Consulting Amidst Disruption

Summary: Consulting is amidst disruption. The traditional business model for strategy consulting, largely unchanged for decades, typically involves a hierarchical team dedicating weeks to months on client strategy development, with billing based on time spent. With the internet democratizing knowledge and AI now democratizing insights, it’s time to explore alternative models for consulting business. This evolution gives rise to the concept of Alternative Consulting Service Providers (ACSP), a term I have coined. ACSPs represent an innovative solution for forward-thinking clients, offering a pathway to reduce costs while upholding the high standards of quality traditionally associated with top-tier consulting firms. In this article, I present my vision for the transformation of the strategy consulting business model, advocating for a client-centric approach. I argue that clients, in the near future, will increasingly seek out these new types of service providers, drawn by their potential to combine cost-effectiveness with high-quality strategic insights.

Evolution of Consulting

Marking the 10th anniversary of the influential HBR article 'Consulting on the Cusp of Disruption,' written by Clayton M. Christensen, Dina Wang , and Derek van Bever in 2013, we stand at a transformative moment in the strategy consulting industry.

Here are key takeaways from the 2013 HBR article:

1. Stagnant business models: The consulting industry’s business model, unchanged for over 100 years, faces disruption as traditional strategy work declines from 70% to about 20% – a trend that I believe has likely continued.
2. Disruption drivers: Technology, alternative staffing models, and client sophistication increase, eroding traditional firms' competitive position.
3. Increased transparency and agility: Consulting firms face challenges in maintaining their edge, as clients now possess enhanced capabilities to assess performance and explore alternative solutions.
4. The emergence of tech-based solutions: Instances like McKinsey Solutions' pivot towards technology-based analytics signify a departure from the conventional human capital-centric approach.
5. The emergence of new competitors: The democratization of technology and data analytics has leveled the playing field, enabling new entrants to challenge established firms.
6. Lessons from legal services: The legal industry's evolution, with increased transparency and client control, hints at consulting's future.
7. Shift towards modularization: Modularization in consulting is driven by clients' evolving needs, shifting from integrated solution shops to specialized service providers.
8. The blurring of boundaries: The traditional boundaries between professional services are blurring, and the new landscape will present novel opportunities.
9. Imperative for transformation: Consulting firms must embrace new models that prioritize predictive technology and automation to stay relevant.
10. The innovator’s dilemma: Established firms grapple with the challenge of self-disruption, balancing the integration of new, potentially competing business models with their legacy operations.

In my tenure as an Associate Partner at Innosight , a strategy and innovation consulting firm co-founded by the late Prof. Clayton Christensen, I had the unique opportunity to guide various clients through periods of significant industry disruption.

One such exposure was in the legal service industry. The past decade has witnessed a dramatic evolution in the professional services landscape, with the legal industry emerging as a quintessential example of disruption in action. This transformation has been characterized by several key developments:

• The rise of thousands of legal tech startups globally, significantly innovating within the legal sector.
• Big Four accounting firms expanding into legal services, increasing competition.
• The emergence of Alternative Legal Service Providers (ALSPs), offering diverse and competitive value propositions.
• Clients becoming increasingly sophisticated, leading to:(1) Outsourcing certain legal tasks to more cost-effective locations.(2) Utilizing in-house legal teams for specific functions.(3) Hiring on-demand legal professionals based on varying caseloads.(4) Engaging partners at established law firms for complex, high-stakes advisory services.
• This shift contrasts with previous decades when large law firms predominantly provided comprehensive legal services.

These data points present a compelling argument for major law firms to initiate a transformation of their business models to maintain relevance in the future.

Having observed such disruption at close quarters, it becomes impossible to ignore when similar patterns begin to recur.

