Emergence of AI driven Startups as Consulting firms (Part 2)

In continuation to my earlier post on Data Scientists v/s Management Consultants

Competition from Startups

Startups are also representing a threat to consulting firms. Indeed, many offer services like helping clean up and label data, and take on specific tasks that large tech firms are not yet offering. In some cases, data scientists can perfectly bring an answer to a precise business issue without the need of a management consultant.

For large companies, it makes sense to outsource most of their AI work. These startups often have developed strong expertise that consulting firms don’t have yet, in a specific business area using Machine Learning. These startups often develop personalized solutions that integrate with the client’s business and can be used continuously — also after the consultants leave.

Competition from independent AI firms

Another worth mentioning new competition comes from independent AI consulting firms. Indeed, a growing number of companies have developed services to help companies integrate, develop or scale AI projects. These companies often have the advantage of their size (agile, price, etc.).

AI, SaaS, and new business models

I believe that many consulting firms are already trying to adapt by training their consultants, hiring data scientists, developing AI and SaaS offers as well as creating new business models.

Company culture & Training

First of all, it starts with training and company culture. Indeed, I believe that modern management consultants can no longer rely on being a graduate from a top school and an expert in a specific domain. All consultants must be remotely conversant in technology/data.

New data capabilities

Obviously, market leaders such as BCG or McKinsey have invested early in analytics startups with machine-learning experience or hired a lot of data scientists and created new data-driven departments (for instance BCG Gamma) to bring new data capabilities to clients.

Becoming a tech provider

Consulting firms have started to develop their proprietary software (often using SaaS or AIaaS models) because many clients have similar needs (for instance: pricing strategy), these solutions are often customizable depending on clients’ needs. Indeed, it is easy to promote your SaaS-solution if you already work with the company and perfectly know the business issue… The development of unique solutions creates new revenue streams for consulting firms. This new business model is perfectly suited for clients without the money to invest in their own AI development.

Indeed, when a diagnosis and recommendation task occurs frequently on routine, clients will have a larger incentive to invest in a software provider because “on-demand brains” fall away. Moreover, the need to rely on tools leveraging real-time data has changed the situation when it comes to consultants’ needs.

Ecosystem creation

A growing number of consulting firms are trying to build an AI ecosystem by partnering with specific institutions, startups or other organizations related to AI. The goal is to improve the brand image, establish themselves as leaders, hire technical experts and promote their solutions. For the most advanced consulting firms, it will involve the creation of a “lab” with expertise in AI and maybe an incubator.

New services related to the AI economy

I have seen consulting firms investing a lot in the emerging gig economy and online training.

My prediction

I believe that technology-based consulting solutions will gain more ground and the war-for-talents in consulting will get even tougher than today. Moreover, I expect to see more data scientists becoming consultants too.

I also expect that the competition will get more intense because of AI democratization and decreasing customer loyalty. Clients will expect the consulting services to be easier to purchase according to their specific requirements.

AI providers will increasingly compete with management consultancies.

However, I expect clients to continue benefiting from using a management consulting company over the supplier itself (e.g., Google, AWS, SAP) because the management consultancy can provide:

• 1. Objectivity
• The ability to link AI transformation to overall business strategy and knowledge on how to scale an AI project
• 2. Knowledge of how other firms in the industry have transformed thanks to AI.
• 3. Obviously, consulting might get a little less labor-intensive. I guess that in the next 20 years we will see the following things unfolding:

Will consultants be totally replaced by data scientists? In some forms, yes. But AI and Machine Learning will still struggle when tasked with change and variation. For this reason, I believe consultants will not be replaceable for the foreseeable future. However, we might need fewer consultants and more data scientists…The biggest issue of data scientists is that they still struggle with what is the actual tangible value of a project, which is harder to measure for a non-scientist or someone focused purely on results and not discovery. For this reason, I expect to see complimentary teams made of data scientists (some of them could be consultants too) and expert consultants.

Service layer is still a predominant factor in large companies seeking advice – this is not in the capacity of AI to completely absolve. Consultants will play a defining role at this & here is where the ‘technology aspect’ will have to transform to the ‘human touch’.

Based on my experience as an AI consultant, I found that that there may be very powerful, insightful analyses being produced by ML algorithms, but there is often a missing link in translating those analyses to specific business decisions. In these cases, the need for an expert consultant is mandatory.

Furthermore, there are too many elements involved that constantly change due to reality and the environment that cannot be covered by an AI system. Finally, even if you build the perfect AI-powered solution, you still have the problem that the client needs to understand the solution. A big part of consulting is implementing the correct solution in an organization.

"Over the next decade, AI won’t replace managers, but managers who use AI will replace those who don’t."

Thank You

Phani Marupaka