Management Consultancy Disrupted: The Move Towards Asset-based Consulting

Management Consultancy Disrupted: The Move Towards Asset-based Consulting

Disruption has made its mark on nearly every industry. In fact, disruption is so prevalent that there is a field of study devoted to it. Clayton Christensen, renowned scholar on disruption, has put forth a formula for how it occurs: “New competitors with new business models arrive; incumbents choose to ignore the new players or to flee to higher-margin activities; a disrupter whose product was once barely good enough achieves a level of quality acceptable to the broad middle of the market, undermining the position of longtime leaders and often causing the “flip” to a new basis of competition.”

But for some reason, management consultancy has survived an impressively long time without being disrupted. In fact, the HBR states that management consultancy hasn’t changed much over the last 100 years. It wasn’t until 2007, that the first hint of disruption appeared. McKinsey engaged in business model innovation by putting forth McKinsey Solutions—a software based toolkit that would embed McKinsey solutions at a client. This marked the first “unbundling” of services – separating hard knowledge assets from the consulting services McKinsey provides. While it made good commercial sense to move to a business model that provides the customer with a clearer ROI, Christensen argues that this was a hedge against the coming disruption.

However, the disruption of the management consultancy industry hasn’t been so straightforward. And while disruptors have emerged, we have yet to see total industry disruption. This leads to a number of interesting questions. Why has management consultancy lasted so long as almost every other industry is disrupted? What does “consultancy of the future” look like?

The Current State of Management Consulting

The business model for management is straightforward: The model is simple: the loan of human capital (so called “industry experts”) to solve the problems that a company cannot solve, or chooses not to tackle themselves. The innovative version of the consulting business model transforms the commodity from billable hours into business results and moves more heavily towards program & results based pricing models. For the customer, the benefit is clear. So why hasn’t it happened yet?

Christensen argues that consultancy has benefitted from two things – opacity and agility – which have left them seemingly immune to disruption. Professional services as a whole are more opaque than say their manufacturing counterparts because the client hires them for something that they themselves cannot do – which makes it implicitly more difficult to judge (both proactively and retroactively) the results. To counteract any lack of knowledge about potential business results that can be provided – lay people rely upon credentials of the consultants themselves or the name brand of the company to serve as a proxy for quality. Agility has also benefitted the consultancy industry. Due to the fact that their investments are in human capital, they are free to respond with agility to new developments.

The Future of Management Consulting

As the McKinsey Solutions example shows, the next phase in the disruption of the management consulting industry is “asset based consulting”. This means that consulting parties will look to differentiate themselves on the basis of their intellectual property by packaging and productizing it in technology. On the whole, this model requires less customization and human intervention than the traditional consultancy model which translates into lower expenses. It is also more customer-centric; not only are the customers able to benefit from lower prices but storing their data in the right platform makes it easier to maintain when the consultants leave.

Additionally, a number of startups are emerging to explore the possibility of using predictive technology and big data analytics to deliver value faster and cheaper than any consulting company ever could. Christensen predicts that as artificial intelligence and big data capabilities improve, the pace of productization will increase.

While “asset based consulting” will be able to disrupt and take the place of the vast majority of consultancy dollars currently being spent, there will always be room for management consulting which cannot be routinized. Anything without a common or repeatable solution will always require human ingenuity at the customer touchpoint, meaning that while management consultancy will likely experience further disruption, it will never totally disappear.