The challenges Professional Service and Consulting Firms face in the future of work and COVID context

Professional Services Firms are not immune to the challenges of the future of work and the disruption of the COVID pandemic. I start with definition of a professional services firm and then go on to describe the key challenges faced in this industry that forms the context of the need for leadership development and reselling.

A Professional Services Firm (PSF) is a business organisation with knowledge-intensive (versus capital intensive) work, a knowledge-based workforce, that tends to service client organisations rather than individual end customers, and that develops highly customised project-based offerings for clients. (Madhavaram & Hunt, 2017; von Nordenflycht, 2010; Maister, 1997). Over the last 60 years, the large management consultancies have grown and maintained their status through prestige, branding, and long-time client relationships. Consulting itself is a $240B industry, per CB Insights’ Industry Analyst Consensus. Management consulting is primarily human-driven. Hourly or per diem billing, rather than outcome or value-based pricing, is still the general rule (even as industries like law move away from billable hours). 

This magnificent growth has come to an abrupt end. The challenges of PSFs are significant. These include technology disruption, widespread access to knowledge and methodologies which used to be the domain of these firms, the high turnover of consultants and advisors, slowing growth, pressure on margins and increased competition from small and large players. The increasing pace of technological change means that more and more, consultants’ recommendations are out of date nearly as soon as they’re made. As a result of these challenges, the industry has seen only 3% annual growth over each of the last 5 years.  (CBInsights, 2019). There is also a significant talent acquisition, development and retention challenge. Kennedy Research estimates that turnover at all levels in prestigious consulting firms averages 18% to 20% a year. (Christensen et al, 2013). COVID 19 has brought a new set of challenges. As Somers (2020) writes: “Confronting an industry-wide contraction, leaders in the consulting industry are shifting attention and staffing to meet a new set of client needs.” (p.1). 

Heirati, O’Cass, Schoefer, and Siahtiri describe the competitive and turbulent environment of professional service firms, noting they “now more than ever are operating in an increasingly confounding and uncertain environment, where the tempo is faster and the competition is stronger” (2016, p. 50). Christensen et al (2013) states that the consulting industry faces the challenge to have to reshape itself: new business models, new growth areas and innovative products and services are required. As Soren Kaplan (2017) has pointed out in Inc, there is a lot about how management consulting works that would lend it to being vulnerable to disruption: 

·      It’s highly dependent on manual (computational) human labour — something that computers are doing more and more of. 

·      It traditionally has very high margins (and doesn’t bill based on outcomes but time spent). 

·      The value is largely time-bound in the sense that the advice often gets outdated quickly. 

·      The value is also largely driven by information asymmetry (knowing things other consultants or companies don’t) which is harder to maintain in the internet age. 

Furthermore, the management consulting sector shares the same characteristics historically faced by the most vulnerable companies to disruption. These are listed below: 

·      Presence of few major players competing in the industry: it is true that the business is highly concentrated with some big companies making up the largest part of the market (The Economist Intelligence Unit, 2018); 

·       Relatively obsolete business practices: this can be related with the traditional business model used by these companies which havenot radically changed over time; and

·      Slow response to adapt technologies. 

Today, the kind of information that once existed as closely guarded, trade secrets of the big management consultancies has become virtually commodified by the internet. Information about customers and competitors is more available than ever. Expertise has been disaggregated. Insight has been productized (and in some cases, commoditized). And execution has, in many cases, been brought in-house or outsourced to freelancers. Consulting firms are tasked with looking ahead to figure out what major development will matter to their clients next. (CBInsights, 2019).

Christensen et al (2013) sees four implications of disruption for the consulting industry:

1.    A consolidation—a thinning of the ranks—will occur in the top tiers of the industry over time, strengthening some firms while toppling others. 

2.    Industry leaders and observers will be tempted to track the battle for market share by watching the largest, most coveted clients, but the real story will begin with smaller clients—both those that are already served by existing consultancies and those that are new to the industry. 

3.    The traditional boundaries between professional services are blurring, and the new landscape will present novel opportunities. 

4.    The steady invasion of hard analytics and technology (big data) is a certainty in consulting, as it has been in so many other industries. 

All these challenges present leaders with an overwhelming task and for many years firms have been so focused on client delivery and utilisation they have neglected leadership development for their own employees. It is time to focus on business model reinvention and reskilling and upskilling in PSFs.