What does 'a profound change' in consulting' mean to you?
A question we were asked a few months ago...
What would be a profound change in consulting? and… in what timeframe might this happen?
In our view; 'profound' will be when companies no longer default to hiring an MBB or Big4.
“No one ever got fired for hiring McKinsey”.
At the start of ‘24, we spoke with TMC over on the Consulting Intel substack, on the future of consulting in the AI era. Informed by our experience in consulting, and what we see as we build an AI-powered tool for consultancies.
This is the first in a series of articles to recap and expand on that discussion.
What are the shifts that might shape consulting?
According to Source Global Research, clients hire for one of three reasons.
They don't know what to do (~26% want specialist expertise),
They don't know how to do it (~35% want faster outcomes), or
They lack the bandwidth to do it (~22% supplement in-house).
For the first two buckets, profound would be when clients hire a (newish) AI-native consultancy or an AI.
However, given the industry’s track record, it is difficult to see much beyond glacial change in the next 2 years!
Our 'bet' is we will start to see a mix of shifts in the next 5 - 10 years.
These will profoundly change the industry (and the delivery of consulting work). Even if not so much the incumbents.
Here are shifts that will play out in the next 2 to 5 to 10 years.
AI… the new internet?
Nearly every consultancy is testing how they use AI or sell AI services. Some are building a value proposition around it. Some will use it to deliver their value proposition.
In the short term, every project is an ‘AI project’.
This was the case with design thinking, customer experience, and sustainability.
Consultants know the buzzwords to use.
Let’s count how many AI terms cake appear in an Exec summary...
As the hype matures, we will be back to business change projects where AI is an untrumpeted part of the delivery.
It might be part of the solution, at the very least it’ll be considered.
Your uniquely valuable IP vs My LLM chat agent.
Clients already use chat agents to brainstorm ideas and refine internal comms. This use will increase with familiarity. Especially as companies deploy in-house LLMs and public LLMs improve.
Consultants will need to compete against the average. They'll need to show the value of their unique IP and datasets to win work and justify their advice.
Saying "we know you" or talking only of your people and approach won’t cut it.
A few firms already seem well-placed here. They know what IP makes them special, and can market and productise this.
Big firms grow stronger, and Boutiques debate paths.
BCG, McKinsey, PwC, EY, etc. continue to channel their huge resources into making AI work for them. For now, this experimentation = chat agents to query their vast knowledge set.
Boutiques will wait and see. Others will test options to not fall behind the curve.
Most lack the time, budget or volume of data to mimic the larger firms. Instead, they will assign investment to strengthen their uniquely differentiated service offering. To do so, some will customise horizontal AI tooling. Others will do light configuration, and some will take a different path and employ vertical tooling.
The next wave of in-house transformation teams
In late ‘22, we interviewed 40+ people in senior in-house transformation & strategy roles. We learned their role had shifted. From centralised watchdogs of corporate strategy and executors of strategic change. To more of a support and enablement role to business units to deliver change themselves.
The AI era will spur the next wave of building in-house knowledge.
These teams will advise functional leaders on how to plan for, resource, and drive change with AI. They will again strive to manage expectations, educate leaders, and substitute for external spending.
Overseas incubators of AI-native consultancies
Indian SIs (TCS, Wipro, Infosys etc.,) have built well-renowned commodity consulting practices. AI enables them to continue their evolution up the consulting services spectrum.
Firstly, it will help them pick up more rote consulting work (a.k.a ‘low-value’).
Mid-to-long term it may help them incubate the first AI-native consultancies.
AI-native students join the workforce
New joiners will bring additional challenges to multi-generational workplaces.
As individuals accustomed to using AI in everything they do, question the ‘this is how we do things here’.
Depending on where the firm opts to double down. New joiners will boost a firm’s AI-ish offering. Or enable it.
Bringing additional skills in Data science and/ or Deep AI. As well as familiarity with no-code skills. Against this backdrop, there will be the usual drive to strengthen traditional ‘soft skills’.
What to prepare for?
Given the above shifts, how might consulting prepare?
We believe each journey is uniquely contextualised, so instead I’ve shared the questions we often explore with firms.
How do you stay ahead of changes in the needs/wants of your key clients?
What is the most uniquely valuable service you offer your main client base?
How can you productise and offer a service you perform frequently?
How can you extract more value from your firm’s collective knowledge?
What do you need to adopt new tools into how you and your people work?
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We will explore several more questions in a future newsletter. But for now, let us know in the comments your thoughts on these shifts!?
Three things struck me in response:
1. The key to the profitability and thus the business model of large consultancies is leverage. Defined as the number of chargeable staff per partner. What happens when AI is good enough to disrupt that business model? If a AI means 10 people can do the work of 15 maybe not much. What if 10 people can do the work of 100? Is there a market for the scale of increase in capacity?
2. The other part of the profit equation is utilisation. In order to maintain margins, everyone needs to bill enough hours per annum. If AI is doing 90% of the work, do utlisation and timesheets matter any more? My experience of the tech industry suggest not. So what does the new business model look like? Is the partnership model still sustainable in this world?
3. The big firms currently have complete control over distribution. Led by partners they have incredible networks and brands give them a safe reputation. Part of this is built on the knowledge that a partner is an assurance of quality and delivery. In a world where you are selling service as a software not people, will that distribution model get disrupted. Or might it become even more entrenched?
I don’t have an answer to the time frame question. However, I do believe that AI is now at a point where it will start to disrupt consulting and all professional services industries. Previous experience of disruptive tech waves suggests not all the incumbents will survive in the new world.