freelance consulting services to executives who desire to profit from their experience on specific projects.
Customers now have access to professors and an extensive pool of independent advisors. This sounds fantastic, but what if what you need is a team with various globally dispersed competencies? The consulting sector is inventive, and A-connect has you covered.
They act as integrators, assisting you to utilize their network of independent consultants to select a team with all the necessary competencies and structure them as an integrated unit. Moreover, an alternative to freelance marketplaces and integrators is the utilization of global networks of consultants.
All of these models are still growing, pivoting, and finding their footing. However, when considering the main factors that make a substitution credible: cost, switch-ability, quality… the ingredients are unmistakably present, allowing for a substitution in some areas currently handled by traditional management consultancies.
Disruption In the Consulting Value Chain
According to IBIS World, the industry has reached a mature stage of its life cycle, and a disruption of the consulting value chain is surely taking place. This will create possibilities for new entrants to profit from the consulting value chain’s transformation, as well as incumbents who can ride the disruptive wave effectively. Clients have all the levers to take advantage of this new context if they dare to look at the dynamics at work and the new balance of power.
For years, the consulting value chain has been relatively linear, with consulting firms providing expertise and guidance to their clients. However, the rise of new technologies and the increasing availability of data have upended this traditional model. Today, consulting firms must contend with a wide range of new players, from start-ups to tech giants.
At the same time, clients are now more capable than ever of conducting their own research and analysis. As a result, consulting firms must find ways to adapt and stay ahead of the curve. The consulting value chain is no longer linear; it is complex, dynamic, and constantly evolving. To succeed in this new environment, consulting firms will need to be nimble, innovative, and above all else, adaptable.
How Are the Main Consulting Players Answering?
It’s difficult to picture a sector focused on advising others on strategy being entirely blindsided by workplace pressures. Indeed, the consulting sector, particularly the big ones, has been planning and responding to all of these shifts.
Let us delve more into this and see how the main consulting players are actually answering and reacting to the situation.
#1. Strengthening Their Position of Power
When you are being challenged, the first thing you should do is cement your position of dominance and make any switch difficult. When you take a step back and look at the market from the client’s perspective, you’ll notice that the major firms have an advantage due to a few simple factors.
Clients that are unfamiliar with the business may not have the time to assess all possible consultants for a specific project. As a result, word-of-mouth and reputation are extremely important to them.
One-stop-shop consultancies have long recognized that branding is more than ever a competitive tool. They spend a lot of money on marketing and advertising. If you fly frequently, it’s nearly difficult to avoid seeing Accenture’s enormous billboards. If you play golf, you’ve most likely seen Deloitte listed as a USGA sponsor. If you’re a rugby fan on the other side of the globe, you’re probably aware of FTI’s collaboration with Australian rugby teams.
#2. Riding The Digital Wave
Any decent enough surfer will tell you that the best thing to do when confronted with a large wave is to prepare to ride it, paddle in the same direction, surf it, and then add your own figures when you feel comfortable. This approach has been adopted by management consultants, who are highly adept at altering their value offer.
It would have been difficult to spot digital practices in consulting businesses just a few years ago. Although there were business groups centered on technology in general, none of the major players were formed to handle this new demand. If you spend a few minutes browsing the websites of the same players now, you’ll get the impression they’ve been around for a long time.
#3. Building One-Stop Shops
Large corporations are generally drawn to the major players because of their ability to provide practically all advisory services that a company might require at some point. If you keep up with the consulting industry news, you’ve probably seen that all of the main firms are now on a buying binge.
Establishing one-stop shops is easier said than done. Many have attempted and failed because of the large number of fixed costs that must be carried. If organizations want to stay profitable, they must keep all of their resources active to cover the range of requests that may arise.
Profitability will result in bonuses, which will please the rainmakers. When you overstaff your teams, you set in motion a vicious cycle in which low revenues lead to low bonuses, which leads to rainmakers leaving, lower incomes, and so on.
However, if you’ve figured out how to size effectively and build strong coverage of the major issues, you’ll reap a slew of rewards. For starters, you can meet the majority of your clients’ needs, from planning to implementation. You can also maintain a consistent presence through various projects till the next transformation cycle emerges a few years later.
#4. Assessing New Kinds of Talent
Consulting firms have realized that, despite its profitability, the pyramidal model alienated some clients and contributed to some opportunity losses in favor of more specialized boutiques.
Undoubtedly, the school bus and fresh graduates are still there in substantial numbers, but the major players have begun to engage seasoned professionals who can relate well to clients and reinforce the firms’ credibility.
It is not uncommon to encounter former supply chain directors who have transitioned into consulting, despite the fact that the road was very different a few years ago. Similarly, due to the expansion of the healthcare industry, there are an increasing number of physicians and PhDs in the consulting industry.
In addition, significant players are diversifying their talent pool by recruiting individuals from diverse backgrounds. Former executives from GAFAs, founders of successful or less successful startups, data scientists, etc.
All of these new generation consultants are injecting a healthy dose of variety into an industry that has been dominated by individuals with identical characteristics for decades. They provide the references and legitimacy that the corporations lack for these high-end themes, so enhancing the firms’ profiles.
What the Evolution of the Consulting Value Chain Means for Businesses?
Overall, the evolution of the consulting value chain represents a positive development for both consulting firms and their clients, and is likely to continue in the years to come.
On the one hand, the evolution of the consulting value chain enables consulting firms to deliver more value to clients in a faster and more efficient manner. On the other hand, this shift towards more data-driven, outcome-focused, and agile consulting services is also helping clients to achieve their goals more effectively and make more informed decisions about their businesses.
Increased demand for outcome-based pricing: Businesses are becoming more focused on the results that consulting firms can deliver, and as a result, they are demanding outcome-based pricing models that align the interests of clients and consultants. This allows clients to pay for results, rather than time and effort, and encourages consulting firms to focus on delivering high-quality outcomes.
Greater use of technology: As consulting firms adopt digital technologies, businesses are becoming more comfortable with technology-driven consulting services. For example, businesses are using digital tools and platforms to access real-time data and insights, which can inform decision-making and help organizations to be more agile in their operations.
A move towards more collaborative engagement models: The shift towards agile methodologies and a focus on outcomes is, in turn, leading to more collaborative engagement models, where clients and consultants work together more closely. This can help to ensure that projects are aligned with the client’s business goals and can lead to better outcomes.
A greater emphasis on sustainability and impact: As businesses become more conscious of their impact on the environment and society, they are looking for consulting firms that can help them to achieve their sustainability goals. This is leading to a growing demand for consultants who have expertise in sustainability and impact, and can help organizations to measure, manage, and report on their impact.
A Quick Round-Up
We can safely conclude that these changes in business’ consulting buying patterns are shaping the future of the consulting industry, and are leading to a greater focus on delivering value and impact to clients.
Consulting firms that can respond to these changes and evolve their value chains accordingly are well-positioned to succeed in this increasingly competitive and rapidly changing market.
Laurent is the Chairman and Co-founder of Consulting Quest. Focused on greater value creation, and being thoroughly familiar with Consulting, Laurent has sourced and sold millions of dollars worth of Consulting over the course of his career. Prior to joining Consulting Quest, Laurent was Executive Vice President Oil and Gas at Solvay and Senior Partner Transformation at Oliver Wyman.