I am witnessing a comparable narrative unfolding within strategy consulting firms, albeit in the nascent stages. Beyond the fact that AI is catalyzing substantial productivity enhancements (achieving up to 50% improvement in certain scenarios), I am firmly of the belief that we will see the emergence of consulting firms adopting new business models. These could be termed Alternative Consulting Service Providers (ACSPs), paralleling the ALSPs in legal services. These ACSPs could be distinctively organized, characterized by:

1. Cost-effectiveness due to reduced overheads.
2. Flexible engagement models that align with clients’ needs.
3. Innovation and deep technological integration in service delivery.
4. Remote capabilities that facilitate overnight access to consulting resources.
5. Access to a diverse array of specialized consulting expertise on an as-needed basis.

Some may find that my perspective diverges from conventional wisdom, and while time may yet challenge some of my forecasts, I am resolute in my belief that this is the direction in which the future of consulting is heading. This conviction is not merely theoretical; it is forged from years of deep involvement in the very field that is evolving right before our eyes.

This conviction has been the driving force behind establishing StratOffice , a next-generation alternative consulting business model. StratOffice is designed with a forward-looking vision, focusing on the future needs of clients and embodying the qualities of an ACSP. (Click here to learn more about StratOffice )

Let's now explore how AI is revolutionizing strategy consulting and how clients can capitalize on this transformative opportunity.

The AI Revolution in Consulting

The disruption predicted in the original HBR article has now crystallized into reality, with AI driving significant transformations in the consulting industry. These advancements are particularly evident in the qualitative and pragmatic facets of innovation and strategy consulting. Below are key examples illustrating the profound impact of AI:

1. Day-0 answer development: The initial phase of a consulting project often involves formulating a Day-0 hypothesis. The anxiety of being assigned to a project in an unfamiliar industry and preparing for imminent client interactions is a known challenge for consultants. AI now facilitates the rapid preparation of a solid Day-0 hypothesis, which was previously daunting.
2. Interview guide creation: Creating compelling interview guides for senior client and customer interviews can be a time-consuming task for junior consultants. With AI, it's now possible to generate robust interview guides and customer personas quickly and in just minutes.
3. Hypothesis development for primary research: Traditionally, consulting leaders (i.e., partners and principals) advise their teams to approach primary research with a well-thought-out hypothesis. However, due to tight schedules (imagine conducting 20 interviews in a week!), this often isn't fully feasible. AI now empowers consultants to develop strong hypotheses, leading to more meaningful and insightful interviews.
4. Accelerated secondary research: AI significantly speeds up the secondary research process. It can swiftly gather and synthesize information from various sources, including academic papers, industry reports, and market analyses, avoiding the pitfalls of hallucination issues.
5. Research synthesis: Synthesizing insights from primary and secondary research is a challenging task. Consultants often sift through extensive notes, emails, and documents to create a cohesive summary. AI aids in this process by efficiently collating crucial points and identifying patterns and insights that might be overlooked by human analysts.
6. Brainstorming and creative solution development: While new technologies take time to mature, AI's capacity for generating creative ideas based on specific prompts is commendable. This capability is especially impactful when wielded by experienced consultants, offering a distinct competitive edge.

Additionally, AI has numerous other applications in consulting, such as composing weekly update emails, synthesizing meeting notes, storylining, and even drafting performance reviews of team members during a project. These use cases underline AI’s growing role in revolutionizing strategy consulting, making it an indispensable tool for today’s consultants.

One might question, isn't the adoption of AI tools and techniques a standard practice that all consulting firms should already be incorporating into their workflows? My response is affirmative: "Yes, I certainly hope they are." But there is more to consider beyond this fundamental expectation.

Herein lies the intriguing aspect of the narrative and where my unique perspective comes into play. Even if consulting firms are currently leveraging AI tools within their traditional business models, it mainly involves consulting team members (i.e., analysts, associates, senior associates, and managers) utilizing these tools to enhance productivity and expedite output.

This leads to a tactical question: Who truly benefits from this increase in productivity? Is it the diligent consultant, the overseeing partner, the client, or a combination of all three? And furthermore, is there a systematic approach to tracking these productivity improvements?

