The consultancy sector is going through a period of intense change. Almost all existing consultancies are experimenting with new business models in order to meet the changing demands of the business environment. In addition, new players are entering the market with completely new ways of doing business. With research I’ve conducted with the help of David Seipl into 104 consultancies, I hope to point out why this is all happening and identify three dominant trends in business models.
Trends affecting consulting
Like many other sectors, consulting is affected by many trends. We’ve found that three, in particular, have had a substantial impact on consultancies. The most important of these trends is the demand by clients for faster results. The speed of change in business is such that clients expect consultants to affect change immediately. Linear consulting projects typically consist of consultants first executing a lengthy research project, then presenting an intermediate report followed by the development of a redesign before finally attempting to implement it. This does not fit with the current demand for speed, and new consultants are emerging as the answer this trend. One of these is Transparency Lab, which oers easy online tools to diagnose organisational problems, tools that decrease the time consultants need for research and hence speed up consultancy projects.
Coming in at a close second is the trend toward increasingly sophisticated demand. Clients have become more knowledgeable. They have to be. They are facing a more complex world and they are employing skilled former consultants to help them confront it. This ups the ante for consultants. With more consultants in-house, a firm’s internal expertise grows. External consultants therefore are hired only for the truly complex projects, the ones that incorporate the landscape created by new technologies, internationalisation and the complex regulatory environment that engenders. This calls for consultants who are hyperspecialized in esoteric niches. Such a hyperspecialized consultancy is FlorPartners, which advises cooperatives of growers of flowers and fruit in greenhouses: a very small and di£cult niche, but profitable because FlorPartners literally knows everything there is to know about this business.
The impact of technical innovations completes the top three trends. Information technology is the big driver here. New ways of technology delivery – such as the cloud and ‘everything as-a-service’ – have led to new demands being made of consultants. The use of information technology in the consulting process itself is an element of this trend. Big data and online consulting are changing the way consultants organise their own processes. A new type of company is emerging that develops technological tools for consultancies to use. Concentra, for example, was founded by consultants and makes software that supports organisational restructuring and transformation processes. With Concentra software, other consultancies can deliver higher quality at a greater speed and lower cost to the client.
New business models
The pressure of these trends has led to responses from consultancies, and our data has shown that three distinctive business models – collaborative, continuous, and instant – ´are developing to meet these new trends.
In collaborative consulting. we distinguish three models: the closed network, the open network, and the virtual consultancy. In a closed network a fixed set of companies collaborate repeatedly on client assignments. Other consultancies are allowed into the network only after an extensive selection process. Solutio Consulting works in this way. Another example is Terra Numerata, the network Roland Berger is creating to foster the development of digital business models. The advantage of closed networks is that long-term and more intensive relationships lead to more intensive knowledge sharing, enable the development of value propositions that deliver value in the longer run and make it easier to collaborate because people build up social capital.
The second model, continuous consulting, often centres around data analytics and subscriptions. Consultancies may offer a variety of online tools, benchmarks or databases that clients can subscribe to. These tools are attractive for clients to use repeatedly either because of their ease of use, the fact that they are up to date, or because they help with regularly occurring problems. Clearly, these services make the most of the trend of increased IT impact in the consulting business. The costs of gathering information on the internet or using internet-based tools have declined substantially. The knowledge of how to analyse data has increased as well, and delivery of information-based services has become easy. This means consultants can be engaged with a client on a continuous basis, rather than on a project by- project basis. In this model, interaction between client and consultant becomes more online than face to face, and subscription fees or pay-per-use models replace the hourly fee as the consultant’s source of income.
In instant consulting, consultants show their value to the client from day one or at least in a very short time span. The training and coaching firm, the Great Game of Business, is a nice example of this. By organising short running games, they are able to teach employees in a client company the basics behind financial principles. By applying what is learned in the form of a real-life game, the gains become clear very fast. Other forms of consulting that fall under this heading occur when consultants are involved in implementation or interim management. This model clearly satisfies the need of clients for faster results from consultants.
It is striking that in our research the classical image of consultants is not dominant anymore. If we look at the traditional leverage model (use of junior consultants, hourly fees, and focus on advice only), we find that only about 15% of the respondents work according to this model. The majority have made changes in other elements of their business model, such as networking or using new tools to speed up value delivery. It seems that in the more traditional consultancies, changes to the business model are made by building on the existing situation and making incremental changes on that.
Implications for clients
The impact of these models on the consultancy sector is clear. Clients, however, need to adapt as well. In particular, they face three challenges. The first is the legitimacy challenge. Many clients still prefer to hire a big brand consultancy with all expertise in-house, believing this will give them more control over the consultants. And the added value of the big brand is that it provides legitimacy: it is easier to ‘sell’ the advice of a global brand to board members, unions, and staff than it is to get them to accept the outcome of an as-yet little known networked consultancy. This makes it more difficult for start-ups working with new business models to grow. The second challenge is that the new business models demand a high level of knowledge on the client side. Online consulting models require clients to formulate very precise questions. They only work when clients are able to form their questions in a very focused way. Less knowledgeable and less experienced clients may not be able to do so. A third obstacle is procurement policies. Procurement policies often implicitly favour the traditional model and do not always give new business models a fair chance. They do not allow for online consulting models for example or cannot deal with subscription models. In addition, procurement departments are not very knowledgeable about the different consulting business models out there, with many clients still thinking the hourly fee model is the only one available. In conclusion, the outlines of new business models are clearly visible in the market, and further development and growth in the direction of networked, continuous and instant consulting is to be expected. This will ultimately lead to new models that will not only benefit consultancies but also their clients. How fast these changes will occur will not only be dictated by consultancies, but also by clients’ acceptance of new ways of working.