Change in the consulting and services (like marketing) industries is accelerating

We live in challenging times, the context (economic, geo-political, technology,...) is changing rapidly and industries and organizations need to transform themselves faster than ever

Articles such as "Consulting firms are cutting projections and tightening their belts as demand for their work slows" are published more and more. Similar signs are present in the marketing industry for example.

The consulting and services industry is currently undergoing significant transformations driven by several key trends and technological advancements. Traditionally, the industry has been characterized by strong brands and unique skill sets, often comprising teams with diverse expertise to scope and execute projects. However, the landscape is shifting due to various pressures and innovations.

Traditional structure and challenges

Historically, consulting firms have operated with a model where projects are sold in a traditional manner, scoped by experts and executed by teams with varied skill sets. This approach inherently includes substantial overhead costs—ranging from 20% to 40%—covering sales, marketing, human resources, training and infrastructure (buildings etc.). Managing this workforce (billability being a key driver) effectively has been crucial for maintaining profitability. The model also allowed for the professional development of team members, moving from junior roles to expert positions through diverse project experiences and training. A big chunk of the training of juniors was enabled by on the job experiences in the diversity of the projects.

Emerging and accelerating trends and pressures

1. Shift experts towards independent experts: new ways to the market driven by platforms adn social media allowing an easy demand/supply matching
2. Impact of technological advancements such as genAI, cloud based tooling allowing internal teams to do a lot of the work that 'juniors' typically did in the past (content production, data crunching and tomorrow vieo creation for example)
3. Changing client expectations driven by cost pressure,insourcing, access to tooling, willingness to pay for the needed skill gathering especially when juniors are part of the teams.

Consequences and industry response

As a result of these trends, several impacts are observed:

• Decreasing margins: With reduced demand for junior-level services (data crunching, content marketing, website management, benchmarking, you name it...) and increased competition from technology, the need has decreased and margins in these categories have declined.
• Increased bench ratios: More consultants are on the bench (not billable) because of shorter assignments, leading to inefficiencies and higher operational costs.
• Pressure on overheads: Firms face increasing pressure to reduce overhead costs, leading to potential cuts in non-billable areas like sales, marketing, and HR. Some interesting articles : here and here
• Medior consultant concerns: Mid-level consultants are questioning their career paths within traditional firms, contributing to workforce instability.

New players come to the market

People buy from people and the network becomes pivotal. Finding experts is cumbersom and the quality is not always guaranteed. New collaboration formats arise to unburden customers such as :

1. Platforms: matchmaking platforms for freelancers and experts are on the rise. This however does not always guarantee quality but these platforms are working hard to improve the quality stamp through selection processes. Customers however require strong project management skills blending the internal and external workforce.
2. Expert (consulting/services) boutiques : These boutiques are small, specialized firms that operate with low overheads. They consist of groups of experts (they 've done it before) who collaborate on projects, leveraging their deep expertise and professional networks. Although the average price per expert is higher the client only pays for the expert. The quality is better assured and blending with workforce is more easy as well as knowledge transfer.

Evolution of the industry

The industry more than ever should move from 'output' driven approach to 'outcome' driven approach showing the impact they have of the work they do. From telling to doing with (measurable) impact.

To navigate these challenges, the consulting and services industry needs to explore and select and execute more than ever several strategies:

1. Focus on tooling and integration excellence: be a first mover in adopting and integrating advanced (external) technologies to enhance efficiency and service delivery. Early adoption of cutting-edge tools can set a firm apart from competitors. Automating routine tasks also reduces costs and frees up consultants to focus on higher-value activities.
2. Outsourcing roles "As a Service": Take complete responsibility for specific roles or functions within a client’s organization, from strategy and planning to execution. Clients are unburdened from managing these roles, allowing them to focus on core activities. Clients can scale services up or down based on their needs without the hassle of managing internal teams. Firms offering this service take full responsibility for outcomes, providing clients with peace of mind.
3. Building proprietary intellectual property (IP): Develop proprietary IP involves creating reusable assets based on the firm’s collective knowledge and experience. This can include frameworks, methodologies, software tools, and industry insights. Proprietary IP that differentiates the firm from competitors by offering unique solutions.Reusable assets streamline project delivery, reducing time and costs and IP can be monetized through licensing or direct sales. This requires however a high focus on knowledge capture by implementing systems and processes to capture and document expertise and insights from projects.

The consulting and services industry is at a crossroads, with traditional models being challenged by technological advancements and shifting workforce and client expectations. By adopting innovative strategies and embracing technology, the industry will have to adapt itself to meet these challenges head-on and continue to provide valuable services in a rapidly changing environment. The ones that do not adapt will face more and more pressure. A new consolidation phase will come.

What is your view? We can all become better by sharing knowledge.