However, a more strategic question arises: Shouldn't leaders in consulting, such as partners and principals, be directly engaging with AI tools to execute the work?

The rationale behind this inquiry is based on the premise that the more seasoned a professional is, the more insightful and effective their prompts to AI tools will be. A junior consultant, while undoubtedly intelligent and industrious, may not possess the extensive experience necessary to maximize the potential of these AI tools.

To validate this hypothesis, I assigned a specific task to a few junior consultants (and MBA interns) to be executed using an AI tool. After a day and a half, they concluded, "Utsav, this task is not feasible with the AI tool. We aren’t getting the response we would like." In contrast, it took me merely an hour to accomplish the same task using the same tool. This discrepancy wasn't due to a superior ability in handling the tool on my part, but rather because my experience provided me with the necessary context and a clear understanding of what I was seeking. I was collaborating with the tool as a co-pilot, whereas the junior consultant still required more experience (gain metaphorical ‘flight hours’) to effectively harness the tool in a similar capacity.

How could clients capitalize on this opportunity

As the strategy consulting landscape undergoes a transformative shift, driven by the integration of AI and emerging next-gen consulting models, clients stand at a crossroads. The options before them are varied, each suited to different types of work and organizational needs. Here's a strategic guide on how clients can navigate this evolving terrain:

1. High-Stakes, bet-the-business work: In scenarios where the stakes are sky-high and regular interactions are required with board/C-level executives, opting for established, big-name consulting firms is a prudent choice. The credibility and reassurance they bring are invaluable, often making them a safe, uncontroversial pick. However, for the discerning and sophisticated client, there's an opportunity to blend traditional and modern approaches. Groundwork and initial analyses can be efficiently handled by next-gen consulting service providers, with top-tier firms stepping in to validate and refine these findings. This hybrid approach optimizes both cost and expertise.
2. Routine work undertaken by strategy and innovation departments: Often, the more commonplace consulting tasks face neglect or cutbacks during budget constraints. These tasks might include trend analysis, identifying new growth ideas, running firm-wide surveys to assess innovation quotient, finding ways to improve innovation success rate, bolstering customer-centricity, and enabling cultural transformation. These domains are ripe for disruption. Progressive clients may choose to tackle these challenges in-house, engage with seasoned freelance consultants formerly from top firms, or partner with next-gen consulting providers who offer fresh, agile approaches.
3. Work that doesn’t fit in the business model of traditional consulting firms (non-consumption!): This is the niche where innovative consulting models, like StratOffice , are poised to thrive. Consider situations where a client needs swift, focused assistance – be it conducting succinct research, synthesizing extensive reports, crafting strategic narratives, or developing internal viewpoints. These are instances typically not outsourced to major consulting firms due to their high engagement overheads and cost structures. Next-gen models can offer a more accessible, flexible alternative.

Conclusion

As we reflect on the journey of consulting from its traditional moorings to the cusp of a digital and AI-driven era, it's clear that we stand at the precipice of a new paradigm in strategy consulting. The insights and experiences shared in this article aim to illuminate the path forward in this dynamic landscape.

The integration of AI and the emergence of alternative consulting models are not just incremental changes; they represent a fundamental shift in how consulting services are delivered and consumed. For clients, this evolution opens up a spectrum of opportunities to optimize their engagement with consulting firms, from leveraging the prowess of big names for high-stakes projects to embracing more agile, cost-effective solutions for routine work and areas of non-consumption.

As we move forward, the onus is on both consulting firms and their clients to navigate this transformed landscape with strategic acumen. Embracing AI and next-gen models like StratOffice is not just about staying relevant; it's about redefining the value and impact of consulting in a rapidly changing business world.

Your perspectives and experiences are invaluable as we collectively chart this course. I invite you to share your reactions, insights, and stories of how you are adapting to or driving change in the consulting domain. Together, let's explore and shape the future of consulting amidst this exciting era of disruption.